Why Upper-Middle Earners Are Living Paycheck-to-Paycheck

As the data show, a paycheck-to-paycheck lifestyle isn't exclusive to lower-income earners. A higher salary may not stretch as much for those facing a higher ... Budgeting&Savings Budgeting LivingpaychecktopaycheckisanunpleasantfinancialrealityformanyAmericans.Infact,59%ofadultsintheU.S.admittolivingpaychecktopaycheck,accordingtoCharlesSchwab's2019ModernWealthIndexSurvey.Almosthalf(44%)havecreditcarddebtandonly38%haveanemergencyfund. Asurprisingnumberofuppermiddle-incomeearners—thosemakingsixfigures—arealsoscramblingtomakeendsmeet,otherresearchshows.ArecentstudybyglobaladvisoryfirmWillisTowersWatsonfoundthat18%ofemployeesmakingmorethan$100,000annuallylivepaychecktopaycheck. Withhouseholddebtballooningandthecostoflivingskyrocketinginsomepartsofthecountry,asix-figureincomedoesn’talwaystranslateintofinancialsecurity.The2020economiccrisishas,ofcourse,madeeverythingworse;allkindsoffamiliesarenowworryinghowtheywillpaytheirbills.Thisarticlelooksattheunderlyingproblemthatmagnifiestheimpactofaglobalcrisisorothermajorfinancialsituation. KetTakeaways Almostone-fifthofAmericanswithasix-figureincomelivepaychecktopaycheck.AmajorityofAmericanswhoconsiderthemselvesmiddleclasshaveanoptimisticviewoftheirfinances,eventhoughmanydon’thaveasubstantialemergencyfund.Ahighcostofliving,duetohousingandeducationcosts,isamongthereasonswhysomehighearnerslivepaychecktopaycheck. LivingPaychecktoPaycheck:Middlevs.HighIncome AccordingtoNorthwesternMutual’s2018PlanningandProgressStudy,68%ofAmericansidentifythemselvesasmiddleclass.Amajority(78%)saidthatincomesunder$100,000qualifyasmiddleclass. Abouthalf(52%)saidmiddleclassrangedbetween$50,000to$99,999,while26%saidlessthan$50,000. Interestingly,thestudyshowedthatmiddle-classAmericanstendtohaveanoptimisticviewoftheirfinances.Theyaremorelikelytofeelconfidentthattheycanstriketherightbalancebetweenspendingnowandsavingforthefuture(71%)thanthosewhoaren'tmiddleclass(42%).Thequestioniswhethertheirexpectationsandbeliefsareanaccuratereflectionoftheirsituation. Withmorefinancialresourcesattheirdisposal,it’snaturaltoassumethathigher-incomeearnerswouldhavesignificantlymoreinsavings,butthat’snotalwaysthecaseasthestudybyWillisTowersWatsonandotherresearchshow. InthetheFederalReserve’s2018SurveyofHouseholdEconomicsandDecisionMaking,40%ofAmericanssaidtheywouldstruggletocomeupwith$400topayforanunexpectedexpense.And17%ofhouseholdswithanincomeof$100,000ormoresaidtheywouldhavetroublecomingupwith$400. Financialplannersoftenrecommendthatanemergencyfundshouldhavethreetosixmonths'worthofexpenses. What’sBehindtheCashCrunch? Understandingwhysomanyhighearnersstrugglebeginswithpinpointingpotentialcausesfortheirfinancialwoes.Debtcouldbeoneculprit.AccordingtotheFederalReserveBankofNewYork,totalhouseholddebtintheU.S.reached$14.15 trillioninthefourthquarterof2019.Thatfigureexceedsthepreviouspeakreachedin2008.Mostofthedebtismortgage-related,althoughstudentloansrepresentanincreasinglylargershareofwhatAmericansowe. ResearchontheFed’s2018surveyconductedbytheCenterforRetirementResearchatBostonCollegecitesdebt—creditcardbalances,mortgages,and/orstudentloans—asthereasonwhyhouseholdsearning$100,000ormorewouldstruggletocomeupwith$400topayanunexpectedbill. $1trillion