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Why do people make 6 digits that live from paycheck to paycheck?

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Getting stuck in a paycheck-to-paycheck cycle is all too common a problem, even for people with up to six digits. A recent study conducted by PYMNTS found that 53% of those considered high income – those earning between $ 50,000 and $ 100,000 – live paycheck to paycheck.

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So is it a matter of people living beyond their means or is it just that the cost of living is now so high (or both)? What other factors can come into play? GOBankingRates spoke to financial experts to find out why so many people making up to six figures are still struggling to make ends meet.

It’s easy to fall victim to a ‘lifestyle creep’

Lifestyle drift occurs when you increase your expenses as your income increases.

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“For example, people move into a bigger apartment or buy a more expensive car or house to reward themselves for receiving the increase,” said Robert r johnson, Ph.D., CFA, Professor of Finance at Heider College of Business, Creighton University. “What is happening is that they are unable to improve their financial situation because they are spending whatever they earn.”

High costs of education and housing also play a role

Antonio Tovar, Associate Wealth Planner at Stone wealth management, notes that two main tools for wealth creation – higher education and housing – are now more expensive than ever, making it harder for even high-income people to make ends meet.

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“Post-secondary education is not as affordable as it used to be,” he said. “Either you bite the bullet and borrow from 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 pay for higher education, and with interest, these loans can dramatically reduce a person’s income for years or even decades to come.

Read: How a non-traditional education path can prepare you for career success

Real estate prices have also continued to rise, making it increasingly difficult for higher income earners to afford a home.

“As real estate prices rise, the choices become narrower to either sacrifice more cash when buying your home or to continue renting without guaranteed projection of rental costs,” Tovar said. “Housing prices have risen sharply, especially in emerging cities. The price of home ownership is associated with property taxes, maintenance, insurance and the costs of any home improvement project. Anything can cause financial strain.

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After setting aside funds for student loan repayments, mortgage, and normal fixed living expenses to keep the lights on, even people earning $ 100,000 may not have a lot of cash, especially if they live in a region where the cost of living is high.

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

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Additionally, if they move to a cheaper area, their wages may also decrease, thus perpetuating the paycheck-to-paycheck cycle.

How to break the paycheck-to-paycheck cycle

Experts agree that budgeting is the first step in breaking this cycle, regardless of your salary.

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“Having a budget is a good idea to 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 spending in order to narrow the gap between what you earn and what you spend. Another way to break the cycle is to make an effort to not give in to the lifestyle creep.

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People are wise to effectively invest the raise money is to act like you haven’t received the raise, ”Johnson said. “That is, continue to live the same lifestyle you led before you received a raise and invest the difference. “

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Last updated: August 31, 2021

This article originally appeared on Why do people make 6 digits that live from paycheck to paycheck?