4 Reasons High Earners Keep Living Paycheck to Paycheck


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The number of people living paycheck to paycheck is rising, and not just among low-income workers. One-third of Americans with an annual income of $150,000 or more are struggling to pay their bills and have no money left over for savings. Reasons for this include high housing costs, a lack of financial literacy, and lifestyle creep.

So how do high earners end up living paycheck to paycheck, and what can you do to break the cycle?

What Does Living Paycheck to Paycheck Mean?

Most people expect to earn a “living wage.” The term refers to an income sufficient to afford life’s necessities, including housing, food, healthcare, and child care. That level of income should also allow you to save for an emergency, retirement and other goals to some degree.

When a person lives paycheck to paycheck, they can barely pay basic bills and have nothing left over to save for a rainy day. In the event of a pricey emergency — like a big medical bill or major car repairs — low-income families are financially wiped out.

High earners have more wiggle room. They have the ability to downsize their home or car and find other ways to cut back on expenses.

Understanding the Paycheck-to-Paycheck Situation

According to a 2023 survey conducted by Payroll.org, 72% of Americans are living paycheck to paycheck, with Baby Boomers the hardest hit. When you are living paycheck to paycheck, as noted above, you have no ability to save. If you go into debt, you may not be able to afford to pay down the debt in a meaningful way.

According to research from MIT, the average living wage for a family of four (two working adults with two children) in the U.S. in 2022 was $25.02 per hour before taxes, or $104,077.70 per year. Compare that to the federal minimum wage of $7.25. Even in Washington, D.C., which has the highest minimum wage at $17, families make well below what is considered an adequate income.

But even households bringing in $200,000 or more say they feel the crunch. According to a Forbes study, 39% of those earning at least $200K described themselves as running out of money and not having anything left over after covering expenses. While they have the freedom to downsize their lifestyle, many people may not realize the precariousness of their financial situation until they’re locked into a mortgage and car payments they cannot afford.

Why Do Some Americans Live Paycheck to Paycheck?

The reasons why Americans live paycheck to paycheck vary. For lower-income workers, you can point to a higher cost of living and wages that have not kept up with inflation. For those with higher incomes, the issue is more about a lack of financial literacy and living beyond one’s means.

Rising Cost of Living

According to the Federal Reserve, 40% of adults spent more in 2022 than they did in 2021. They spent more because monthly expenses, such as rent, mortgage payments, food, and utilities had all increased.

Low Income

Low incomes are another reason some people live paycheck to paycheck. This is particularly the case for people who earn minimum wage or live in areas with a high cost of living.

Poor Budgeting

Another reason some people are living paycheck to paycheck is that they lack basic financial knowledge and budgeting skills. It’s easy to overspend and accumulate credit card debt, but difficult to pay down the principal and interest.

Lifestyle Creep

Also known as lifestyle inflation, lifestyle creep happens when discretionary expenses increase as disposable income increases. In plain English: You get a raise and treat yourself to a new ’fit. And a fancy haircut. And a weekend at a charming B&B in the countryside.

Whether you can afford it is debatable. On one hand, you may be paying your credit card bill in full each month. On the other, you’re not saving or investing that money.

Factors Driving Financial Insecurity for Six-Figure Earners

Because of inflation, it is increasingly hard to buy a home, car, and other nice-to-haves. However, people may still expect and try to afford these things once they earn a certain amount. And if they have a taste for luxury items, they may struggle to maintain that standard of living and pay their bills.

It’s common for people to buy things on credit and then find that they cannot make the payments. Soon, they find themselves mired in high-interest debt.

How to Stop Living Paycheck to Paycheck

You can stop living paycheck to paycheck by living below your means rather than beyond your means. That requires earning more than you spend and saving the difference. The obvious steps to take are to increase your income and to live more frugally.

Once you have downsized your lifestyle, you can find relief quicker than you might think. And some changes may only be temporary. For example, you might have to work a part-time job for a short time until your debt is paid off.

Tips for Those Living Paycheck to Paycheck

Here are some changes you can make to get on the path to living below your means.

1. Create a Budget

You have to know where your money is going before you can cut back. By tracking your expenses, you can see what you are spending where. There are lots of ways to automate your finances and make it much easier to stay on top of things.

Then, create a budget where you subtract your non-negotiable expenses, or needs, from your net income. Non-negotiables are your housing costs, utilities, food, and transportation. Hopefully, you have some money left over to allocate to savings. If not, it’s time to look at how you can make your life more affordable.

