The 6 Figure Salary Illusion
Half of high earners are living paycheck to paycheck
Many people believe that a key step toward living the American dream is to secure a 6 figure salary job. In past decades, when the breadwinner in your family earned 6 figures, it meant that you had the chance to buy a house, take your family on vacations, and save for retirement.
But in 2023, the 6 figure salary dream is simply an illusion. Recent studies show that 51% of people earning more than $100,000 annually are living paycheck to paycheck. Why is securing financial stability so much more elusive than it was before?
Life is expensive, here are the numbers
The amount of money that Americans are making is far below what we need for today’s cost of living. According to research from PYMNTS/Lending Club and Zippia:
64% of U.S. consumers (or you know…people) lived paycheck to paycheck, as of December 2022.
The median salary in the U.S. for 2022 was $44,225
About 55% of Americans made less than $50K a year
Only 18% of individual Americans earned $100K or more a year
$100K is NOT considered rich for much of America in 2023. In some coastal cities, it’s considered lower middle class.
Life is too expensive. That’s really the bottom line. But why? The first reason is high costs for owning or renting a home. Many people are exceeding the classic recommendation to spend no more than 30% of their income on housing.
Secondly, we’re struggling to keep our heads above water due to inflation. The costs of goods that we can’t do without–like groceries, gasoline, and utilities–are too high for average earners. To make things even harder, credit card rates are at a record high, making it hard to pay down our cards before interest gets out of hand.
And finally, depending on which city you choose to live in, the local cost of living can reduce your actual take-home pay significantly. Californian cities are among the worst in the country when it comes to cost of living (as a California girl with all of her family in high cost areas, this is a big bummer).
The cost and (lack of) availability of housing
Housing costs are up. In California, where I live, it feels impossible to buy a house in the near future, or even find reasonable rent for a one bedroom apartment. There are a few reasons that this is the case:
1. There simply isn’t enough housing and new builds are lagging
I don’t know how many times I’ve voted for new policies intended to increase the amount of new homes in California. The laws pass, the money is set aside, but no new houses are delivered. Why? There isn’t enough city-level accountability, plus we have slow state regulatory action.
6 years ago, Governor Gavin Newsom promised to build 3.5 million housing units in California by 2025 in an effort to end the state’s housing shortage. Since then, the state has added approximately 500,000 units in total. The governor has since walked back this commitment.
So, what are the new plans and how is it going?
“Over the last two years, local governments across California have had to cobble together new housing plans that meet a statewide goal of 2.5 million new units by 2030. At last count, 227 jurisdictions — home to nearly 12 million Californians, or about a third of the state population — still haven’t had their plans certified by state housing regulators.”
It’s not just California. As of April 2023, the U.S. housing market is missing around 320,000 home listings that are valued at $256,000 or less. This is considered the affordable range for people earning up to $75,000 annually. According to mortgage data company HSH, housing is the least affordable it has been in a decade.
“Middle-income buyers can afford to buy less than a quarter (23%) of listings in the current market. Five years ago, this income group could afford to buy half of all available homes.”
2. Existing properties are being bought up by Wall Street
Both prospective homebuyers and renters alike are affected by rising costs for housing. While mortgage rates are keeping most individuals and families out of the market, housing is being bought up by investment companies and Wall Street. There are some dire predictions for the future if we don’t regulate this activity.
“By 2030, these institutions may hold some 7.6 million homes, or more than 40% of all single-family rentals on the market, according to the 2022 forecast by MetLife Investment Management.”
Companies backed by venture capital can afford to buy homes at higher prices than your average homebuyer. They’re also more willing to leave units sitting empty while they wait for renters or buyers who will pay the price they want. We’re at risk of becoming a country of renters living in corporate-owned housing.
High inflation and high credit card rates
Inflation is a big reason why many 6 figure earners are still living paycheck to paycheck. Inflation, currently at 3.7%, impacts our ability to pay for necessities, not just housing, but also groceries, utilities, transportation, and many other must-have goods and services.
Inflation has fallen from its peak in June 2022, where it sat at 9.1%, though we’re still a long way from the Federal Reserve’s target of 2% inflation. The central bank anticipates high inflation until at least 2026.
There’s an added layer of cost that comes with using credit cards to pay for your necessities. Current credit card interest rates are at an all time high, sitting at over 20%, far more than the historical 16%.
With high interest rates, it’s harder to keep up with paying down our credit cards, which many of us need to cover emergency expenses like car repairs. Lots Americans are trapped by their credit card debt according to 2023 data from Clever:
About 3 in 5 Americans (61%) are in credit card debt, owing an average of $5,875
Half of credit card users (48%) already depend on their cards for essential living expenses, such as rent, food, and utilities.
23% say they go deeper into credit card debt every month
About 67% of millennials are in credit card debt, with an average balance of $6,794
I almost exclusively pay for purchases using my credit card. There’s much better fraud protection compared to a debit card and I accrue hundreds of dollars in points every year, which I use to buy necessities. But without careful monitoring, I can quickly end up in deep water.
Some cities are simply too expensive
Where you live has a huge impact on how far your salary will go. California is an expensive place to live, and while I don’t plan to leave any time soon, these high costs can really get to a girl.
If you’re making a 6 figure salary today, you’ll have significantly less spending power in certain cities. For example, when adjusted for taxes and cost of living, you will only have a little over $35,000 in spending power in New York City and San Francisco.
Some states are significantly more affordable with lower housing costs, no income tax, or because their populations aren’t growing. The city with the lowest cost of living is Memphis, Tennessee where your $100K salary comes out to $86K when adjusted. Texas boasts 7 of the top cities for low cost of living, including El Paso.
That sounds pretty good, right? Unfortunately, the lack of affordable housing across the U.S. comes back to bite us again. El Paso also happens to have the fewest affordable homes (valued at $256,000 or less) available for middle income buyers.
Ultimately, few of us are able to escape the paycheck to paycheck rate race that is America in 2023. Any increase in salary is a good thing, and you should be proud of the hard work you put in to get it, but that doesn’t guarantee you'll be any closer to owning a home or saving for retirement.
Is there hope on the horizon?
Sometimes it’s hard to have hope that things will improve. I fluctuate between existential dread that things will only get worse and a hope that we can make change happen at a policy level that will create a better future in 10 years.
One avenue that people have taken to make a change is to sue the organizations and groups that are colluding to keep housing costs artificially high.
In a groundbreaking verdict from earlier this week, a federal jury has found that the National Association of Realtors conspired to inflate realtor commissions. It’s too early to say how this will affect the housing market, though the impact may be huge.
“A federal jury ruled on Tuesday [October 31st] that the powerful National Association of Realtors and several large brokerages had conspired to artificially inflate the commissions paid to real estate agents, a decision that could radically alter the home-buying process in the United States.
The realtors’ group and brokerages were ordered to pay damages of nearly $1.8 billion. The verdict allows the court to issue treble damages, which means they could swell to more than $5 billion.”
Most of us can’t afford to pursue lawsuits, or be dragged through the mud by lawyers. That means housing policies need to be supercharged to protect American home buyers and renters.
We need to hold cities and states accountable for increasing the supply of housing for average earners. Lastly, we need to get venture capitalist investments out of single family homes and small apartment buildings.
I’m no economist, not even an armchair version of one. Knowing what to do about high inflation and how to keep America out of a recession is beyond my knowledge and skill set. All I know is that Americans need help.
Will any one of us be able to sway the President of the United States? Probably not. But your congresspeople are directly responsible to their constituents, meaning you. Email, call, or DM them on social media demanding a plan. It’s not much, but it’s a start.
Great read. I completely agree.