A six-figure income, and still paying off debt?

At another site, I recently wrote about a tool that shows you online prices in terms of hours worked. I used a random item — a fancy coffee maker that costs $116 — as an example. It would take someone who earned $38 an hour approximately three hours of work to pay for that item. A reader replied that, if they made $38 an hour, they wouldn't waste their time thinking about whether or not the purchase was worth it.

To me, this was a spot-on definition of lifestyle inflation, summed up perfectly in one simple comment.

Someone who makes $38/hour earns about $79,000 a year. This is quite a decent living, but it is not enough to stop thinking about your spending altogether, without experiencing some consequences. But that is what happens with lifestyle inflation: You earn more, you spend more, and your spending ends up matching your earning. It's why some people fail to build wealth despite that they rake in the big bucks. It's why some people that earn six-figures still can't seem to dig themselves out of credit card debt.

On the other hand, I understand the spirit of the comment. When I was a little girl, we worried about money so much that I knew I wanted to be rich when I grew up — not necessarily for all of the material things I could buy, but for the freedom from financial worries. I am still working to get there, but I have experienced at least a little of that freedom. And I gotta say, it's nice not to have to worry about every single purchase. Then again, if I threw caution to the wind with too many purchases, I would end up losing that freedom.

We could go back and forth on this all day. The point is, there is a balance between frivolous spending and wasting your life worrying about money. But how do you find that balance? Here's what works for me.

Focus on Savings And Net Worth Rather Than Income

I have seen a few personal finance writers discuss this, and I dig the idea. Former GRS staff writer, Sam at Financial Samurai, argued that, while your income might determine your net worth, what really matters is what you keep, not what you make.

Similarly, I have written about how my budget is more focused on savings goals than spending percentages. I make certain annual goals that I feel comfortable with and, as long as I continue to meet those goals, I am happy with my budget. I find that it is much more motivating to save based on my bottom line than a percentage of my income.

This isn't to say that I don't care how much money I make or how much money I spend. I just see both as a means to an end — the end being how much money I keep.

Set Boundaries to Keep Spending in Check

I don't want to waste my time over-thinking about money. But I also don't want to waste my money by not giving it enough thought. My solution? I set limits.

When I go out shopping, I often find myself mulling over a purchase. If I'm truly stumped over whether or not I should buy something, I stop and consider the price. If it costs less than $5, I stop thinking and just buy it. If it is more than $25, I immediately put it back.

If it's somewhere in between, I give it a few more minutes of my time. But if I'm thinking about it for more than 10 minutes, I put it back. Your rules and limits may vary. I tend to err on the side of being frugal. But overall, it is about finding a balance between your time and money.

If I make the wrong decision, I am either:

a) only out five bucks, or;

b) bummed, because I passed up a good deal.

Either way, I know that I will be just fine. I can recover from a $5 budget blow. And good deals pop up all the time. I still saved some time and some mental bandwidth.

Not having boundaries, on the other hand, means always assuming, “Eh, I'm rich. Why bother considering if this $100 purchase is worth it?” Do that enough, and your net worth will remain stagnant — or worse, it will diminish.

Fine-Tune Your Frugal Energy

A lot of people want to completely toss out frugality when they start to earn more. That's a good way to close the gap between your spending and your income — which leads to lifestyle inflation.

At the same time, I have to admit, I am a lot more frugal when I'm worried about my finances. When I lost my job last year, for example, I went into full-blown money-saving mode. I reconsidered every purchase. I spent way more time on different money-saving habits. That worked well for me at the time, but now that things are a little more steady, I have kept some of those habits at bay. When I was out of work, I used to spend time searching for coupons. Now that I'm working so much, I don't really want to waste any time on that. So I have learned to fine-tune my frugal energy.

Rather than haphazardly save money on anything and everything, some experts say it helps to focus your frugality on the largest expenses in your budget, which are usually:

  • Housing
  • Transportation
  • Food

This makes a lot of sense because saving in your spendiest areas, theoretically, is going to benefit you the most overall.

But I would argue that it's not a waste of time to save in other areas too. Smaller expenses can add up, after all. You just have to decide whether a frugal habit is worth your time. Driving across town to save a dollar on gas? Probably not worth your time. But taking a few seconds to search for a coupon code when you are shopping online? That seems like a quick and easy way to save a few bucks.

There are a lot of no-hassle ways to be frugal too. I've written about some of these in my post on “Painless ways I save money in every category of my budget.” For example:

  • Pay your car insurance premiums up front.
  • Install smart power strips.
  • Use price-matching browser extensions for online shopping.

