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How To Be Broke While Earning Six Figures

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Ever since I moved to NYC, I’ve come across more young individuals who earn a good deal of money. It doesn’t surprise me, and it’s simply a by-product of living in the biggest city in the country (and state with a very high earning potential). And, when you’re living just a few subway stops away from mid-and-downtown Manhattan, it’s inevitable that you’ll run into people in their mid-twenties who work within big industries — like finance, tech, and consulting — that pay higher salaries. Some of these lucrative industries pay insane salaries to new grads fresh out of school, and I’ve read through a ton of articles online that explain, in detail, what it’s like to make that kind of money very early on. To me, the idea of securing a salary in the 100k-200k range (while 46% of millennials are making under 25k) seems somewhat mythical.

I always imagined how I would react — emotionally, professionally, and socially — if I were to earn a salary that high. Would I overspend? Would I have no financial pressures or concerns? Would I bother even crafting a budget for myself, or feel indifferent because there’s not as much pressure to track? Would I cook for myself or eat every meal out, and blow through my money? It’s interesting to examine the behaviors and financial strategies of those who earn, say, above 100k, to see if they consider themselves to be in a better or worse situation from having earned a paycheck that size. So, I did just that. I starting researching what it’s like to be a millennial earning 100k+, and the results were actually kind of shocking.

The sentiments expressed by individuals earning that much ranged from brutal honesty about the things they waste money on (like $100 cab rides to work), how much they’re taxed, and why making 100k doesn’t make you rich anymore. I came across one article in particular, that really piqued my interest, which appeared on Business Insider (which originally appeared on LearnVest). It provided deep insight into the reality of making a very sizable $100k income, yet feeling (and actually being) broke. Holly Michaelson*, a 28-year-old pharmacist who found herself in deep financial trouble, said she knew she needed a change when she flat out couldn’t pay her bills despite earning so much.

She talks about how she easily racked up nearly $14,000 in credit card debt and medical expenses. While the medical bills she incurred resulted from a car accident, which wasn’t her fault, her health insurance only covered 60% of the $200,000 of hospital expenses. Despite Holly being in the top 6% earning bracket for her age group, that unfortunate event, combined with less-than-savvy financial decisions, led her to the dire situation in which she found herself.

In the article, Holly expresses sentiments that I found similarly described in a number of other articles online.  Because of her high salary, Holly felt like she deserved the luxuries she indulged in, and didn’t think twice about treating herself to things like apartment furnishings and expensive nights out — she felt she “deserved them” for working so hard. She goes on to explain her financially-damaging mentality, saying:

When I was in spending mode, I didn’t realize what was happening. Now that I have distance from my spending spree, I can see how quickly and easily the debt grew.

I can totally see how something like that might have happened to Holly, and why having a 100k salary served as a kind of security blanket that she mistook as a barrier between her and potential financial desperation. I know from first-hand experience, combined with stories and experiences of my own friends, how easily our budgets slip out of control when we go into autopilot spending mode. In Holly’s case, she describes it as a gradual “perfect storm” of circumstances that set her up to fail. The truth is, for most people who aren’t making six-figures, it doesn’t take long for that storm to hit.

Apparently, 100k doesn’t promise the same financial security that it once did, and a salary that high hardly pushes you over the edge into “rich” territory anymore. An article on Bankrate describes this phenomenon, and says that the cost of living and price inflation has contributed to a widening gap between the aura of a six-figure paycheck, and what it actually gets you. It says, “Due to the rising costs of food, energy, college tuition, health insurance and the growing ‘necessities’ of a middle-class life, a $100,000 salary in some parts of the country covers little more than the essentials.” Frankly, it’s insane to read that you can still come up short while making 100k, and it made me acutely aware of how most of the country manages household budgets with incomes way lower than that.

I can completely understand from where Holly’s mentality stems. I’ve always been the type of person who can live really frugally if/when they need to, but if the money is in front of me, I’ll spend it. To me, it seems like the more money I make the more I spend, and I know I’m not alone in that pattern of behavior. (There’s a reason why I used to direct deposit a set percentage of my paychecks into my savings account, so I COULDN’T EVEN SEE IT and be tempted to spend.) However, it doesn’t mean that we can’t come back from financial mistakes, and the same way Holly’s story continues onward and upward, so can ours. She talks about the ways in which she fights her way out of debt, and how she enlists the help of her mom to keep her accountable and on track. She describes her plan of action, saying:

Now my spending freeze has set me on a plan to pay down my debt quickly. My goal is to put $800 to $1,000 a month toward my balance. I don’t go out for dinner nearly as much as I used to, and I pack my lunches almost every day. I’m also committed to keeping extraneous expenses to a minimum.

While total spending freezes aren’t feasible for everyone, they’re a radical and effective way to stop the metaphorical “bleeding” and begin to patch things up quickly. It was inspiring to read through how Holly managed to implement changes to her budget and spending habits almost immediately. Read the article in full to see what exactly she cut out, and how she made the decision to cut it.

Never forget that there are always solution There are tangible steps to take to get yourself out of debt, which we’ve written about on TFD before here, here, and here. Check out these other super-interesting articles that talk through the experiences of other millennials earning a high salary, and what it means for their lives.

