A hundred thousand dollars doesn’t go as far as it used to.
Once the benchmark of upper-middle-class success, a six-figure salary is now barely enough to scrape by for more than half of those who earn one. According to a study from PYMNTS and LendingClub, 51% of people earning more than $100,000 live paycheck to paycheck.
Most of them could probably get out of their own way by corralling reckless spending.
“I’ve had the privilege of witnessing numerous success stories unfold,” said Jon Morgan, CEO of Venture Smarter, a sustainable growth consulting firm for startups and small businesses. “However, I’ve also seen the common mistakes that individuals with incomes above $100,000 tend to make when it comes to their spending habits. In a world where many people aim to hit the coveted six-figure income mark, it’s crucial to understand that making $100,000 doesn’t give you a free pass to spend recklessly.”
Every raise presents an opportunity to buy things you couldn’t afford with your last paycheck. But if you spend more as you earn more, you’ll never make enough to keep up with your snowballing living standards.
The trap is so common that they even gave it a name.
“The appeal of a higher income often leads to what’s called ‘lifestyle inflation,'” said Morgan. “This happens when people start overspending once they believe their income is substantial. This often results in splurging on things like fancy cars, designer clothes and extravagant vacations. While these indulgences might provide temporary happiness, they rarely contribute to long-term financial security.”
Gourmet meals and fancy dining are hallmarks of the good life — and when you hit six figures, you might feel like you’ve earned a place among the white tablecloth elite.
But membership usually involves eating your way into financial distress.
“Clients I work with are often surprised by just how much of their discretionary spending goes toward dining out and groceries once they take the time to track their spending,” said Phillip Godinez, accredited financial counselor and founder of Reach Your Goals Personal Finance Coaching.
While there’s no harm in indulging a little once you earn enough to splurge, thrifty, meal-plan-based grocery shopping is a cornerstone of good health and good wealth — a fact that people often forget when they hit six figures.
“This can include shopping at more expensive grocery stores, buying higher priced items in general — wine, steak, seafood, organic produce, etc. — and skipping over items on sale and store brands,” said Godinez.
Others hit $100,000 and start eating out like it doesn’t add up.
“This includes dining at restaurants on a regular basis as well as picking up the tab when socializing with friends while at restaurants,” said Godinez.
Either way, you chew up a little more financial security with every bite.
“Separate from the nutritional life-sustaining properties of food, there’s little to show for spending more on food than necessary compared to using some of that money to build wealth or putting more towards other things in life that are more important,” said Godinez.
There’s no better way to show the world you’ve made it than by moving into a McMansion with more rooms than you need and more mortgage than you can afford — and many high earners can’t wait to borrow as much as possible so they can entertain guests at their trophy house.
“While the allure of a luxury home may be tempting, it’s a field rife with hidden pitfalls — from upkeep costs to taxation,” said entrepreneur Tim Schmidt, vice president of business development at Cayman Financial Review. “Committing to such an investment requires more than just a robust income. It calls for a thorough understanding of all associated costs.”
What good is the biggest house on the block if there’s not a Beamer or a Benz in the driveway?
“Upon reaching the six-figure milestone, many people instinctively aim for an immediate lifestyle upgrade, and a luxury car often tops the list,” said Schmidt. “The pull toward a vehicle that symbolizes your success can be compelling, but let’s face it, cars don’t appreciate. They depreciate. The glimmer of a high-end automobile can cloud the judgment needed to opt for a less flashy but more cost-effective option. That extra cash could be the seed money for investments with genuine growth potential.”
Tech is a high-paying sector, which affords many industry employees a paycheck that can support their passion for the field.
“A lot of my friends who make good money work in tech jobs like software engineering, data science, IT, artificial intelligence and other technical jobs,” said Baruch Silvermann, CEO of The Smart Investor. “These people really like technology and often buy new gadgets like drones, smartwatches, video game systems and smart home devices.”
Most money pros advise pinching pennies on things that don’t stoke your passions so you can splurge on what you truly love. So, for techies, a pricey gadget habit might make sense — but many high-earning pretenders waste their money on expensive trophy devices that need constant upgrading and replacing.
“Other people who earn more than $100,000 tend to spend too much on new tech gadgets, but they do it for different reasons than those who really love technology,” said Silvermann.
Same as with the house, car and all the rest, it’s all about purchasing prestige.
“Some people think that having the newest and fanciest tech gadgets shows that they are successful,” said Silvermann.
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