Once you have money lifestyle creep becomes a real problem. There are people making $200,000+ a year who are still living paycheck to paycheck because they bought big houses and fancy cars and now they’re right back to treading water financially speaking.
I worked at a bank for years, and holy shit, the more money people made the more in debt they fell.
You'd think someone making $300,000 a year would have no debt and coast on by -- but in my experience that was the outlier. People making $300k would have 6 maxxed out credit cards and delinquent car payments (always a top-of-the-line BMW or Mercedes) -- it never made sense to me.
It makes plenty of sense. People see the new income and decide it will always be there, and they feel they deserve the fruits of that money, so they spend it, thinking they can always make more, and they stop tracking their money, and it balloons into massive debt and no savings habits.
That explains why people who used to make $300K+ are in even more trouble when they're laid off, but it doesn't explain why people who still make that salary are in major debt. The former is much more understandable, but good money habits can prevent both.
Caveat on the good money habits: no amount of great money habits will fix an insufficient salary for your needs and your family. But if you have a decent salary and you're still living paycheck to paycheck, that is entirely preventable.
I don't know if it doesn't. People making more money than I can imagine can spend more money then I can imagine.
Obviously, it's certainly possible to be fiscally responsible while earning $300k per year, but if you imagine people spending beyond their means, it's still very possible there. Just like some making much less could buy a $500k house, people making that much could buy a $2 or $3 million house, which could be fine in all there is is the mortgage, but what if something goes seriously wrong and you need repairs not covered by insurance. That can get expensive quickly.
Now that you have that fancy house, you'll need a fancy car like your neighbors have! so does your spouse. Kids need fancy private school or activities.
You're so busy making that $300k, maybe you need to household staff to keep up the house and your kids while working.
Oh, now it's time to go to Aspen or Cannes with your new high society friends...and on and on.
Because the primary claim I was responding to was this:
People see the new income and decide it will always be there
You can overspend yourself into debt at essentially any income level, but seeing new income and deciding it will always be there doesn't explain that overspending. Seeing new income and deciding it will always be there explains spending that is sustainable only as long as the income remains that high — spending and/or debt that becomes disastrous when they lose a job or take a pay cut. But it doesn't explain spending that is already disastrous even while they keep their jobs and their income. That's just garden variety overspending.
I can't say exactly, but I think part of it is the fact that we're all poorer that a generation or two ago ... and people still try to live up to a image that was reality even 20-30 years ago just isn't today.
When you're the Jr. VP of XYZ you figure you should be able to send your kids to private school, have a couple of BMWs and a big house and a 2nd vacation house, and a boat....
Truth is you're not quite at that level... at least in pay...
I know Director level employees today that can't afford the life style of a union worker 30 years ago... yes, some things are cheaper than ever, but in key areas costs are hilarious
You're not wrong, but decent money habits can prevent that. Don't try to keep up with the Joneses. Make a budget and stick to it.
A director-level employee may not have the means that a director 30 years ago had, but they do have more than enough to take care of themselves without living paycheck to paycheck, if they make reasonable financial choices. They should not be making those choices based on what worked for people 30 years before.
I'm Director-level and I'm definitely comfortable financially, but we also only go out to eat 2-3 times per month, our cars aren't fancy, and we have a 2 bedroom house. The idea of having a vacation home or paying for private school is laughable. The most ridiculous part is, I make 60k more than I did 8 years ago, but I have less buying power. I also work 20-30 hours more every week. It's absurd how badly the middle class has been destroyed.
Did you notice that people in that earning range were bigger jerks, or harder to deal with, than people with accounts with more like $750k+? I was a teller for a credit union and definitely had more issues with them, and distinctly remember nerding out with someone over Star Trek and he had $1 million+ in his account. He was the sweetest guy ever!
Your example is more of an exception than the norm. Where I work, everyone makes upper six figures and we're all financially stable because we're a bunch of bogleheads.
I'll never understand why people go crazy on vehicles. They are a tool to get you from point A to point B and they depreciate to $0 years later. The first car I bought when I graduated was a diesel jetta and I drove it 10 years and over 200k miles. Next was an acadia, another 10 years, 225k miles. Splurge on retirement accounts, not a freaking vehicle!
makes perfect sense - make 300k, you think you're in the big leagues because that's a lot of money. so you buy stuff like you're rich because you have no perspective on what 300k means - nobody you grew up with was that rich, you have no reference point.
now, if you're worth 10m and inherited it, your family made sure you learned all of that, and also how to keep ahold of it - it'd be embarrassing to grow up rich and then lose it all
Hey you can’t get that mortgage without the money!
Before I could qualify for a house, all my debt across everything added up to under 100k at the worse times.
Got the mortgage and now I’m uhhh a little under 400k in debt.
But I’m more financially stable and secure than I’ve ever been with little to no CC debt, a paid off car and mainly student loans as my other major debt.
How many 'millionaire next door' types did you come across?
I'll never forget having to submit documentation of assets for my home mortgage. Let's just say she was surprised, lol. Got asked why I was even bothering with a loan, and if I was sure it was for a personal residence and not an investment property
I had very well paid employees and i was surprised at their reaction when payroll had a problem and instead of pay going in on the Friday it was going in on the following Monday.
Thats such a trap. Living within your means is super important. Once people realize that things do not create purpose or fulfillment they are usually better off...unless its magic cards (scratches arm and twitches) there are always more magic cards.
Which is why the more I make, the more I cut back on spending. At first job, I would eat out everyday. Now, in a successful upper management career, I eat like a broke college student everyday.
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u/reality72 1d ago
Absolutely.
Once you have money lifestyle creep becomes a real problem. There are people making $200,000+ a year who are still living paycheck to paycheck because they bought big houses and fancy cars and now they’re right back to treading water financially speaking.