Shortly after graduating college in 2013, I landed my first journalism job as an adult, interning at a personal finance magazine in Washington, DC. I didn't know much about the subject matter, but the job paid just right so I had to learn quickly. The pay was $12 an hour, but this wage was supplemented by waiting tables.
I was soon hired full-time by the magazine, and throughout my twenties I used the money lessons I learned there to save and grow my salary, which never exceeded $50,000 until my seventh year. I made an investment. I remember thinking, I wish I could get to $70,000. , I no longer have to think about money all the time.
And I thought if I could reach $100,000, I would be rich, or at least comfortable. It's the way rich people say “rich.”
But the reality for people who hit six figures isn't as rosy as I always thought. More than half of Americans with annual incomes of $100,000 or more live paycheck to paycheck, according to a recent report from PYMNTS and LendingClub.
“When I graduated from college, I thought I was going to make a lot more money. Here I am, about six years later, and I'm making a little over six figures, but it's not what I imagined.” he says. Jesse Whitsitt is a Certified Financial Planner and Portfolio Manager at Morgan Stanley in Hopepage, New York. “I thought I would be able to save more money than I do now.”
If you earn more than $100,000 a year, you'll significantly exceed the median American household income of $74,784 in 2021. Assuming you are an individual with no dependents, your salary would qualify as upper class according to three different definitions (Brookings, Urban Institute, and Pew Research).
The fact that it is so common in the United States for people to have six-figure incomes and still feel insecure even though they are technically “upper class” means that spendthrift money is It's not just a case of mismanagement. In coastal cities like Washington, D.C., where there are many high-paying jobs, the cost of living can seem surprisingly high. The burden of student loans is similar, with workers often having to borrow to qualify for high-paying jobs in the first place.
That's before accounting for inflation.
According to data from the Bureau of Labor Statistics, you would need to earn about $129,000 today to have the same purchasing power as a $100,000 salary just 10 years ago. That's because from 2013 to the present, the average annual dollar inflation rate was about 2.6%, with a cumulative rate of about 29%.
How far your money will stretch depends primarily on your cost of living. The cost of living varies depending on factors such as lifestyle, household size, and especially location. You don't need to be an economist to know that there's a difference between him making $100,000 in New York City and $100,000 in Memphis, Tennessee.
The difference may be even more drastic than you imagine. Tennessee doesn't tax earned income, so a Memphis resident earning $100,000 would have a take-home pay of $74,515 after federal and state taxes, according to a SmartAsset analysis. And the city's cost of living is 14% lower than the national average, equating to $86,444 on an adjusted basis.
Thanks to a combination of federal, state, and local taxes and an exorbitant cost of living, a $100,000 salary is worth as much as $35,791 in New York City, SmartAsset found.
Another reason people with six-figure incomes may not feel wealthy Lifestyle creep is a phenomenon in which non-essential expenses tend to increase as income increases. Brad Klontz, CFP and professor of financial psychology at Creighton University, says it's hard to avoid that.
“We have survived as a species through social comparisons. We are wired to pay very close attention to our position within a group,” he says. “Most Americans have little savings and overspend, so we have to go against our biological programming to avoid that.”
This could cause people to wipe out any extra savings potential in one fell swoop, Whitsitt said. “People think if they get a $10,000 raise, they can go buy a boat,” he says. “I advise my clients to wait six months after getting a raise or big bonus before making a big purchase.”
However, in many cases, people fall into the trap of constantly increasing salaries without realizing it. Subconsciously deciding it's okay for him to take an Uber everywhere instead of the bus is less flashy than a boat, but it can also be expensive.
“The only way to stop it is to be aware that it's happening,” Klontz says. “It all comes down to the simple concept of paying yourself first.” That means determining what percentage of your income you need to save to reach your goals, and then using that money as a discretionary means to set aside before spending.
“Once you have that money set aside, you don't worry as much about lifestyle inflation,” Klontz says.
If you're already saving a high percentage of your income, that may be holding you back from feeling more flush. Maybe when his salary was low all he had to do was save a few bucks here and there, and now he's making a six-figure income and he's saving 20%.
That's a good problem. Because while you may not feel wealthy right now, if you invest regularly, you're on your way to building wealth. Ramit Sethi, star of “Get Rich.''
“The most underrated money habit is being very patient,” he told CNBC Make It. “Real wealth creation takes time.”
Don't miss: Want to be smarter and more successful with money, work, and life? Sign up for our new newsletter.
Get CNBC's free report. 11 ways to tell if it's a recession, Here, Kelly Evans reviews the main indicators that a recession is approaching or has already begun.
check out: These five charts show how much inflation really cost you over two years
