Earning a six-figure salary was once the gold standard for achieving a comfortable middle-class lifestyle, but times have changed. Today, even those making $100,000 a year are finding it difficult to afford the things that used to be synonymous with financial security.
Inflation is still a major issue and "high earners" are feeling the pinch. According to a recent study by SmartAsset, people with six-figure salaries are struggling to keep up with the increasing costs of living. In December 2022, 51% of people earning more than $100,000 reported living paycheck to paycheck. That’s a 7% increase from the previous year. Of those earning $100,000 or more, 16% say they're struggling to pay their bills.
And it’s not just the high earners feeling the heat. PYMNTS and LendingClub report that over 60% of respondents are living paycheck to paycheck.
With credit card balances hitting a record high of $986 billion in the fourth quarter of 2022, many consumers are turning to plastic to bridge the gap between their income and expenses. A quarter of respondents are unaware of their interest rates, and the rising federal funds rate may translate into higher interest rates on outstanding balances.
And savings? What savings? Many consumers have no room in their budgets to put money aside for emergencies, with the personal savings rate in January sitting at a paltry 4.7%, significantly lower than the pandemic peak of 33.8% in April 2020. According to a survey by Ipsos, 28% of Americans are putting less money into savings and investments, while 27% are pulling money out of their savings.
These financial worries are causing experts to predict that a recession could hit America sometime this year. Personal finance experts are recommending having emergency funds saved up to prepare for unexpected financial crises. But with wage and salary growth slowing and not keeping pace with inflation, many Americans are struggling just to pay their bills. They’re turning to side jobs, selling used items or investing to make up for the income shortfall.
Of those supplementing their income through a second job, 20% say that without that extra cash, their financial situation would deteriorate. And over a third of those supplementing say it's still not enough, according to PYMNTS data.
While 18% of people in the U.S. earn more than $100,000, income varies greatly between cities and states, according to Zippia, a career advising company. Earning $100,000 isn’t the same everywhere as there are various factors that come into play. In SmartAsset’s latest study, researchers took a closer look at the real take-home pay of those earning $100,000 in 76 of the largest cities around the U.S.
After taxes and adjusting for the cost of living, the worst places to live for those earning six figures are New York, Honolulu, San Francisco, Washington D.C., Los Angeles, and Long Beach, California. With earners’ after-tax income amounting to only around $35,000 to $45,000, living in these cities leave them with little purchasing power.
The best cities for those earning $100,000 are Memphis, Tennessee; El Paso, Texas; and Oklahoma City, Oklahoma. Thanks to its lower cost of living in Memphis, for example, $100,000 is worth a more impressive $86,444.
So, if you’re looking to stretch your hard-earned dollars, it might be time to consider packing up and moving to Memphis or one of the other cities where six figures goes a little further.
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Portfolio Building, Passive Income, and Stretching Your Paycheck
Credit cards only dig you deeper into financial instability. While they can be great to bridge you between payday and paycheck, building more sustainable habits is the only way to break the cycle. One of the best ways to get back on track is to increase your income. On a basic level, this can be done through investing in dividend-paying companies.
For example, Devon Energy Corp. DNV has a whopping 9.5% dividend yield with a 5-year performance sitting at 40.6%. Bristol-Myers Squibb Co. BMY has had a similarly strong performance with a 33% 5-year performance and 3.41% dividend yield. While they might have an uncertain future, oil stocks like ConoccoPhillips COP and Marathon Petroleum Corp. MPC are sitting at 53% and 59%, respectively with dividends yields over 2.2%.
But these are typically longer-term solutions. For people who can't lower expenses, and aren't due for a raise, building a startup can be a great option to start earning a passive income. And, if it goes well, a startup can even help you quit your day job. Companies like Wix.com WIX and Shopify Inc. SHOP make it easier than ever to start building passive income with a site you own.
For those without the time or inclination to start their own startup, investors can invest in top startups on sites like StartEngine, including investing in the leading equity crowdfunding site itself, to help set themselves up for long-term success. While these are longer-term investments, building a diversified and well-rounded portfolio now can mean more income and big paydays down the line.
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