Here are a few budget strategies to try:

•   Line-item budget

•   50/30/20 method

•   Envelope method

2. Cut Back on Nonessentials

Budgeting will help you find expenses that you can eliminate or reduce. For example, look closely at things that might seem insignificant. You are not necessarily bad with money just because you lose track of subscription services that you have forgotten about.

Be aware that a large cold brew on your way to work every morning can add up, and eating out or spending $30 on takeout each week adds up to over $1,500 annually. More consequential changes are downsizing your home, accepting a roommate temporarily, or finding a part-time gig to supplement your income.

3. Pay Off Your Debt

Debt is expensive. High-interest credit card debt and buy-now-pay-later (BNPL) schemes can eat up your income as you struggle to pay the minimum while the interest mounts up. Consider using a personal loan to consolidate debt and reduce the interest you’re paying.

4. Save for Emergencies

If you are living paycheck to paycheck, just one unexpected expense can cause you to spiral into debt. It’s important to have enough cash on hand. Once you have paid off your debt, start an emergency fund so that you don’t have to rely on credit if you experience an unexpected financial emergency. A rule of thumb is to have three to six months’ worth of expenses saved up.

5. Hold Off on Big Purchases

While you are trying to reduce expenses and pay off debt, hold off on buying big ticket items. For example, forgo an expensive vacation for a year and start saving toward next year instead. As much as you might like new furniture or a new car, try to economize for a while until you are in a better place financially.

6. Ask for a Raise

Asking for a raise is not an easy thing to do when money is tight. However, it could be well worth it. According to Payscale.com, 70% of survey respondents who asked for a raise got one. You are in a particularly strong position if your skills are in demand and your employer values you.

The Takeaway

Many Americans are living paycheck to paycheck, even high earners. The reasons why are linked to inflation, lifestyle expectations, and the ease with which people fall into debt. The remedy is to live below your means, and that often means making sacrifices.

If debt is a concern, temporary steps such as downsizing while you pay off your debt or finding additional sources of income are options. Identify where your money goes and stick to a budget to reduce unnecessary spending. Also, getting rid of high-interest debt and cutting back on eating out and other nonessentials can free up a significant amount of cash each month.

This article originally appeared on SoFi.comand was syndicated by MediaFeed.org

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8 Warning Signs That You’re Up to Your Neck in Debt

8 Warning Signs That You’re Up to Your Neck in Debt

Debt is a powerful tool that can boost your success or cause your financial life to crash and burn. The trick to using debt wisely is knowing the difference between good and bad debt and the right amounts based on your income and goals.

Today, I’ll cover tips to use debt strategically, so it helps not hurts you. Plus, you’ll learn eight ways to know if you have too much debt and action steps to protect your finances.

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Debt is a complex topic because people have different opinions about it. Some insist that no amount of debt is acceptable, not even a home mortgage. Others acknowledge that some debts, such as a mortgage or student loans, are OK but using a credit card or taking out a car loan is a mistake. There’s a camp that believes using debt to purchase anything is acceptable as long as you can afford the payments.

My recommendation is that you should consider going into debt when:

  • You’re confident that it will give you a financial return.
  • You have a steady income or ample savings to repay it on time.
  • You qualify for a competitive interest rate and terms.

For example, if you buy an affordable home with a low-rate mortgage, you can build equity over time. As you pay down the principal balance and/or your home value appreciates, you build wealth. That’s why financing a home is generally considered good debt.

Additionally, mortgage interest rates are at historic lows. They also come with an interest tax deduction, making home loans cost even less on an after-tax basis. Depending on where you live, buying a home may be less expensive than renting a similar property, especially outside of large cities.

Another example of good debt is a reasonable amount of student loans. Interest rates vary depending on whether you have a federal or private loan; however, they typically have relatively low interest rates.

Plus, some amount of interest paid on education debt is tax-deductible, which further reduces the cost. And best of all, getting an education gives you the ability to earn more over your lifetime.

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The problem with taking on too much debt is that it can hold you back from accomplishing key objectives, such as building an emergency fund, investing for retirement, or reaching other financial dreams. So even for good debts, such as a home or education loan, it’s important to maintain reasonable levels based on your current or expected future income.

The takeaway is that you shouldn’t go into debt for something that doesn’t give you a financial return. For instance, financing consumer goods or vacations causes you to lose wealth, not build it.

Add high-rate credit card interest on top, and you have a potential financial disaster. If it takes years to pay off a luxury item charged on a credit card, it could end up costing double or triple the original price.

8 signs of too much debt and actions to take

Here are eight warning signs that you may have too much debt and action steps to get it under control.