If you focus on the easiest and most lucrative ways to be frugal, you will do well to keep your spending and time in check.

Personally, I like the concept of being frugal, and I probably always will be frugal, whether it is out of necessity or not. But I also work really hard for the freedom of not having to stay up at night being sick to my stomach about money. I guess I am somewhere between fretting over a $5 purchase and plopping down $116 for a coffee maker without thinking about it. And that's a pretty broad middle ground, really. To me, finding the balance has everything to do with meeting my goals, feeling secure, and doing everything I can to improve my net worth. Only then will I be able to enjoy that sense of financial security.

More about...Debt, Budgeting

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Nick @ Millionaires Giving Money
Nick @ Millionaires Giving Money
5 years ago

Another great post Miss Wong. I have been vary about lifestyle inflation and also have my own rule. for ever 10% rise in income I allow myself a 3% rise in spending. This rule allows me to think outside the box and make extra money through side hustles and and I know both my wealth and lifestyle is increasing/improving in a sustainable way. Thanks for sharing the insights.

Neil
Neil
5 years ago

Hi Nick, Your post reminded me of a visual concept that I often think about – largely because your idea of increasing spending by 3% in response to a 10% raise fits perfectly with my visual concept. Maybe my idea will click with some people, so I will explain. In the long run over the course of your career (very simplified), you would expect your earnings to steadily increase, at least up until some steady state level. So there is an upward sloping line going left-to-right with your earnings on the y-axis and your age on the x-axis. Of course,… Read more »

Linda Vergon
5 years ago
Reply to  Neil

Well said, Neil, and a great way to improve one’s financial security and reach financial independence!

Krishanu
Krishanu
5 years ago
Reply to  Neil

Maybe this will help visualize what Neil said -> http://www.biology.arizona.edu/biomath/tutorials/linear/images/linear_pos_slope.gif

The line intersecting the y-axis higher is the income and the other line is the saving.

Mrs. Frugalwoods
Mrs. Frugalwoods
5 years ago

I like the idea of focusing frugality on your largest expenditures. For me, the best strategy to consistently hit my 65%-85% rate of savings is frugal automation. I spent the time, once, to frugalize my approach to all manner of “consumption points” such that now, it’s just second nature for me to save. For example, I always take my lunch to work. Every single day without fail. It’s an easy way for me to not succumb to the temptation of eating out. I think if you build these frugal habits into your daily life, it becomes quite easy and painless… Read more »

Emily @ Simple Cheap Mom
Emily @ Simple Cheap Mom
5 years ago

I think that’s the key, figure out the big stuff first. Once we started to make some bigger financial goals, like having one of us stay at home or paying off our mortgage way ahead of schedule, we started to play with the smaller stuff. I like to give us a challenge, but most of the frugal stuff we do every day is just our normal habits now.

Marsha
Marsha
5 years ago

The person who makes $38/hour or 79K/year doesn’t have this money to spend on discretionary purchases. Subtract taxes, living expenses, retirement savings, etc. and that $38 may well become just a few dollars. From this perspective, the coffee maker really costs several days worth of labor.

Kristin Wong
Kristin Wong
5 years ago
Reply to  Marsha

This is a really good point, Marsha! Also, someone else in the comments said when they think about items in terms of hours worked, it actually makes them more apt to spend. Because they think, “oh this is just a couple of hours of work,” but do that enough and those hours add up.

Big-D
Big-D
5 years ago
Reply to  Marsha

That all depends on your living status (married, w/ kids, single), cost of living (costs vs. midwest), and debt level. I make less than $80k a year and have no problem dropping a couple hundred on something like that.

Johanna
Johanna
5 years ago
Reply to  Big-D

But no matter how you slice it, it takes a lot more than three hours to earn that amount of discretionary income, because you’re spending more than 0% of your salary on things like taxes, housing, and transportation. Whether it costs you a day or three days or a whole month depends on whether you’ve already committed 50% or 80% or 95% of your income on required expenses, which is why it’s so important to keep your “must-have” expenses low.