*Name was changed

Image via Unsplash

  • Andrea Sease

    eh

  • alyjarrett

    As someone making a six-figure salary working in SF, I can completely see how most people are still broke when they’re blowing their money on restaurants, Uber, and the like. There’s a massive sense of entitlement when you’re earning that much shortly after graduating from college.

    It’s also easy to think that $100k doesn’t get you much in metro areas since housing costs are so astronomical, but I have to remind myself that now that I’m cohabiting with my boyfriend, I’m easily putting away a third of my gross pay for retirement, travel, and long-term savings. That level of financial security is a privilege but absolutely attainable for high earners who are actually paying attention to their money.

    • Jane

      I’d love to see an article on TFD or anywhere, where people making 6 figures or more straight out of college tell exactly what it is they do and what specific skills that have that make them so highly paid.

  • Mary Harman

    A friend of mine, who makes $30k more than me per year, told me she was holding off on dying her hair “because of money.” Doesn’t matter how much you make if you can blow through it like it’s your second job.

  • Andrea Sease

    i get it that you can blow through money, but these articles telling us that you can earn more than the majority of the US population, and still be ‘poor’ are antagonizing.i am over them.

    • Kimberlynne

      I agree. It’s also very coast-centric. I live in Seattle now (high cost of living, obviously), but am from Michigan. If you’re making six figures back home, you’re definitely rich. To put it in perspective, the average Michigan worker made $45,140 in 2014 (according to MLive). I understand that the point they’re trying to make is that even if you make a lot of money you can still have financial problems due to poor money management or uncontrollable accidents, but framing it in terms of being poor seems disingenuous. I really enjoy TFD, but I do find that sometimes it can be out of touch with the large swath of states that don’t lie on the either the Atlantic or Pacific oceans.

      • Jane

        With TFD, if you don’t live in NYC/Manhattan, you don’t freaking exist.

        • Kimberlynne

          I would’t go that far. Principles that TFD talk about are applicable no matter where you live, and some reader submissions do talk about other locations based on where the writer is from, which I appreciate. Whether I’m in Michigan or Seattle I can get a side-hustle, save money by having friends over instead of going out, invest more into my 401(k), etc. That’ useful info no matter where in the country you are.

          Living in the center of the country though, you do get used to seeing America or the middle class portrayed a certain way that’s just not at all a reflection of your life. And it’s not just TFD, it’s everything. Movies, television shows, think pieces about millennials in the workplace- very few of that reflects what life is like for the millions of people who don’t live on the coast. I would just like to see more media reflect what life is like for those people. And it’s not just TFD, it’s everyone.

          • Jane

            Fair enough that it’s a lot of media, but I still do find that slant at TFD, like when moaning about the price of “cocktails” in the city, and it gets old. And I do live in a Big city, so it’s not that.

      • Taryn Goodge

        I’m from Michigan living in Chicago. I am currently living right at the average salary of the Michigan worker, however, our taxes are much higher. I keep maybe $34k of my “on paper” $45k salary. Add that to our reasonably expensive rent, 10% sales tax(!!) and just the general cost of being in Chicago and It’s making me consider moving back to MI. Being poor is one thing, but you certainly have much different things to juggle. My salary in SF would be EXTREMELY difficult, considering I have friends who share apartments and still pay what would be an entire paycheck of my salary for rent.

  • Linnea

    This article doesn’t take into account the fact that many of these high paying industries require expensive masters degrees (like law school, for example) that put many into extreme debt before ever beginning their careers. When you have 200k in student loan debt, with compounding interest, and live in an expensive metropolitan city, making 100k+ a year may not make you feel as “rich” as you might expect. At least not in your first few years starting out.

    • Keisha

      Excellent point!

    • Andrea Sease

      i ran the numbers:

      if i graduate from law school with 200k in loans @ 7% over a 20 year term. it would cost me $1550 a month to pay my loans, but i earn $5700 per month(after taxes). that leaves me with $4150 a month to use, as a single person.

      on the contrary: if i do not go to grad school(and have no student loan debt), lets say i make $60k,( which is HOUSEHOLD income for everyone else ), that’s 4k a month.

      even with debt the graduate student comes out $500 a month ahead. and i put all my assumptions to favor the lower earning individual.

      so no the high earner is still not in a bad position.

      please let me know if i am incorrect.

      • buckwheat

        Why is it a 20-year term? Most are 10 year terms – in which case double the monthly loan payments and the nongrad comes out ahead. Also, you have to factor in missing 3 years of earning potential while in law school. And depending on where you went to law school, a big salary job is not guaranteed and it’s highly unlikely that you’ll stay in that job for 10 or 20 years.

        • Andrea Sease

          i say 20 years, because that amount is not made into a ten year loan.( i know cause i had loans almost to this amount) and no a big salary is not guaranteed, but the ENTIRE premise of this argument is making >100k. ( see title of article). you already factored in missing earning potential, because you now have loans.. loans that you would not have if you had not attended law school.

