To Q why many high earners still live paycheque to paycheque?

[FrugalFannie]

I wanted to spark a discussion after seeing a post about living paycheque to paycheque. An interesting article I read in the ES (Nov, 2023) claimed that “Some 26% of people surveyed across the UK with an annual income of £100,000 + said they had no money left at the end of the month” https://www.standard.co.uk/business/money/26-of-people-earning-ps100-000plus-living-monthtomonth-amid-costs-squeeze-b1121031.html

Recent years have indeed been tough financially, but if you earn a relatively good or high wage, it seems surprising to still be living paycheque to paycheque. I personally don’t live this way; I’m a single woman with no children and consider myself smart with money.

I’d love to hear from those who aren’t living paycheque to paycheque about how they manage their finances. What strategies do you use? Is it a matter of being extremely frugal in this economy? Clearly, this issue affects people across various income levels, and I recognise that everyone’s situation is unique. I’m genuinely curious to learn about different financial approaches that work for you!

100k is seen as some magical figure but as a pp pointed out it's 5k ish a month.

Commuting into London from where we live is £40 a day with parking, house prices are obscene so mortgage costs are v. high add in a child at nursery or school fees and it's all gone.

@Bringautumnnights

I understand what you're saying but I think if I was genuinely living from one month to the next and heard you say that I'd feel like it wasn't really an accurate representation of what was happening?

I technically usually end up with the same amount, ish, in my current account at the end of the month as the beginning, but as that involves saving over 40% of my income in one way or another, I would never describe myself as living "paycheck to paycheck".

You'd be surprised. See above about net you get from 100k and then add mortgage and childcare

Because when a poor person says they have no money left they mean they literally have zero in all bank accounts when a rich person says it their not counting savings accounts

Dh and I each earn £100k gross. We both pay into pensions and after tax we each get about £4k so total £8k. Our mortgage on apartment is £2.5k per month, we overpay by another £1.5k. £1k on car loan. £2k on nursery in London. Other dc goes to state school. £1k for bills and food. Absolutely zilch leftover.

u can say why overpay into mortgage? Cos the interest rates suck now and want to reduce the impact when we remortgage. Why pay so much into pensions? Cos the tax system is punitive in this country and does not incentivise hard work for middle class people. No holidays at all. Really stuck in a vicious cycle. We may hv been better off if we didn’t work and were on benefits!

£100k per year is taxed to fuck. So they aren’t laying around on a bed of £20 notes

in London they easily be spending a fortune on childcare and rent/mortgage

What sort of mortgage is someone on £100k getting? I bet it isn't for a shared ownership place for £125k.

They probably shop in Waitrose.

The rest of us low earners shop in Lidl or Aldi.

Definitely lifestyle creep. We have a household income of £100K+ but (and I realise we are very lucky) we and have a nice house and mortgage to match, nice cars, and payments to match, nice gym memberships, clothes, pets, 2x DC and all that goes with them, lovely holidays etc etc. I'm absolutely not complaining, but it's very easy to spend it..

My partner and I had a financial planner calculate exactly how much we spend on everything (mortgage, school, pension, savings etc) and how much spending money we have left over (eg for eating out, holidays, new clothes, treats etc).

We can then be confident that we are living within our means and meeting all of our financial requirements.

I would recommend that approach to everyone. (& the cost of the financial advisor is not that high considering the benefits.)

I read a book years ago called “The Millionaire Next Door” which analysed why some people on similar incomes acquired wealth & some did not. Basically the millionaires focused on wealth, eg, capital, rather than purchasing.
I positively enjoy second hand stuff, I have almost no new furniture, my couches are nearly 20 years old but look fine, occasionally buy new throw pillows, blinds from IKEA. Don’t eat out much, scratch cooking, but I don’t feel in the least bit deprived. Do my own decorating.
When I see spenders (new cars, constant workmen in changing stuff in their housed, new furniture on tick, etc) I do wonder how they finance this. There are only so many trust funds & venture capital jobs around!
I am acquainted with someone who is married to one of the biggest fund managers in the UK, and while they live well, they are not conspicuous consumers - again, the focus is on wealth, not purchasing.

DH mate is a very high earner, spends money like water. We haven’t seen him for a while but I bet we have more in savings , he was incapable of saving anything.

