Wait, living paycheck to paycheck and earning six figures in the same sentence? How’s that? As surprising (and maybe tragic) as it might sound, you can earn six figures and still struggle to make ends meet. As many as six out of 10 millennials earning six figures live from paycheck to paycheck. So, today, the focus is on showing you how to break the living paycheck-to-paycheck curse and get more out of your six-figure salary.
What Does Living Paycheck to Paycheck on a High Income Look Like?
Before the tips and advice, let’s break down how living paycheck to paycheck on a high income works. Here's a breakdown of typical monthly expenses that could place Nicole, a six-figure earner, on the paycheck-to-paycheck slaughter table:
Housing
- Mortgage/Rent: $3,000 - 4,500
High housing costs in urban areas can consume a significant portion of income.
Utilities
- Electricity, Water, Gas: $200 - $300
- Internet, Cable, Phone: $200 - $300
Transportation
- Car Payments: $500 - $700
- Insurance: $100 - $200
- Fuel: $150 - $300
- Maintenance: $100 - $150
Food
- Groceries: $600 - $1,000
- Dining Out: $200 - $500
Insurance
- Health Insurance: $400 - $1,200
- Life Insurance: $100 - $200
Debt Repayment
- Student Loans: $300 - $1,000
- Credit Cards: $200 - $500
Childcare/Education
- Daycare/School Tuition: $1,000 - $2,500
- Extracurricular Activities: $100 - $300
Miscellaneous
- Entertainment/Recreation: $200 - $500
- Clothing: $100 - $300
- Subscriptions (e.g., Netflix, gym): $50 - $100
Total Monthly Expenses
- Low Estimate: $7,500
- High Estimate: $14,550
As shown above, Nicole’s $100,000 annual income equals a monthly gross income of approximately $8,333. After fulfilling all federal and state tax obligations (around 30%), the net income is about $5,833 monthly.
If Nicole’s monthly expenses total around $7,500 (low estimate), she would already be spending more than her net income, leading to debt or no savings. Even at the high end of the expense range, a substantially higher income (e.g., $150,000 annually) could still leave her living paycheck to paycheck due to the high cost of living and spending habits.
How Do You Break the Cycle and Save More If You’re Living Paycheck to Paycheck?
1. Understand Your Cash Flow and Money Habits
First, it is crucial to understand your cash flow—how much money comes in and goes out each month. Ask yourself:
- Am I spending money on things that matter to me?
- Do my purchases make me happy, or do I regret them?
- How can I cut costs? Are there cheaper alternatives?
2. Cut or Reduce Avoidable Expenses
After analyzing your cash flow, identify areas where you can cut back. It's not about giving up everything you love; instead, it is about eliminating expenses that don't add much value to your life.
Assess your daily habits:
- Do you buy things out of habit rather than need? Could you switch dining out from dinner to breakfast or make lunch and coffee?
- Evaluate your subscription services. Are you using all those streaming platforms? If not, cancel the ones you don't use.
- Check if other providers offer the same services at a lower cost. For example, can you find a cheaper gym with the necessary amenities?
- You could also consider moving to an area where rent is cheaper if your job permits working from home.
3. Manage Your Debt (Especially Credit Cards)
If you rely on credit cards for necessities, it’s in your best interest to manage your debt intentionally to avoid accruing high interest rates, which could place you under further financial strain.
Use these strategies to reduce or pay off debt:
- Debt Avalanche Method: focus on your highest-interest debts while making minimum payments on others. By tackling high-interest debts first, you can reduce the total interest paid.
- Debt Snowball Method: clear off your smallest debts first. This will give you quick wins, a sense of accomplishment, and the motivation to keep going.
4. Don’t Spend Extra Cash
When you have extra money each month, use it wisely. Instead of spending on things you don’t need, you can:
- Save up to three to six months’ expenses in an emergency fund savings account.
- Invest in your future with retirement accounts like 401(k) plans or IRAs.
- Open high-yield savings accounts, CDs, or money market accounts to earn interest on your savings.
5. Use a Financial Wellness App
A financial wellness app like Cash Goblin can help you save more money by automating the saving process. One feature of utilizing Cash Goblin for savings is that the app allows you to create multiple personal goals and assign a money manager to each goal. The money manager operates in the background to help you save automatically.
Whenever you receive your salary or monthly income:
- The money manager deducts a set percentage, which is determined by you).
- This amount is transferred to a savings account dedicated to a personal goal of your choice within the app.
Each goal you create in the Cash Goblin app is tied to its own savings account. And you are able to manage all your personal savings goals from one user-friendly dashboard. The app also helps you track your savings progress to keep you motivated. For example, if you set a goal to save $2,000 for debt repayment, when you hit a milestone amount like $1,000 in savings, you get a notification.
In a nutshell, Cash Goblin is an app that allows you to “set it and forget it” when it comes to your personal savings goals.
Ready to break free from living paycheck to paycheck by increasing your savings? Check out Cash Goblin Here!
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