          • buckwheat

            Everyone I know who graduated from law school with 200k loans had a 10-year repayment schedule. I don’t know anyone with a 20 year plan.

            Also factoring in missed earning potential means that not only do you accrue loans in law school, but if you didn’t go to law school, you’d be working and earning money. So it’s not that nongrad you and law school you are separated just by the loans, but nongrad makes and saves money during those 3 years of law school. So the difference is $200k in loans + say a very modest $30k saved over 3 years. Thus, the lawyer who makes $500/mo more will have to work 60 months or 5 years to break even with the nongrad. And by that point the nongrad may have gotten a promotion or a better job and the grad may have switched to a lower stress career.

          • Andrea Sease

            that makes no sense.
            the working person makes 30k/year
            the law student makes -100k/year

            not : -200-30 or the worker would be up 200k

          • buckwheat

            I think you’re getting the numbers mixed up. On a per year basis the working person made 60k in your hypothetical and the law student makes -60k (if the law student made -100k/year, they’d be 300k+ in debt, not 200k as was your hypothetical). But I was talking about after 3 years of law school, not 1 year. Over 3 years, the grad made -200k, the worker made $180k (although not all of that is saved, 30k saved is reasonable). Your original hypothetical assumed the worker started with $0 at the grad’s graduation, which is a big assumption cutting against the worker. If you’re comparing the worker with what the worker would be without going to law school, you have to count the missing $180k.

    • V.

      I agree with this. As a second-year lawyer at a big firm in an expensive city, I currently make well over $100k (firms around the country actually just instituted a huge raise this week which has been covered online extensively). But I also have over $150k (left) of student debt. I would NEVER say I was “poor”, and it drives me mad when fellow lawyers complain or act as though they are. I’m on a federal 10-year repayment plan, and over those 10 years, I would end up paying over $40k in interest. So I try to put every extra dollar toward paying down that balance sooner – though I recognize that it’s a huge blessing to have such a high income that I am able to do that while saving for retirement and emergencies.

      Not to play the world’s smallest violin (because again, I recognize that this high income is wildly lucky), but what one of these articles mentions really rang true to me – with most of these high paying jobs you lose control of your own life and must be constantly available. I’m essentially “on call” 24/7, and in the past year and a half I have moved vacations, missed engagement parties of dear friends, worked on bachelorette party weekends, taken conference calls from hospitals, and had to really re-evaluate how I spend my time/life. It’s hard to save money by cooking (which is my favorite activity) because there simply isn’t the time to do it. Instead, I try to save money by keeping groceries at the office (frozen TJs meals, a week’s worth of fruit and vegetables brought in on Monday).

      Again, I am not fully supporting all the arguments made in these articles. It simply isn’t true that you can make these salaries and still be “poor”; you can make these salaries and be terrible at money, but it’s dishonest to try to claim you are “poor”. I’m not trying to complain here at all, just sharing a different view!

      • Linnea

        Exactly the points I was trying to get across, my husband is a Biglaw lawyer in Palo Alto and while not “poor” still does not have as much disposable income as one might assume when they hear his salary given his over $200k in student debt, and it has nothing to do with reckless spending habits.

      • Clytamnestra Dunge

        i feel that this is the sort of situation that should be described not as ‘poor’ but rather as ‘financially unstable’: you make a lot, but you also spend so much (maybe out of necessity, maybe out of habit) that you can’t squirrel away thousands of dollars a month to your early-retirement fund.

        calling it ‘poor’ triggers a very reasonable ‘wtf? stop being an spoiled baby, you are not poor if your life contains daily cab rides’ response from people who are having to make do with $10k a year.

        but it isn’t what most people picture when they think about ‘being rich’ either, mostly in the sense that richness is generally seen as a great source of freedom: ‘if you make 100k you can just swap to parttime if you think your workweeks are too long’

  • Anon

    I guess I kinda get this? I recently got a job making roughly 2.5x what I made in grad school in a major city (though not 6 figures). It sounded like an unimaginable sum. But I decided when starting to max out my 401k to stave off lifestyle inflation. If I’m good about saving my goals, I functionally live the same life as grad school. (Which was comfortable but totally no frills). if I’m not careful, it’s really easy to just blow through my saving goal building my work wardrobe or going out or doing anything other than religiously cooking all my meals at home. It feels like I ought to have loads more discretionary income but it turns out to be roughly the same after setting other goals. I could see that mental disconnect happening on a large scale, particularly if you didn’t pay yourself first.

    I’m obviously not poor by a long shot and neither are these people, though.

  • Hannah

    Collectively my husband and I make six figures, and between rent, bills, car payments, and student loans, we’re able to only save a little bit each month. With the holidays coming up, we’re having to fly across the country, board our dogs, and buy gifts for family members, which is really adding up. We’re now racking up credit card debt which we hope to be able to start paying down in January, but this is how we get into trouble in the first place. I always wonder at what point we won’t be living like this–if not now, making 100k, then when??

    • La’darell Luthor

      If you’re going into debt, it’d be wise to consider staying home, and abstaining from purchasing high-expense gifts. Your family should understand. If not… well they probably don’t warrant such measures and extravagance.