Big-D
Big-D
5 years ago
Reply to  Johanna

Yes … that is the case with all expenses (a jug of milk or a coffee maker). It is also the case that it costs more as you have sales tax on the item (or shipping if purchased online). Everything costs more than the face value of the item no matter what you do. However any person does internal reflection to determine how much that $100 is worth to them in terms of salary and timeframe. They might immediately dismiss it and say they want it now because they have the impulse control of a gnat. My point was more… Read more »

CV
CV
5 years ago
Reply to  Marsha

Yes, this exactly! That’s about my salary, and as a single person living in an area of the country with expensive housing costs, and high taxes, it really doesn’t end up going all that far. Don’t get me wrong, I’m extremely grateful for my salary, and I’ve worked hard to be able to earn what I do, but yes, after all the various federal and state taxes, health insurance, health flex spending account money, and retirement contributions are deducted, the ol’ paycheck isn’t an amount that would put me in a position where I would feel secure enough to make… Read more »

Pumbaa
Pumbaa
5 years ago
Reply to  CV

Perhaps you should consider moving to a part of the country where you are not taxed to death. Do you happen to live in California or New York City? I am waiting to become a billionaire before I would ever consider moving to NYC!

Carla
Carla
5 years ago
Reply to  Marsha

Wow! That’s a very depressing perspective for those of us who don’t make that much. Depressing and sobering.

mysticaltyger
mysticaltyger
5 years ago
Reply to  Carla

Three’s nothing depressing about it. Once you reach a certain income level, and I think 79K is definitely at or beyond that level, happiness is an inside job. $138 coffee pots just don’t add much to your happiness in the long run.

Carla
Carla
5 years ago
Reply to  mysticaltyger

Its not about the coffee pot, I don’t care about a $100 coffee pot. Its the security and freedom.

Pumbaa
Pumbaa
5 years ago
Reply to  Marsha

I have had a $10 coffee maker and a maker that cost over one hundred dollars. The $100 maker burned out in a year.

I could not tell any difference in the taste of the coffee. It is the quality of the coffee you buy and not who makes the coffee maker.

nicoleandmaggie
nicoleandmaggie
5 years ago

Great post!

The way I know that I’m rich is that I can spend whatever I want to at the grocery store. Anything! Without even paying attention.

But we’re still careful about a lot of purchases, especially the big ones.

Kristin Wong
Kristin Wong
5 years ago

Haha, that was always my goal as a kid. I always thought, “I can’t wait until I grow up, get rich and can buy pop tarts whenever I want.”

Melissa
Melissa
5 years ago

Too funny! That was also my “underwear test”. The first time I could go grocery shopping and just fill my cart without keeping track of the total in my head was so liberating. It was that day that I knew our personal economy was no longer teetering on the edge. And that got me motivated to pursue other financial goals.

Kat
Kat
5 years ago

How funny, it was the same for us too! GRS talks a lot about having Enough, and to me that means being able to buy the organic lettuce instead of the regular lettuce without feeling any guilt whatsoever.

We’re up to buying the “natural, antibiotic-free” meats now, but not quite up to buying the organic meats. I guess buying the organic meats is for when you’re really livin’ high on the hog. 🙂

Rail
Rail
5 years ago

Because of my job my income can vary by a very wide degree, we’re talking up to 20-25K a year. Therefor I try to always live on the lean side of life and when I’m in Fat City the extra gets banked or invested or used for home improvement etc. I lived pretty damn poor from 18-28 and I don’t want to do it again. Cheers!

Beth2
Beth2
5 years ago

Knowing what your annualized expenditures are for utilities… savings goals, Roth contributions, property taxes, etc. and what they work out to be on a monthly basis is critical to effective money management, yet most of my friends (in their 40s and 50s) still don’t have a handle on those figures. Without that information, they don’t really know what they have to spend, so savings coups on purchases large or small become meaningless. Most of them would be stumped in terms of their hourly rate. You’ve done a nice job here, Ms. Wong.

getagrip
getagrip
5 years ago

The person’s comment about “if I made X I wouldn’t worry” is sadly what most people think because the X is usually double or more what they’re making now and most people imagine if they doubled or tripled their salary they would have a much easier life. If you suddenly had double your current income, most of us would “feel” better off and most would plan to save a fair amount of that good fortune and really take care of it. The problem is it is rare for most people to double or triple their salaries over the course of… Read more »

Johanna
Johanna
5 years ago

Some constructive criticism: Be careful with your article titles. This is a great article, but I kept waiting for you to get to the part about someone with a six-figure income who’s still paying off debt, and I was a little confused when it never came. You can have the best article in the world, but if you set up expectations that the article doesn’t meet, that’s going to effect how it’s received. To address the question in the title: It’s not necessarily that shocking that someone with a six-figure income would still be paying off debt. You don’t know… Read more »

