How to Earn a Six-Figure Salary While Still Being In Debt in 2022
It doesn’t matter how much money you make if you’re in debt and have a lot of costs. It’s time to break free from the “broken attitude” for good.
What comes to mind when you hear the term “broken”? For me, it’s college student life, complete with a beat-up vehicle (if one exists at all), ramen for supper every night, and little money for anything else. However, this is not always the case. You may now have a six-figure wage and still, be destitute because of rising real estate expenses in specific regions and rising education debt.
In certain circumstances, a broker may seem to be a lovely house with plenty of food in the fridge and an excellent automobile, but there is no money in the bank account at the end of the month. Alternatively, it might seem to be some very extravagant spending, but a looming sensation of never having enough to feel financially secure.
Even with a good wage, many circumstances might lead someone to be or feel broke. Here’s a list of some of them, along with suggestions on how to avoid them:
Living in the Wrong Neighborhood
In specific American locations, such as San Francisco, a family of four with a six-figure salary is considered low-income. These income criteria are based on the cost of living in a specific location. Even if you make six figures, you may struggle to meet in particular areas since living costs are so high.
You may not always be able to pick where you reside. However, if you’re struggling financially in a place with an exorbitant cost of living, relocating might be an excellent approach to improve your quality of life. Because wages are often correlated to the nation’s location where you work, you may have to accept a pay decrease as a result of your transfer. However, in many midwestern areas, $80,000 may go a lot farther than $100,000 in certain coastal cities.
Being a Housewife
This factor may or may not be connected to the preceding section. In certain places, buying a house is just too expensive unless you have a six-figure or higher salary. You don’t have to live in a city where one-bedroom homes cost a million dollars to be house poor.
Lenders will still enable you to spend a large amount of your monthly income on your mortgage payment even after the mortgage crisis. An FHA loan, which is popular among first-time home purchasers, permits you to devote up to 31% of your monthly income to mortgage payments and up to 43% to total debt repayment. Remember that this is your monthly gross income, which is your income before taxes.
So, assuming you earn $100,000 a year on the nose, it works out to $8,333 every month before taxes and other expenses. As a result, you might qualify for an FHA loan with a monthly mortgage payment of up to $2,583. That would leave you with $5,750 each month for other costs, which is still a significant amount.
However, keep in mind that 31 percent is calculated depending on your gross income. You’re only taking home $6,072 if we use a paycheck calculator to see what your take-home wage is, maybe with one federal exemption and no extra withholding for things like medical care (in the state of Indiana, for our purposes). After paying off your maximum mortgage, you’re left with only $3,489 every month, which seems a lot tighter.
In many parts of the nation, a mortgage payment of more than $2,000 per month may purchase you a lovely home. It’s tempting to set your eyes on this kind of property after the mortgage provider informs you how much you may borrow. However, tying up that large proportion of your gross salary in a mortgage is rarely a wise choice, and it’s a fast way to feel destitute even if you have a nice income.
Instead, look at your current income and budget when looking to purchase a property and base your goal mortgage payment—and the consequent total loan amount—on what you’re genuinely comfortable paying. Don’t forget about the extra costs of owning, such as house insurance. When you factor in those expenses and choose a more modest property, your six figures will seem a lot more lavish.
Inflation in the way of life
Like many of you, this is something I have been guilty of. This is the idea that as your income increases, so does your spending. As a result, you never feel like you’re generating much more money since it’s all still flowing out every month.
My husband worked part-time at the YMCA before our daughter was born, and I worked full-time as a freelance writer. We didn’t spend money since we didn’t have any. It was always claustrophobic, and it wasn’t a pleasant environment to be in. However, we could make things work on a budget of less than $40,000 each year. However, when our income increased, so did our spending. So, even though we make $80,000+, we’ve been cramped for several years in our marriage.
Granted, some of those costs arose due to our decision to have children, who come with their own set of fees. Others, on the other hand, were experiencing lifestyle inflation. We upgraded from a beat-up vehicle to a fancier one. We began dining out more often and were less thrifty in our grocery shopping. And we went from an apartment with little extra housing expenditures to a home with a mortgage payment that was less than our rent but a slew of other bills.
I’m not implying that lifestyle inflation is necessarily undesirable. If you start making pennies and eating beans and rice in college, you can expect a few lifestyle changes as your wages rise. However, consider what moderately comfortable living looks like for you ahead of time. Then set a wage freeze at that level.