I was taught from a young age that you live within your means. You wait until you can afford something to buy it (except for a home, and then you pay down the mortgage early, as you can). If you can't afford to buy everything you need at once, you get it one piece at a time.

If you can't control your impulse purchases, or if you find yourself spending more than you should, sit down and make a budget. Plan out how much you have to pay for necessities, then decide how much you're allowing yourself to spend for recreation/treats. Find frugal ways to enjoy your life, use things up/wear them out, and don't feel you must buy the most expensive brand or version of everything. It's okay to splurge, but don't let constant splurging become your way of life.

Basically, never spend every last bit. If you get a raise, you don't have to 'upgrade' your lifestyle to reflect that. Live comfortably, not wastefully. Save every month. Put money away, invest it, etc, and forget it's there. It's not burning a hole in your pocket.

They live in London?

I've never lived paycheck to paycheck and always keep a small cushion in my current account, and transfer a decent amount into longer term investments. I have a very good income now but I was the same when earning minimum wage. I think I just like squirreling money away to be honest, watching my savings grow gives me a good feeling and I've always liked pointlessly checking my balance when I know it's a decent amount.

I live frugally in some ways, like I don't have a car and never use taxis, only public transport, and I never get drinks out and just bring a water bottle everywhere. But then again we pay for private school, have multiple holidays and expensive trips out, so I don't mind paying for the things I value. I don't do a formal budget but I know there will be plenty of money left at the end of the month and I'm mindful of what I spend even though some of it will be considered luxuries.

Maybe they mean they have nothing left after monthly expenses and budgeted savings have been allocated. But many people are bad with money; just look at the number of huge new SUVs on the road. A terrible financial decision for almost everyone on the planet! 😂

Doesn't matter how much is coming in, it's how much is going out. Most people live up to their means.

So I'm in a weird situation where my partner and I started a business that really took off. It took over our whole lives.

We are not mega millionaire high earners but we haven't "upgraded" our lives with spending that much of the new income even 5 years on.

Instead of moving to a bigger house we are finishing paying off the mortgage on our starter home, which is £500 a month (without any of the overpaying we've been doing) because we locked it in on a 5yr fix just before the interest rates went up.

We put money into ISAs and LISAs and 5% interest savings accounts because we haven't got around to looking at how to invest it yet.

We don't have a car, or even a dishwasher - our kitchen is too small.

We don't have kids.

We have installed aircon and done up the house a bit. We've also had some nice business trips/holidays away.

If I'm buying something I don't look at the price tag, but then I'm a harrumphh of simple habits. Designer bags and clothes don't appeal to me. But we do spend £250 a week on food for the two of us, and we like our gadgets.

If we wanted to we could buy a £1m house, have a massive mortgage, fancy car etc. We don't want to. In some ways it's probably a mistake because it's better to upgrade property-wise now instead of paying more in years to come.

But I grew up without any financial security, my parents lost our family home, they were terrible with money. I would panic if I lived outside my means.

I also believe for a lot of people it's a choice - they are choosing to live in an expensive area, they are choosing to have kids, they are choosing xyz. And that's fine, that's their choice, but also making a choice means not choosing something else.

Yes, and fix/repair things! Imagine how wasteful these couples' lives are if they're actually spending £100,000 a year. What are they throwing away?!

We currently live paycheque to paycheque. Salary is £180k+. We are not ‘as thick as pig shit’ as some poster poetically put it. We are very financially astute, but it’s also a season of life.

People live to their means. This is not a revelation.

If someone doesn’t understand how someone can spent 100k salary each month with zero savings just needs to go on rightmove and look at the house prices in London / South East. Of course not all high earners live in the capital, but many do and it comes at a massive cost. Add in pension contributions, childcare for 1-2 kids, travel cost, you’re not going to get much change for your 5k a month.

You're assuming you'll be in good health to keep earning that amount instead of needing to save now. Seems a strange decision when you could have financial security if you chose to.

As all know £100k a year is about 5700 a month after tax and then take off the 9% student loan/graduate tax.. Then full time childcare for 2 babies is about £50k to £60k in London out of net pay and we are already below zero.....

Why do you think people would be throwing lots away just because they earn £100k?

Someone explained it well in simple terms upthread.
It's 5k a month. That's 2k on a mortgage, 2k on childcare and £1k on food and bills. People living like that are not lighting birthday candles with £50 notes.