Workers who earn a low wage commonly struggle financially, even when they do their best to limit their spending. The problem is that a household earning, say, $35,000 a year might really have little to no opportunity to sock money away in a savings account. And so it's easy to see why a household in that situation might end up living paycheck to paycheck.
But new data reveals that a large number of people earning a decent income also live paycheck to paycheck. And while that's surprising, it's also, to a degree, understandable.
Huge variations in living costs
A good 36% of households earning at least $250,000 a year say they live paycheck to paycheck with no savings cushion, according to a survey by Pymnts.com and LendingClub Corp. This especially holds true among millennials with incomes of $250,000 or more, as over 50% of higher earners in that age group have little money left over at the end of the month.
Now at first glance, it may seem like higher earners are clearly succumbing to a case of misplaced priorities. But actually, it's not so difficult to see why a family earning $250,000 might end up spending all of its income in a high-cost area.
Let's remember that in some parts of the country, a starter home might cost upward of $1 million. And in large cities, the average monthly rent can easily be upward of $3,000 for a two-bedroom apartment.
Of course, one might counter that with, "Okay, then struggling families should go move someplace else." The reality, though, is that many people who earn higher wages have to live in expensive parts of the country to command those salaries.
Sure, these days, more companies are hiring workers for fully remote positions. And so some people may have the option to stretch a higher salary by moving to a not-so-expensive city.
But it's also fair to say that in many cases, in order to earn $250,000 or more, one needs to live someplace where rents or home prices and other costs are notably high. And so in light of that, it's easy to see how a larger paycheck could quickly get spent in full -- especially for families that have childcare costs to bear for multiple children.
How to break the cycle
Higher earners living paycheck to paycheck aren't necessarily being careless with their money. But even so, it's important to try to build savings for a financial safety net.
To that end, a side hustle could actually be a smart move. It's easy to assume that lower earners are the ones who should look at hustling at a second job, but higher earners can go a similar route to eke out more money for savings purposes. That may, for some households, be easier than cutting back on spending.
Of course, cutting back is often an option. It might take a certain amount of money to buy or rent a home in a given area, but there may be smaller expenses to cut, like restaurant meals or cable. And to be clear, those without savings should cut those expenses until their bank account balances look more robust.
No one is immune to losing a job or getting hit with an unexpected expense. And in that situation, a household with a higher income won't necessarily be any better off than one with a lower income.
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