This may be accomplished by automatically putting bonuses and increases aside after you’ve reached a comfortable pay level. You may need to re-evaluate this every few years or when major life events occur. However, avoiding the issue of lifestyle inflation by not immediately increasing your take-home salary is a great approach to prevent it.
They are not putting money aside for emergencies.
Whether you earn $30,000 or $100,000, having no emergency money will make you feel even more impoverished. Whether the emergency is minor, such as having to fix a flat tire on your vehicle, or significant, such as losing your job, it will seem like a catastrophe if you’re living on the edge of your salary.
Those with low earnings who are diligent savers will be in a better financial position than those with six-figure incomes who do not have an emergency fund. You may start modestly with this fund even if you have a large salary. Make a monthly deposit of a few hundred dollars. Your sensation that you aren’t genuinely broke will expand as that padding develops.
If you’re just getting started with your emergency fund, a high-interest savings account is an excellent place to start. You might hunt for greater rates on CDs if you’ve built up a buffer.
Chime is my current favorite online financial app of mine. Chime has several valuable features, including a spending account, a savings account, and a debit card. You’ll also get access to your paychecks up to two days ahead of schedule, as well as some of their kind of overdraft protection. To discover more, see our Chime review.
Debt with a High-Interest Rate
Taking on high-interest debt, such as credit card debt or personal loans, to address immediate concerns may seem to be a wise option. However, this form of debt, which usually has a large monthly payment or takes decades to pay off, is likely to exacerbate your present financial problems.
This isn’t the first time this has happened to my family. We purchased a fixer-upper to prevent becoming home poor. And it’s been a good investment in general. However, when the gutters needed to be replaced right away, we had to take out a personal loan to pay for it. It’s been tough to get out from under that high-interest debt. Other costs usually appear during the months when we might make extra loan payments. Furthermore, the high-interest rates make the prices rather costly, putting pressure on different parts of our budget.
If feasible, you should try to avoid high-interest loans like this. If an emergency arises and you must use a personal loan or credit card to pay for it, get the debt paid off as quickly as possible. Trust me when I say it’s worth it to cut corners in other areas of your budget so you can pay off your debt faster. Getting those loan payments out of your monthly budget is a great approach to start saving.
The GAD Capital installment loan can help you consolidate all your debts into one predictable installment with an interest rate that is fixed which makes it simpler to budget and to pay.
Payments on Student Loans are Exorbitant
Finally, we get to an issue that many twenty- and thirty-year-olds with good jobs and high wages face: student loan debt. In reality, your high salary might be mainly due to your high student loan burden. On average, students owe about $30,000 in student loans, but medical and law students, who generally make more money, owe far more.
Depending on the repayment plan you qualify for and select, a $30,000 student loan might have a monthly payment ranging from $50 to $200+ each month. If you have significant student debt, your student loan installments might soon outstrip your mortgage payments. Even if you have a good salary, this might burden your budget.
Dealing with student loans upfront means constantly knowing how much they’ll cost each month after you graduate and start repaying them. Then you may use that knowledge to make the best decision possible regarding the debt you take on.
You have a few alternatives on the back end. If you qualify, you may refinance your student loan debt. Depending on your employment and income level, you may now reduce your interest rate from roughly 7% to around 3% or less. This might result in reduced payments and a shorter payback period.
If you don’t qualify for refinancing at this time, you may look into other repayment choices that will allow you to cut your monthly income while you work on different aspects of your budget. Depending on your family size, the amount of debt you owe, and other circumstances, you may be able to reduce your payments with an income-based or income-dependent repayment plan even if you earn $100,000.
Then, with additional payments, strive to pay off your student debt over time. Again, it’s worth tightening up your budget in other areas so you can pay off your student loans and feel less poor in the long run.
Broke is a state of mind.
Consider two persons who earn the same money and live comparable lives. They drive modest automobiles and live in modest dwellings. They are thrifty when it comes to food shopping and seldom dine out. However, these choices are compelled by a mountain of debt incurred due to lifestyle inflation and a lack of emergency funds. The other is free to make these decisions and has a sizable financial account.
Despite their significant wages, they may seem broken to the outside world. Only one is hurt. Being broke is an attitude. Other variables, such as your general spending decisions and managing your budget, also play a role.
Even if you have a six-figure income, keeping disciplined may help you save money and give you greater peace of mind. You may also be highly selective about where you spend your money, whether it’s on travel and exciting experiences, services that make your life simpler or just saving more money. Hence, you have more alternatives in the future.