The average annual salary in the United States is $56,220 for all occupations combined. So when you consider top-end salaries, it’s significantly more than that. In fact, many people think: luxury salary Anything over six figures, or in the $100,000 range and beyond.
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However, even high-income earners are not necessarily in a good economic position.according to lending club Nearly half of people making $100,000 a year still struggle to make ends meet, according to the report. Many of these people are actually living paycheck to paycheck rather than building wealth.
It may seem strange when you consider the numbers alone, but the reality is that even if you’re living on a higher salary, you’re still very likely to be poor. Even high-income earners can find themselves strapped for cash due to poor money management, excessive spending, limited savings and investments, and lack of financial preparation.
If you’re wondering how people with high salaries end up poor, here are some of them. most common method.
Overreliance on credit cards
Diana Howard, Financial Analyst coupon birdsuggested that over-reliance on credit cards is one of the main financial habits that keep high-income people in poverty.
“flat [when] Even though high earners make a lot of money (say, over $100,000), they can end up losing it all and facing the same money management pitfalls as average earners. In some cases, it’s even easier,” she said.
“High-income people rely heavily on credit cards,” Howard continued. “Quicken research reveals that 46% of high-income households are more reliant on credit cards, compared to middle-income (40%) and lower-income households (39%). It’s normal to have credit card debt, but once the balance is out of whack, wealthy people can become even more mired.”
$2,000 a quarter? Check your pockets before spending this 2004 coin
succumb to lifestyle changes
Lifestyle creep is what happens when your expenses increase as your income increases. In some cases, this increase in spending is disproportionate to revenue, and not in a good way.
“Lifestyle changes really happen. It’s when you start adding more expensive features to your lifestyle over time. Without realizing it, you end up spending too much money,” says Todd, Founder and CEO.・Mr. Stern says. money manual. “For example, many of us start with one streaming service, but then add one to the next, until it becomes a major monthly expense. Dinners at fancy restaurants, nights out. The same thing happens with things like , traveling, etc. And once you get used to this lifestyle, you may find it difficult to return to a simpler life.”
Not making tax-efficient transfers of funds
High-income earners still have to pay taxes, but many of those who pay higher taxes don’t pay as much attention to this as it should. This is especially true when it comes to how you invest your money. This is a mistake that can push high-income earners into poverty and limit their potential to build wealth.
“If you are in a class that is subject to high taxes, [high earners who aren’t rich yet] They need to think more seriously about the ‘tax location’ of their investments and take advantage of account types that offer tax protection,” said managing partner Kelly Milligan. quorum of private wealth. “Some investments that are highly tax inefficient (such as taxable bonds and private credit funds) should ideally be kept in tax-sheltered accounts such as IRAs, Roth IRAs, and 401ks.”
Milligan added that tax-efficient investments should be placed in taxable accounts. These types of investments include municipal bonds and certain real estate funds. Some high-income earners ignore important tax advice, which can lead to financial harm or even bankruptcy.
“Getting good tax advice, understanding how to organize a company and depreciation is one of the things that high earners in particular need to be familiar with, or at least have a good consultant to work with. There is a need,” said Sebastien Jania, the company’s owner. Ontario real estate buyers. “Just by doing this, someone could save a lot of money in taxes.”
I’m trying to follow Mr. and Mrs. Jones.
To keep up with the Joneses is to try to show others that you are equal in wealth or status, even if you don’t actually have the means to back it up. As a result, you may be forced to make expensive purchases, take on debt to fund certain lifestyles, or have limited assets and funds.
“When your salary increases, it’s not uncommon for people to compete with those around them to get better cars, houses, watches, etc.,” Jania says. “But the truth is that if you fight recklessly for these things, you’ll end up in a worse situation financially than if you hadn’t bought them.”
lack of financial discipline
Another common mistake that people with high salaries make is being undisciplined or downright reckless with their money.
High earners often “get rid of the habits that gave them their level of wealth and high pay,” Jania said. “For many people, this is the result of discipline over time. In many cases, this discipline is about keeping savings high, spending low, and delaying gratification. A lot of people have given up on these habits and unfortunately it has caused chaos in their lives.”
Financial planning helps prevent overspending and other bad money habits and prevents high-income earners, as well as most other people, from becoming poor.
Skip the emergency fund
Saving for emergency expenses, such as medical bills or job layoffs, is essential to building financial security. This applies equally to those with average or low salaries as well as those with high incomes.
“Life is unpredictable, and unforeseen events such as a medical emergency or job loss can quickly deplete savings and push people into debt,” Howard said.
“We advise all of our clients to build up an emergency fund with three to six months worth of expenses,” Milligan added. “If you have liquid investments or have access to reliable, low-cost credit, you may be able to get away with even lower reserve levels.”
Not making appropriate use of corporate welfare benefits
Earning a high salary often comes with certain company benefits. However, high-income earners do not necessarily take advantage of these benefits or ignore them altogether. This can have a huge impact on your ability to plan for your retirement and can put you in a financially difficult position in the future.
“We encourage all of our clients to understand and take full advantage of the benefits offered by their employers. Many companies offer 401(k) plans,” Milligan says. Masu. High-income earners can “maximize their 401(k) contributions to defer taxes in the highest bracket until retirement, when they are likely to be in the lowest bracket.” Meanwhile, their Tax-free contributions grow without any tax consequences, and a portion of the contribution is often matched by the employer. ”
Another company benefit to consider, according to Milligan, is non-qualified deferred compensation plans (NQDCs). These plans allow people to “defer up to 100% of their income, including salaries, bonuses, and stock unit vesting, giving them an unparalleled opportunity to minimize taxes.”
not planning ahead
Sound financial planning is the key to building and maintaining wealth. But many people, including high-income earners, don’t look at the big picture or think about their future selves.
“A big mistake many high-income earners make is thinking that the good times will last forever. It helps,” Stern said. “We’ve all heard the sad stories of professional athletes who started with nothing and became very rich, only to lose everything due to overspending. But it can happen. Take care of your future self before you splurge.”
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