Linda Vergon
5 years ago
Reply to  Johanna

Thanks for pointing this out, Johanna. In this case, I actually changed Kristin’s headline. Even though her article uses the topic of lifestyle inflation, as I read it, I really thought of it as a prescription for someone who is either making a lot of money but never seems to get anywhere or maybe just got a raise and wants to make sure they don’t start “racking up debt” as you put it. (Wish I’d thought of that phrase, though!) So I believe the article fulfills the headline taken from that point of view, and I certainly hope it gives… Read more »

LeRainDrop
LeRainDrop
5 years ago
Reply to  Linda Vergon

I agree with Johanna and disagree with Linda. I don’t think Linda’s title matches Kristin’s article at all. Frankly, I was mad at the title before I even started reading. Have you ever heard of a doctor or a lawyer? Yeah, they start out with six-figure incomes but giant student loans, so the situation in the title is to be expected, not to be looked down on as a failure. I enjoyed Kristin’s writing, as usual.

sarah
sarah
5 years ago
Reply to  Linda Vergon

I agree that the title makes no sense and is irritating. Click bait I guess.

Jen
Jen
5 years ago
Reply to  sarah

Total click bait. Total injustice to Kristin and her good writing.

DreamChaser57
DreamChaser57
5 years ago
Reply to  Linda Vergon

Hmmm……the title was completely off and while I respect Linda’s contribution to the GRS community, I think totally inappropriate and distasteful to debate with a reader. Some feedback should just be taken into consideration and mulled over. A disproportionate number of the responses to posts are from authors/editors defending their journalistic choices. The choices that usually work best are the ones that resonate with the GRS community. I think journalism is de-evolving – due to so much sensationalism. What can bait a reader, the content of the article is disjointed. Six Figure Earners, DINK (Dual Income No Kids) — are… Read more »

zoranian
zoranian
5 years ago

I have been a debt counselor before with a non-profit debt management agency. I will say the hardest people to convince are the one’s that make the most money, because they are convinced that they deserve it. I’ve seen quite a few people in my office making $100,000 with $60,000 in credit card debt and the balances are still increasing. When I ask what they spend it on, whatever “big ticket” item is killing them the most is the one thing they can’t give up. One had huge car and boat payments, and their problem was that “going to the… Read more »

Nicole
Nicole
5 years ago
Reply to  zoranian

$100,000 isn’t really all that much when you factor in trying to save for retirement to be completely comfortable, especially if one didn’t start saving until their thirties. So it boggles my mind that even at that income level people wouldn’t be more careful with their money. One bad illness and they could be in deep debt. I don’t think it’s ever a mistake to thing hard about a purchase no matter what your level of income is. Personally, I’m starting to feel a bit claustrophobic with my material items and I don’t really buy that much, particularly in the… Read more »

Carla
Carla
5 years ago
Reply to  zoranian

Some of the people I knew who earned $100K+ per year often worked 60+ hours a week. I think they may have felt if they worked that hard, they deserve the rewards. I remember the “work hard, play hard” mentality of the Dot Com boom and the lifestyle inflation that followed. Unfortunately the extreme lifestyle inflation was often purchased on credit.

Jeff
Jeff
5 years ago
Reply to  Carla

Yeah but if they’re regularly working 60-hour weeks for 40-hours of salary then they’re actually making a bit less per hour to get that $100k than someone earning $70k who is working the regular 40 hours a week.

J
J
5 years ago

Another great post. People need to understand that it is HARDER, not easier, to manage a larger amount of money.

nicoleandmaggie
nicoleandmaggie
5 years ago
Reply to  J

Having had both…

uh, no

RNR
RNR
5 years ago

Autopilot helps. I’ve been blessed to max my 403(b) the last few years (including the 50+ add-on). I’ve found that is the best way to save for me – to get it out of my hands before it lands in my check! Budgeting has also helped a great deal, with autopays on my regular bills, and my tithe. That gives me a real clear picture of what I have “left.” I do have some persistent CC debt, and a mortgage on a small, affordable house. Vehicles are bought used, or bought new and driven for 10 years. I take care… Read more »

TY
TY
5 years ago

If the person buying the $116 coffee maker to replace going to Starbucks everyday, then it’s a good investment. $116/$2 grande coffee = 58 days of coffee.

Mike
Mike
5 years ago

I bought a $140 coffee maker 6 years ago, after spending a few months researching different coffee makers. Guess what, after 6 years of almost daily use, it still makes better coffee than the 2 $40 coffee makers I went through in the 2 years prior to my coffee maker splurge. The heating elements on many cheap, and some expensive, but poorly made coffee makers, are just terrible. This results in bad coffee. The cheaper solution is to switch to a french press, but I’m lazy. My point is, I’m all for assuming some things are ridiculous, or unnecessary, but… Read more »

Woodstock
Woodstock
5 years ago
Reply to  Mike

So, Mike, what coffee maker did you buy that you like so much?

