Why Are People Making 6 Figures Living Paycheck to Paycheck?

Young brunette curly female reading her bill papers, looking stressed.
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Getting stuck living in a paycheck-to-paycheck cycle is an all-too-common issue — even for people making up to six figures. A 2021 study conducted by PYMNTS found that 53% of those who are considered upper-income — those earning between $50,000 and $100,000 — are living paycheck to paycheck.

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So is this a matter of people living above their means or is it just that cost of living is now so high (or both)? What other factors may be coming into play? GOBankingRates spoke to financial experts to get their insights on why so many people making up to six figures are still struggling to make ends meet.

It’s Easy To Fall Victim to ‘Lifestyle Creep’

Lifestyle creep occurs when you increase your spending as your income increases.

“For instance, people move into a bigger apartment or buy a more expensive car or home to reward themselves for receiving the raise,” said Robert R. Johnson, Ph.D., CFA, professor of finance at Heider College of Business, Creighton University. “What happens is they are unable to improve their financial condition because they spend everything they make.”

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The High Costs of Education and Housing Also Play a Role

Antonio Tovar, associate wealth planner at Stone Wealth Management, notes that two major wealth-building tools — higher education and housing — are now more costly than ever before, making it harder for even upper-income earners to make ends meet.

“Post-secondary education is not as affordable as it used to be,” he said. “Either you bite the bullet and borrow against your future capital and go to school, or you don’t and you try your hand at life with little education.”

Many students end up having to take out student loans to afford higher education, and thanks to interest, these loans can take a large bite out of a person’s income for years or even decades to come.

Real estate prices have also continued to rise, making it harder and harder for even upper-income earners to be able to afford to buy a home.

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“As real estate prices increase, the choices narrow down to either sacrifice more cash flow by purchasing your home or continue to rent with no guaranteed projection of rental costs,” Tovar said. “Housing prices have greatly increased, especially in up-and-coming cities. The price of homeownership is partnered with property taxes, maintenance, insurance and any home improvement project costs. All can cause a financial strain.”

After setting aside funds for student loan payments, mortgage and normal fixed living expenses to keep the lights on, even people making $100,000 may not have much cash flow left over, especially if they are living in an area with a high cost of living.

“If someone lives in a high cost of living area where their career is anchored, it’s not easy to just leave and move to a lesser developed area with less opportunity,” Tovar said.

Plus, if they relocate to a less expensive area, their pay may decrease as well, perpetuating the paycheck-to-paycheck cycle.

How To Break the Paycheck-to-Paycheck Cycle

The experts agree that building a budget is the first step in breaking this cycle — no matter what your salary may be.

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“Having a budget is a good idea so you know what is coming in and where your money is going,” said Claudia Valladares, financial advisor at Kovar Wealth Management.

This allows you to see where you may be overspending so you can narrow the gap between what you make and what you spend. Another way to break the cycle is to make an effort to not give into lifestyle creep.

People are wise to effectively invest any money from a raise is to act as if you didn’t receive the raise,” Johnson said. “That is, continue to live the same lifestyle you led before receiving a raise and invest the difference.”

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About the Author

Gabrielle joined GOBankingRates in 2017 and brings with her a decade of experience in the journalism industry. Before joining the team, she was a staff writer-reporter for People Magazine and People.com. Her work has also appeared on E! Online, Us Weekly, Patch, Sweety High and Discover Los Angeles, and she has been featured on “Good Morning America” as a celebrity news expert. 

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