If You're Making Six Figures and Living Paycheck to Paycheck, the Reason May Not Be What You Think

According to this article from CNBC, the percent of Americans earning more than six figures and living paycheck to paycheck was 49% in 2023. If this describes your situation, please know that you’re not alone.

The thing is, many people look at the situation and say that things like lifestyle inflation and the cost of living are contributing to this phenomenon. And while these may be contributing factors on the surface, there’s actually something much deeper that’s happening.

Understanding Money Mindset

Each of us has a money mindset, or a way that we view money. This consists of our thoughts and beliefs about money, along with our feelings toward it. Our money mindset drives our decisions that involve money. And if you’re earning six figures but still finding it hard to save or invest, your money mindset is ultimately to blame.

In this post, I talk about how you can know what your current money mindset is. But here, I want to address how a money mindset can contribute to earning six figures and still feeling broke.

How Money Mindset Can Contribute to Living Paycheck to Paycheck With Six Figures

Imagine that when you were a child, you were never able to afford nice things. Maybe your parents didn’t have the money to give you all the luxuries you desired, and you never forgot that. But now that you’re making six figures a year, you feel like you’ve made it. Now you can afford all the nice things that you never could before. And now you’re determined to never deprive yourself of all the luxuries you desire.

The problem is, this desire to give yourself every luxury is keeping you from taking the time to learn about things like budgeting and proper money management. It’s keeping you from learning about how credit cards work and why it’s important to pay off the statement balance (not current balance) in full every month and keep your credit utilization ratio below 30%. (If you’ve never even heard of these concepts before or considered them, you can thank your money mindset for that.)

You don’t want to learn about these things because your money mindset is trying to convince you that these things will keep you from giving yourself the luxuries you want. Your money mindset is trying to convince you that, if you restrict your spending at all, you’ll be disappointing the child who wanted nice things but couldn’t have them.

And if you do try to apply budgeting or money management techniques to your life without changing your money mindset, you might not have much success. Think of someone who tries to lose weight by dieting, but then goes back to their old eating habits before long. What they’re not doing is applying a principle I learned about in Atomic Habits by James Clear, the principle of making these changes part of your identity, rather than something you’re trying to achieve.

Instead of saying, for instance, “I’m learning how to manage my money better,” it would be more powerful and helpful to tell yourself something like, “I’m good at managing my money.” But the only way to make sure that new identity sticks is to uproot the old one. In other words, you have to change your money mindset.

How to Change Your Money Mindset

Changing your money mindset requires you to first recognize that you have one and that it’s driving all your money-related decisions. And then you have to figure out what beliefs are causing you to make those decisions. Once you recognize them, you have to change them by replacing them with new beliefs that allow you to make the best use of your money.

Let’s look back at the example above. The child in you may want you to buy nice things and live in an expensive place because of all the deprivation they felt they experienced. You might have to have a talk with your inner child to let them know that, by not spending everything at once, you’re actually ensuring that you’ll be able to live comfortably long-term. And you’re reducing the stress you’ll feel about money, which will make it easier for you to enjoy the present moment.

But when you do try to reduce your spending, remember that you’re allowed to enjoy some of your money now, too. It doesn’t all have to go to necessities. Budgeting principles like the 50/30/20 rule can help with that. (It may not work for everyone, but it basically says you reserve 50% of your after-tax income for needs, 30% for wants, and 20% for savings.)

Or maybe your spending habits aren’t a result of you wanting to give yourself what you felt deprived of as a child. Maybe you’re living paycheck to paycheck because you want to impress others. If so, maybe low self-esteem or self-worth is playing a role. But then, why is your self-esteem or self-worth so low? Could a childhood experience have anything to do with this?

Do you feel like other people never made you feel valued when you were younger, so now you feel the need to make yourself feel valuable by living in an expensive city and buying expensive clothing and cars?

Do you just not understand how money works because no one ever explained it to you? (Don’t worry, most people don’t get this explanation growing up.) Maybe now is the time to start working on improving your relationship with money so you actually want to learn about it and how to manage it better.

Final Thoughts

Just because you have a high salary, that doesn’t mean you automatically know how to make the best use of your money. While learning about things like budgeting and proper credit card use can be helpful, it’s even more helpful to retrain your mind to want to use money wisely. This is where money mindset work comes into play.

If you improve your money mindset, you’ll automatically be more inclined to make wise money decisions, which means you’ll have plenty for your wants, needs, savings, and plenty to invest. And if you would like to get started changing your money mindset, you can take a look at this post.

~ Ashley C.

Note: The advice presented here is for informational purposes only. If you’re in need of professional financial advice, please see a qualified professional.

Last updated: June 21, 2024