Why So Many High Earners Are Living Paycheck To Paycheck Today

According to a 2023 Metlife survey, 55% of U.S. workers claimed they were living paycheck to paycheck, representing an increase of 12% from 2022. Meanwhile, PYMNTS's annual Paycheck-to-Paycheck Report found that as of January 2024, the number of workers living paycheck to paycheck rose even higher to 62%. It may come as a surprise that some of that increase is related to workers making $100,000 per year, with 48% of them reporting they're living paycheck to paycheck. For people earning $200,000 or more per year, 36% of them reported the same, which seems baffling.

The way to define living paycheck to paycheck is when an individual's paycheck is just enough to cover all their basic necessities and bills without anything leftover for extras, which, per Zippia, was exacerbated by COVID-19 and subsequent inflation, with 53% of workers surveyed saying that they weren't living paycheck to paycheck prior to the pandemic. Higher grocery prices, as well as higher insurance premiums for home and auto contributed to the change.

While shocking, there are reasons for this, and some of the factors causing it are avoidable. We've pulled together a few reasons as to why even a high earner in the U.S. could end up living paycheck to paycheck. And, if you currently find yourself in this position, we go over ways to get out of this vicious cycle.

While a fact of life for anyone seeking higher education in the U.S., repaying student loans are apparently as daunting for high-salary earners as everyone else. The PYMNTS report alludes to this as a factor in living paycheck to paycheck, since most earners of high salaries are 54% more likely to be paying for a college education. According to data compiled by the National Student Loan Data Center, the outstanding loans held by the student loan servicing companies Nelnet, AidVantage, MOHELA, and Edfinancial ranged from $24.2 billion up to $31.8 billion each, for 5.97 million students (as of March 2024).

The Education Data Initiative found that graduates in the higher 75th to 90th percentile income brackets are on the hook for over a quarter (26%) of $1.77 trillion worth of student loan debt. The average debt for graduates making $97,001 to $173,000 or more is between $52,392 and $60,519. To add to the financial burden, given the threshold to qualify for the Biden administration's SAVE program — which reduces payments for grads living on lower incomes within 225% of the poverty line — most high earners won't qualify for assistance. For these borrowers, the issue isn't how to choose the best student loan repayment plan for them so much as whether to pay off federal or private student loans first and how to budget to do it on their own.

If you're looking at the rising cost of homeownership in the U.S. and wondering what actually controls the cost of homes, one important factor is interest rates. As the Federal Reserve has been trying to right the economic ship with interest rate hikes, the cost of borrowing has also increased, meaning higher interest on mortgages. If you have a variable rate of interest, that may likely mean you're paying more every month to keep your home out of going into foreclosure; a 2% rise in interest can mean hundreds of extra dollars every month. (See how much a 1% difference in mortgage rate can cost or save you.)

Want to offload the home? Higher interest rates also work against you since the higher cost of borrowing impacts both the cost of a home and prequalification for a mortgage, which prices people out of the market. As the Harvard Joint Center for Housing Studies reports, in 2024, U.S. consumers need "... an annual household income of at least $100,000 to afford the median priced home in nearly half of all metro areas."

While you may think that's less of a burden for high earners, you still need to consider other bills and necessities — including the aforementioned student loans — and the fact that the cost of a home rose 43% just between 2019 and 2022 as incomes rose 7% for the same period. An Experian study found mortgages made up two-thirds of all consumer debt in 2023, rising to $11.6 trillion in the third quarter, and high earners aren't immune to those effects.

Per Experian, the Federal Reserve's interest rate hikes impacted credit card holders immensely, resulting in many consumers accruing debt and carrying it over from one month to next. America's credit card balances expanded by 17.4%, while retail credit card debt rose by 15.3% in 2023. The end result of this debt is a balance of $1.07 trillion by the third quarter of 2023. According to The Federal Reserve's Survey of Household Economics and Decision-making (via Forbes), although high-income earners are the least likely to have credit card debt, 25.4% tend to carry an average of $11,210 in such debt if they do at all. The Federal Reserve Bank of New York reports that 9% of credit card balances were delinquent in the first quarter of 2024.

To avoid landing in this situation, avoid the temptation of leveraging credit cards as emergency financing or cash when you don't have enough. This will keep from carrying debt over month after month, which is an easy way to end up in credit trouble. Make payments on time and consistently since there are myriad ways bad credit can affect you. Consider speaking directly with the credit card company to negotiate lower fees or rates if possible, and if you're in danger of delinquency, look into assistance from a nonprofit debt management service.

In its February 2024 study, PYMNTS reported one in five high earners making over $100,000 annually failed to save consistently, according to data from the last quarter of 2023. Further, one in 10 admitted to not saving anything at all. The study points to the psychological impact of having gainful employment as a factor in the failure to monitor discretionary spending, which doesn't take emergencies or economic downturns into consideration. With 27% of high earners claiming their wages have kept up with inflation, it's fair to presume the other 73% of this group haven't. The payments outlet also reported that 20% of earners making $200,000 plus blamed unexpected expenses they didn't budget for on not having a consistent saving routine.

Bankrate's 2024 Annual Emergency Savings Report found that 89% of Americans would require three months of savings to feel comfortable, and yet, less than half of Amercians — 44% — actually have at least $1,000 saved up to pay for an emergency. Greg McBride, Bankrate's chief financial analyst, advises setting up a monthly direct deposit into an emergency savings account. This allows you to build up your reserve without having to think about it, and what else (that is, discretionary spending) you could spend that money on. Further, if you dine out twice a week, maybe dine out once a week, and then put that extra-dinner money into this same savings account.

As a consumer, if you understand the difference between wants and needs, then you have a handle on the importance of discretionary spending. A discretionary expense is anything you don't need to spend money on at the moment, with discretionary spending coming into play only after you've paid for your basic necessities. Mortgage, rent, food, and bills are generally things you need to spend money on every month, but overspending on frivolous items can become a financial quagmire.

A survey by financial services company Empower, for example, found that 30% of Americans believe they overspend on unnecessary things like travel, accessories, clothes, and dining out, with dining out and travel make up the most expensive luxuries. The survey also found that by doing away with one of these discretionary expenses, the average person could save ~$97 per month.

Specifically, Empower reports consumers could save $138/month on average if they cut out fine dining from their budget, for an annual savings of more than $1,600. As for holidays. Financial tech company Chime calculates the average cost of a one-week vacation is $739 on the low end and up to $5,728 on the high end. With 89% of Americans hoping to save three months' worth of savings, consider that and the median cost of travel based on these two Chime amounts is $3,233, meaning not taking a vacation or (fine) dining out for a year could save you approximately $4,900.