TheamountofcreditcarddebtintheU.S.,accordingtotheFederalReserveBankofNewYork. Thatdoesn’tnecessarilymeanthathigherearnersarerackingupdebtbecauseofpoorpersonalspendinghabits.ForsomeAmericanswhoearnsixfiguresormore,therootcausemaybeatoo-highcostofliving. Homevalues,forexample,haveincreasedbyalmostathirdsince2012.Themediansalespriceofahouseroseto$324,500attheendof2019,comparedto$251,700attheendof2012,accordingtotheFederalReserveBankofSt.Louis. Incertainmarketsthedemandforhousinghaspushedbothpurchaseandrentalpricesthroughtheroof,eatingupalargershareofhighearners’salaries.AMagnifyMoneystudy,forinstance,foundthatSanJose,Calif.,istheworstcityforlivingonanannualincomeof$100,000.Afterdeductinghousingandothermonthlyexpenses,residentsendupwithadeficitof$454amonth. Thosemonthlyexpensesincludepaymentstostudentloansandotherdebts,healthcare,transportation,andchildcare.Aschildrengetolderandpreparetogotocollege,theburdenforsomehigh-incomefamiliesincreasesbecausethosefromaffluentfamiliesqualifyforlimitedfinancialaid.Forthe2019-20academicyeartheaveragecostoftuition,fees,androomandboardatapublicfour-yearuniversitywas$38,330forout-of-statestudents.Needlesstosay,thiscanaddtothestrainonsix-figureearners. TheBottomLine Asthedatashow,apaycheck-to-paychecklifestyleisn’texclusivetolower-incomeearners.Ahighersalarymaynotstretchasmuchforthosefacingahighercostofliving,especiallyiftheyrelyoncredittocoverthegaps. Findingwaystobreakthepaycheck-to-paycheckcycleisvitaltolong-termfinancialhealth.Increasingfamilyincomeisanobvious—thoughnotnecessarilypossible—solution,especiallyindifficulttimes.Reducingexpensesandeliminatingdebtaremoreimmediatelyusefulinmakingthemostofwhatpeopleearn. ArticleSources Investopediarequireswriterstouseprimarysourcestosupporttheirwork.Theseincludewhitepapers,governmentdata,originalreporting,andinterviewswithindustryexperts.Wealsoreferenceoriginalresearchfromotherreputablepublisherswhereappropriate.Youcanlearnmoreaboutthestandardswefollowinproducingaccurate,unbiasedcontentinour editorialpolicy. CharlesSchwab.“2019ModernWealthSurvey,” WillisTowersWatson.“DespiteImprovementinTheirFinancialWellbeing,U.S.WorkersRemainWorried,” NorthwesternMutual.“2018Planning&ProgressStudy,” FederalReserve.“2018SurveyofHouseholdEconomicsandDecisionMaking,” FederalReserveBankofNewYork.“HouseholdDebtandCreditReport,” CenterforRetirementandResearchatBostonCollege.“WhyAreSoManyHouseholdsUnabletoCovera$400UnexpectedExpense?” FederalReserveBankofSt.Louis.“MedianSalesPriceofHousesSoldfortheUnitedStates,” MagnifyMoneybyLendingTree.“10PlacesYouCanEarnSixFiguresandStillFeelBrokein2018,” CollegeBoard."TrendsinCollegePricing2019,"Page3. RelatedArticles FinancialLiteracy ThePushtoRequireFinancialLiteracyEducation Government&Policy JoeBiden'sEconomicPlanExplained FinancialLiteracy WhyFinancialLiteracyIsSoImportant DebtManagement Top5ReasonsWhyPeopleGoBankrupt DebtManagement Can’tPayYourBills?NowWhat? TaxLaws&Regulations HowtheTCJATaxLawAffectsYourPersonalFinances PartnerLinks RelatedTerms PaychecktoPaycheckDefinition Paychecktopaycheckreferstoanindividuallivingwithlittletonosavingsintheeventofanemergency,dependingoneachpaychecktocoverthebulkoftheirregularexpenses. more PersonalFinance Personalfinanceisaboutmanagingyourbudgetandhowbesttoputyourmoneytoworktorealizeyourfinancialindependenceandgoals. more EmergencyFund Anemergencyfundisasourceofreadycashincaseofanunplannedexpense,anillness,orthelossofajob.Nowthere’snewhelptobuildone. more Millennials:Finances,Investing,andRetirement Learnthebasicsofwhatmillennialneedtoknowaboutfinances,investing,andretirement. more AffluenzaDefinition Affluenzaisaconditionarisingfromthedesiretobewealthy;theinabilitytounderstandtheconsequencesofactionsbecauseoffinancialprivilege. more HighEarners,NotRichYet(HENRYs)Definition Highearners,notrichyet(HENRYs)areindividualswhohavesignificantincomebuthaveyettoamasstheassetsthattransitionthemtotruewealth. more DialogHeading NoThanks