If you don’t know how many or how much total debt you have, you’re not taking care of your financial health. Staying aware of your accounts and debt balances is the first step to getting them under control and improving your entire financial life.

Take action

Get organized by creating a spreadsheet listing each account name, number, interest rate, and amount owed. Then sort your debts from highest to lowest interest rate.

In general, that’s the best way to tackle debt because it saves the most interest, which you can use to pay down more debt. However, if you have a small debt with a low interest rate that you want to crush first, go for it!


If you’re afraid to open your paper or e-bills because you don’t want to see the balances, remember that hiding from a financial problem doesn’t make it go away. Missing due dates causes you to rack up late fees and your credit scores to drop, which causes more money problems.

Take action

Be proactive about staying on top of your bill due dates. You might enter them in a spreadsheet, in your calendar, or centralize them in your bank’s online bill pay center.

Contact your creditors to discuss any financial hardship and ask for their help. You may be able to work out a payment plan to get caught up with overdue balances or have late fees waived.


If you’re stuck in a cycle of only paying the minimum on your credit cards each month, that indicates you’re carrying too much debt. As previously mentioned, as interest accrues, you could end up paying double or triple the original cost of the items you charged.

For example, say you have a $5,000 balance on a card that charges 18% APR. If you only paid the $100 minimum, it would take you more than 30 years to pay it off! If you paid $250 per month, you’d pay off the balance in less than nine years.

And paying $500 would wipe out eliminate the debt in just over four years. These pay-off time frames assume that you don’t increase credit card balances with any additional charges.

Take action

Make a plan to stop making new charges and pay as much as possible on credit cards each month to get out of debt as quickly as possible.


If you’re using credit cards to satisfy a shopping habit or buy necessities during a rough financial patch, you’ll eventually hit your credit limit. That hurts your credit and may cause you to incur fees if you go over your credit limit.

Even if you pay more than the minimum, having a maxed-out card causes your credit utilization ratio to skyrocket, killing your credit scores. If you’re consistently using more than 20% to 30% of your credit lines, you probably have a debt problem to tackle.

Take action

Stop making charges or getting expensive cash advances on maxed-out cards and start making higher payments than the monthly minimum.


If you don’t have a cash reserve, any unexpected expense could send you into a tailspin that causes you to go further into debt. Having some amount of savings is a critical way to avoid getting into debt in the first place.

Take action

Make a plan to radically cut your expenses and begin setting aside as much as possible each month in an emergency fund at an FDIC-insured bank. Start small by setting aside 1% of your income until you have several months’ worth of living expenses in the bank.


If you recently got denied credit, you probably have low credit scores. Poor credit can result from one or many factors, such as having late payments, judgments, liens, too little credit history, or too much debt. Check out 7 Essential Rules to Build Credit Fast to learn how credit scores get calculated and tips to raise them.

Take action

Use a free site such as Credit Karma or AnnualCreditReport.com to review your credit reports and make sure there aren’t any errors hurting your scores.


If you’re lying to family or friends about your spending habits or how much debt you have, you probably know there’s a severe problem that you need to handle. If you’re worried, losing sleep, and having trouble concentrating due to debt, it’s time to take action.

Take action

Create and stick to a realistic budget or get help from a debt counselor or financial planner. The National Foundation for Credit Counseling is a great resource to find help.

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Your DTI is a crucial ratio that lenders use to evaluate you, and you can use it, too. Even if you don’t plan on taking out a large loan anytime soon, calculating your DTI is an excellent way to monitor your financial health over time.

Take action

Figure your DTI by adding up your total monthly debt payments—including credit cards, loans, and your rent or mortgage payment—and dividing that amount by your gross (pre-tax) monthly income. For example, if your monthly income is $5,000 and your debt is $2,500, your DTI is 50% ($2,500 / $5,000 = 0.5).

Most mortgage lenders require that your house payment wouldn’t exceed about 30% of your monthly gross income. Your total debt, including the new mortgage payment, shouldn’t add up to more than about 40% of your gross income.

If you have a high DTI, work on paying off your debt by cutting expenses, increasing your income, or doing both. Additionally, paying down your outstanding debt balances boosts your credit. That may allow you to qualify for debt optimization tools, such as a balance transfer credit card or a low-interest personal loan.

The good news is that it’s never too late to turn around your finances if you recognize these debt warning signs. The best way to improve any money problem is to be brave and face it head-on. Denying a debt problem only makes it worse. So, the sooner you address it and take these recommended action steps, the sooner you’ll make positive financial changes.

This article originally appeared on QuickandDirtyTips.com and was syndicated by MediaFeed.org.

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