Why millionaires live paycheck to paycheck

Studies show that people who make half a million dollars a year still feel like they live paycheck to paycheck. Why?

Living paycheck to paycheck is not a great feeling, akin to just treading water. You are getting by, but no more than that. You may not be able to save much, and the future, when you look at it, may look unnervingly the same as the present. Not necessarily terrible, but not great.

It’s natural to want to make tomorrow better than today, if not for yourself, than for your family or the people around you. And while, historically, this has not always been a realistic endeavor, in recent decades, it’s more or less been assured.

Because of this, living paycheck to paycheck can feel like not only a personal failing, but also a failing to the future.

If this is you, you’re not alone.

And when I say that, I don’t mean that other people in your financial situation are also experiencing this kind of financial challenge. I mean that there many people making much, much more than you who are also, surprisingly, in the same situation.

I don’t know if this might make you feel any better, but it does speak to the truism I always like to point out, that having more income doesn’t always lead to financial security.

Here’s what I mean:

Earning over $250,000 and living paycheck to paycheck

I have an article saved from a few years back, with the headline: “One-Third of Americans Making $250,000 Live Paycheck-to-Paycheck, Survey Finds“

It’s from Bloomberg, and it’s referring to a survey that looked at people with incomes from $100K to $250K and above. It then subdivided the results between “Millennial” and “Boomer+”.

The results, although self-described, were stark. Some 63% of Millennials making $100K-$150K said they were living paycheck to paycheck. This held mostly steady for those making more than $250K. The situation for the “Boomer+” was much better, with only 21.8% living paycheck to paycheck. Still, that’s one out of every five!

Earning over $500,000 and living paycheck to paycheck

Fast forward a few years and we see something even more stark. This time, it’s a report from Goldman Sachs, as reported in Fortune, and it says that “Even workers earning more than $500,000 annually are living paycheck to paycheck“.

Specifically, the figures are that about 40% of U.S. workers earning over $300K say they’re living paycheck to paycheck.

Interestingly, the report offers an interesting footnote: only around 16% of those earning between $200K and $300K report that they are paycheck to paycheck. So as people earn less, they may be fairing better?

And that brings us to the important question:

How can this happen?

How can someone who makes so much have so little? How in the world is it possible for someone making $500,000 to have any financial problems at all?

Well, the article in Fortune mentions “lifestyle creep”, “the phenomenon of luxuries becoming necessities to certain income cohorts”. Or more bluntly, these people are still keeping up with the Joneses, even with all that income.

And it may be worse for them. People in this income range are likely to be around people whose net worth is hyperbolic, meaning $10 million, $100 million, or even billionaires. That’s different from you or me, who may see some income inequality in our lives, but not on a 1,000x scale like that.

Things and experiences are also hyperbolic in their prices. There is a $1,000 vacation and a $10,000 vacation, but also a $100K, $1 million, and $10 million vacation too. Replace vacation with home, car, or anything really, and you can see that the higher up you go, the more hyperbolic the prices are, and the more inequality you may be subject too.

You can always outspend your income

For me though, it all come back to Charles Dickens and the famous quote from Wilkins Macawber:

“Annual income twenty pounds, annual expenditure nineteen pounds nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds nought and six, result misery.”

No matter how much you make, you can spend it. And no matter how much you make, you can spend more than you make. And since earning a large salary doesn’t necessarily correlate with financial literacy (and may be inversely related), these people may not even know what they have, which is the number one way of running aground with your finances.

That’s why, I always recommend keeping track of your spending (and your income). Just the act of tracking your spending will change your habits; awareness will make you do things differently. That’s actually why so many people are resistant to it, because sometimes, people don’t actually want to be confronted with their choices.

But those who are brave enough to look in the mirror will find that not only is the picture not as dire as you fear, but that you now have the key to unlocking you own path to financial wellness.

And after that, the only hurdle is to tell the Joneses to go fly a kite. This is by no means an easy hurdle, but it is at least a relatively simple one. And it shows the irony that by refusing to give in to the temptation to show outward public displays of wealth that you can’t afford, you are more likely to have much more actual wealth.

And that’s a lesson that anyone can learn, whether you make $50,000 a year or $500,000 a year.