Yes, You Can Spend It All

Here's an article talking about high-earners living paycheck to paycheck. The highlights:

If you are struggling to save money and think that a larger paycheck is the key to solving your problems, a new report suggests that may not be completely true. According to a recent survey by SunTrust , almost one-third of survey respondents making $75,000 per year or more live paycheck to paycheck on occasion, as do one-fourth of the respondents making over $100,000 annually. The secrets to saving are as much of a mindset issue as they are an income issue.

Now some might think these people are struggling because they live in a high cost-of-living market or have some sort of extra expense like doctor's bills weighing them down. I'm sure that happens, but that's not the main reason these better-than-average earners are spending too much. It's because they can't control themselves:

The response to another question highlights the financial discipline aspect. Within the group that aren’t saving as much as they want to save because of their lifestyle choices, 68% said that expenses from dining out was the main reason for their lack of saving. The number was slightly higher among millennials (70%), but in general, this was true across the generations. Entertainment and clothing were also listed as reasons that saving was limited. These are all discretionary purchases related to fiscal discipline, regardless of income.

Let's repeat that: "These are all discretionary purchases related to fiscal discipline, regardless of income."

Lots to say on this topic:

• This is why controlling your spending is just as important as earning a decent income. Because no matter how much you make, you can spend it all if you have little self-control.
• As I've said many times, discipline is one of the keys to building wealth.
• If you spend like crazy, you can't grow your wealth on any amount: $100k per year, $133k per year, $250k per year, $1 million a year, or $2 million a year.
• I've posted on this topic previously. For more insights, see How Many Americans Live Paycheck-to-Paycheck? and How to Be at the Bottom of the Financial Barrel.

Not much else to say other than get a handle on your spending, America! Develop a budget and use it to control what you spend. And do it asap!

Comments

[Mrs. Picky Pincher]

Ayuuup. This is how someone who brings in $100k a year can still be considered poor. In my view, a person isn't genuinely rich unless they can live beneath their means. That means you can be rich regardless of income, as long as you live below the money you bring in.

[freebird]

I don't see a link to the original survey in the article, but if their raw data includes zip code, it should be able to tell how much is related to local cost of living. In silicon valley there's over a million "households that brought home a combined income of $75,000 or more" because median household income is >90K here, and due to high housing costs, those at the low end of this range are very likely unable to save. The question would be whether this subset has about the same paycheck-to-paycheck rate as the >75K in zipcodes in flyover, and I would guess the answer is it's much higher. I think this distinction is important because if a family is living paycheck-to-paycheck while building up home equity, that's really savings as opposed to consumption which is gone forever.

[Ten Factorial Rocks]

Amen FMF! It's amazing how many people don't get that it's not income or net worth alone but the RATIO of Net Worth to Living Expenses that determine your financial independence. Even mainstream media misses this often. Also, it is important to translate the high income to corresponding net worth if anyone is interested in FIRE.