Even with a coffee maker, grinder and buying one’s own beans, making coffee at home saves one money over buying it at coffee joints daily.

–woodstock

Mike
Mike
5 years ago
Reply to  Woodstock

Agreed, $3 coffee adds up pretty quickly. I bought the Jura-Capresso MT500. I think it was replaced by the MT600, but it’s still a worthy coffee maker.

zambian lady
zambian lady
5 years ago

I believe in not only living below my means, but maintaining my costs at about the same level even when my income increases. I have come to realize that I am a very easy person to please and I do not need anything extra because I have a bit more money.

lmoot
lmoot
5 years ago

To me the term “inflation” indicates something creeping up. I think I would continue to spend carefully on a month to month basis if I started earning more money because I have so many financial goals that I don’t have the time or care to introduce new desires…everything would likely go towards the things I’ve been saving for anyway. So I dunno, would it be inflation if you spend money on things you’ve been contributing money towards anyway? Except now you could just achieve it quicker? I guess it could still be lifestyle inflation. One way though I definitely keep… Read more »

Beth2
Beth2
5 years ago
Reply to  lmoot

A benchmark I find useful is the minimum wage. Though my hourly rate (I’m salaried) is many, many times that of a fast food worker, I practice quick mental math when calculating the affordability of an item I’m looking to purchase. For example, I divide the total price by the benchy and then ask myself, will I really get x or more hours of use/pleasure/etc. out of this purchase? Sometimes the Q is flipped, as in is this lotion worth nearly an hour of (benchmarked) labor. I know it sounds irrelevant since I make so much more than this base… Read more »

Hilary
Hilary
5 years ago
Reply to  lmoot

“A trick I’ve learned is how to ask a different question when contemplating a purchase. Rather than ask “Do I want to spend $5 for this item” I ask “Do I want this item”? That has to be the deciding factor for me because I’ve always tried to buy for longevity…this allows for 3 things to happen: 1) I’m going to be stuck with this item so I choose more wisely 2) Because I buy for longevity, I really need to be careful how often, and what I add to my belongings, or it can get straight up hoarder-ish 3)… Read more »

Brian @ Debt Discipline
Brian @ Debt Discipline
5 years ago

With a six figure income we racked up six figures worth of debt. So it can be done if you are not aware/ paying attention to your money. No matter what your income if you have a plan and save more then you spend, you can be wealthy.

Roger Ledoux
Roger Ledoux
5 years ago

I need to get back to being frugal and thinking often of ways to save money. My income has doubled this year from last year and I now earn a good 6 figure income. Of the good habits I gave up was recycling and turning it in to get extra cash. Perhaps I need to do that again.

superbien
superbien
5 years ago

Re “26. Kat. How funny, it was the same for us too! GRS talks a lot about having Enough, and to me that means being able to buy the organic lettuce instead of the regular lettuce without feeling any guilt whatsoever. We’re up to buying the “natural, antibiotic-free” meats now, but not quite up to buying the organic meats. I guess buying the organic meats is for when you’re really livin’ high on the hog. :)” Kat, may I suggest that if you do get to that level of comfort with choosing meat based on something other than price (which… Read more »

Emma | iHELP Student Loans
Emma | iHELP Student Loans
5 years ago

Great post. I think frugality is just as important as a high income, if not more so. Too many people quickly spend away their high income, but being frugal enables you to live well even on a small budget.

Thrifty
Thrifty
5 years ago

Great article! Your third paragraph reminds me of advice a good friend and coworker told me 15 years ago when we were discussing bankrupt athletes and superstars….”It doesn’t matter how much money you make, what matters most is how much money you save.”

Thankfully over the years both my earnings and savings have increased; caused mostly because I developed a terminal case of Frugalitis; a disease that leaves the inflicted with a never-ending desire to not spend money. Fortunately there is no cure. Unfortunately my case continues to get worse and worse every year.

Keep up the good work!

Hilary
Hilary
5 years ago

Kristin, This is a relevant post for me. My husband and I just moved across the country and with his (just barely) 6-figure income, we thought our financial stress would be gone, because formerly, I was working full time while he was in school and my salary was nowhere near 6 figures, so we weren’t saving up money, but we had enough to get by. Anyway, we realized that the East Coast is expensive (coming from AZ) and our housing costs have doubled for an apartment half the size of what we were living in formerly. Still, I thought that… Read more »

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