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Having money doesn't always keep you from feeling strapped for cash. You can still feel broke even if you have a high salary.
Asset management firm Goldman Sachs found 40% to 41% of people earning above $300,000 actually live paycheck to paycheck. This means less money for long-term goals like retirement. It also means an all-around much lower sense of financial stability.
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MoneyLion spoke with Chris Leonard and Adam Vega to find out why so many of the high-earners they work with still feel broke. Here’s what they said.
1. Lifestyle Creep and Poor Cashflow Management
One of the biggest reasons high-earners feel broke comes down to lifestyle creep.
“It’s common for high earners to experience lifestyle creep, which causes them to increase their lifestyle spend at a higher rate than their actual income increase,” said Chris Leonard, wealth manager at Cornerstone Financial Services. “Peer norms are often the centerpiece around these decisions, as lifestyle alignment with peers become[s] more of a social impact to career branding and creates a feeling of belonging.”
Right up there with lifestyle creep is the issue of cashflow management. This is a common issue even for those with a high salary, especially when they don’t account for rising costs. Without careful monitoring, rising costs alone can add another 10% to 15% in total household expenses, according to Leonard.
This issue is partly due to not accounting for inflation in the household budget. Seemingly little things like property taxes and home maintenance can also add up quickly. Even for someone earning six figures, those costs can cause a major financial strain.
2. Feeling Like There’s Never Enough
You might think high-earners don’t have scarcity concerns, but there’s a difference between feeling like you’re wealthy and actually being wealthy.
“The challenge is, almost always, it rarely feels like there's enough,” said Adam Vega, CFP®, managing partner and wealth advisor at Avance Private Wealth. “The concept of being rich and feeling rich are two very distinct ones. At one point, people felt they needed to save $1 million, then it became $2 million, now it's become closer to $3 million — just to feel like there's enough.”
Vega did note that once families save around $3 million, they start feeling more financially comfortable. For many, it’s a turning point where they can start spending more freely.
3. Incomes Rise, but Expenses Do, Too
Similar to lifestyle creep, this one’s a common issue that keeps high-earners feeling broke. That’s because earning more often means spending more, even if it’s technically been budgeted for.
“Someone earning $500,000 a year allocating 25% to housing is spending over $10,000 a month towards housing. [T]heir taxes and insurance also climb proportionately,” Vega said. “Higher earners tend to have larger expenses just as a dollar amount because most peoples' expenses increase as their income increases.”
Now, take someone earning $100,000 annually allocating that same 25% to housing. Their monthly expenses are going to be closer to $2,100. It’s the same percentage, but a much lower dollar amount.
The same logic applies to other areas, like vacations. Someone earning $500,000 a year might dedicate 10% of their income (or $50,000) to a vacation. For someone earning $100,000, that same 10% is only $10,000.
It’s this kind of reasoning — and lifestyle — keeping high-earners from feeling financially secure even if, on paper, they’re doing extraordinarily well.
Ways To Feel More Financially Stable
For those still feeling broke or like they're living paycheck to paycheck, there are options. The first is to make sure your income aligns with your expenses.
“Start with a simple review of household income compared to a detailed expense review," Leonard said. "Identify outliers and adjust spending in categories that are proportionately overweight."
Also, if you’re making a lifestyle change, be intentional about it. It’s fine to spend more if you’re earning more as long as you’re aware of what you’re doing and how it fits into your long-term plans.
“Keep your housing costs in perspective,” Leonard added. “We’ve all heard the term of being house-poor before. With homeownership likely to be the biggest financial decision in the household, it’s wise to take a more conservative approach to the amount of income allocated to housing.”
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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