Reply to 40% of people making 500K/year are living paycheck to paycheck

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[quote=Anonymous]A finance advisor I follow online recently posted that most of the people she works with fall into two general categories: people with spending problems, and people with income problems.

The 300k+ people saying they live "paycheck to paycheck" have a spending problem. They have a ton of income but the spend too much of it and it gives them the feeling of always barely being able to cover their bills. The fact that they describe it as paycheck-to-paycheck especially indicates that they've simply purchased a lifestyle that is bigger than they can afford (house, schools, cars, vacations) and that these are regular expenses, not one offs. This financial advisor talked about this problem can often be fixed quite quickly. You just go through every budget item and eliminate or downgrade the excess. Some line items might be harder to deal with than others (house and education) but usually she can even make space for these by cutting elsewhere (memberships, dining out and entertainment, and vacations are all easy ways to save money until you can move to a more reasonable house or shift kids to public).

The people below 100k or 50k have income problems, and she points out that this is much harder to fix. I sense that some of her clients even make over 100k or 200k and still have this issue because they are living in very high COL areas like NY or SF. She said that it can take months or even years to address this issue and people in this situation have to follow strict budgeting and debt repayment strategies in the interim (strategies she mentions include short term options like getting a weekend or evening gig or negotiating for a raise, and longer term options like changing jobs or getting additional education or certification to move into a higher paying career path). She was actually very optimistic about these folks because she said that the discipline required to get to a financially solvent place while you find ways to build income then pays dividends when your income goes up and you know how to save and invest wisely.

Anyway, this chart made me think of that. The people making over 300k or 400k who feel like they are living paycheck to paycheck all have easily solvable spending problems. The people making under 50k or 100k have bigger challenges and it will take real discipline and dedication to address them and stop feeling that way. I know where my sympathies lie.[/quote]

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