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!

i’m a sahm, DH earns 100k so its around 5k a month.

big spend on mortgage and my kids clubs (gymnastics, coding club, swimming, riding)

we still shop in Aldi. Still able to save around £200-£500 a month. But not living lavishly.

@SunriseMonsters is that right about child benefit? I’ve opted out of it because I earn an average wage but my partner earns around 65k, which I thought meant there was no point claiming

@Hugmorecats my mistake, the threshold where it starts to reduce was raised to £60k, not £70k. But it tapers from £60k to £70k so if the highest earner in your household earns £65k you would still be able to claim half of it (or more accurately, claim it all then pay half back through your tax return).

@SunriseMonsters I see you’re an early riser (or an insomniac?) like me!

Thanks for confirming, I wasn’t sure if I’d got it wrong. I do agree with you that generally it’s unfair that a one person household has it harder than a two person working one. For example council tax is only a 25% discount for single person.

Oh thank you, it seems to be a thing to call it a pay cheque and it’s irrationally irritating me!

one for the next time someone does a what annoys you thread.

@sunrisemonsters it actually tapers between £60k to £80k now so if salary was £65k (don't forgot that they use the figure after pension deductions) you would actually get to keep 75% of the child benefit.
This could change again soon though

I have a feeling the current thresholds will be staying frozen for a while. The Tories were kind of obliged to respond to the groundswell of support for changing it earlier this year, but the increase took a lot of the wind out of those sales, it did something to address a particularly problematic bottleneck and there's no GE coming up. Labour aren't under any real pressure to increase the thresholds, and it's politically less risky to freeze something so inflation creates a real terms cut in eligibility than it is to move the threshold downwards.

I know the last government did say they were going to look at making it household based, but that appears to have been kicked into the long grass.

That should help the PP then, they will only lose 1/4 of it if their partner earns £65k.

Unfortunately as you say it simply moved the bottleneck, closer to where the biggest bottleneck of all already exists at £100k so compounding that issue with people cutting hours/ retiring/ emmigrating.

If a Chancellor wants growth they need to (not in order of priority, all are essential):

1. Vastly reduce the Universal Credit taper rate and raise the threshold for where it begins.
2. Scrap the wothdrawal of child benefit entirely.
3. Scrap the withdrawal of 30hrs childcare and tax free childcare entirely.
4. Scrap the withdrawal of the personal allowance
5. Not do anything stupid to mess with pensions
6. Provide tax allowances/ thresholds on a household income unit basis. Cohabiting couples would have the household allowances automatically split 50/50 between them unless they both voluntarily make a revokable election on an opt-in basis to transfer some of it betwern them to reduce their tax bills.

Many economic factors are not within Government control. Those which they can influence are predominantly things which will take many years to see inprovements arise from. The tax system, however, is entirely within Government control and can be changed immediately. The above anaomalies create distortions and peverse incentives that robust independent economic research has demonstrated to be reducing productivity and growth.

The above measures would reduce state dependency, help to address skills shortages, increase employment participation, reduce poverty, reduce discrimination against women, increase treasury revenue within a matter of months providing additional funds for public services, increase average net income per capita and productivity.

None of it is hard to do. 6) is the only slightly more complex one but by no means difficult since it is how so many other countries operate their taxes. The others are a simple legislative change that can be done instantly.

It's really hard to understand why the last Government didn't do this when the "costs" to the treasury will be more than compensated for by the upside and robust research has shown them this. I had hoped the new Government would take a more evidence-based approach to policy and implement these obvious measures because they said they wanted growth but I see no signs of them intending to do so. Why can we never have a competent Government?

Yes, the Council tax one is also awful!

And yes, sadly, very little sleep here usually, with two disabled children and a full time job. I napped for a couple of hours last night if that counts? 😆

Apologies @Hugmorecats for my post being incorrect. This poster is correct. CB now tapers from £60-80k. So you should claim it. It'll be paid jn full and you will only have to retain 1/4 of it for your partner to pay back when they submit their tax return.

Some good news for someone, at least!

Imagine the same scenario but your DH alone so no you there to do the childcare for wrap around/ school holidays. Hello £3k per month nanny bill! Nice to meet you. Sorry DH, your £100k salary means you can't use tax free childcare etc, you need to spend over half of your net salary on childcare now. Could he and your children live comfortably on the remaining £2k to cover the mortgage, utilities, food and all other costs?

I am guessing not. And that is the reason that the £100k earnings meaningless without considering context, and why the lone parent earning £100k should not be taxed the way your DH is. In a couple either you don't have the childcare bill, or if both partners work you can use far less childcare juggling hours between you AND you each get taxed less (if earning say £50k each rather than one person earning £100k and one doing all childcare like you do, presumably). Either way, the lone parent is royally stitched up.

This really needs to change and anybody who cares about equality for women (90% of resident single parents being women still...) would campaign for this change.

Do you mind if I ask if you live in London? I am on £90k as a single woman and honestly it’s a struggle.

Do you mean less tax for high earners or less tax for parents?

I see your point but somebody has to pay for it. I am a single woman and part of my struggle is my tax load and nothing to claim as I am penalised for never having had children.

Honestly being single is the most expensive thing a person can do. I am almost tempted to settle for a bad relationship just to have a cheaper life!

Housing
housing
housing

As long as housing is an investment vehicle for non resident owners, rents and house prices will continue to rise astronomically.

Look at the stats for the increase in the last five years in the parts of the country with the highest proportion of higher earners. Salaries cannot compete. A much higher proportion of take home pay is now used up by housing costs.

Giving up takeaways or taking lunch into work etc really won’t balance that out for those facing the highest housing costs.

And the refusal to do anything about high housing costs is baffling to me. The private rental market is diabolical especially when you are living off one income. Homes should be for living not for people to enrich themselves.

Yes we are in london. Now imagine the struggle 😅😅

Well obviously it depends on their outgoings, how many kids they have, where they live, other responsibilities. £50k may seem a lot to you if you earn less than that.

Lifestyle creep and location. Our household income is just over 100K, however our mortgage is £600pm, we own our cars outright (one is 5 years old, the other is 9). No CC debt or outstanding loans, shop at Aldi, I buy most of my clothes on Vinted or in sales. We only splurge on travel/holidays.

I'm pregnant with our first but expecting childcare fees to be mimimal due to 30hrs free coming in in September, and we'll only need three days per week due to compressing hours and my mum and MIL are both retired and have offered childcare.

We save a substantial amount each month, and will be able to continue saving even when I'm on stat maternity pay.

You’re two moderate earners. If a true high earner - 100K just over would be tens of thousand worse off a year. That’s because of extra tax and loss of childcare hours. No personal allowance - let alone two. Thus highlighting the major problem and why true high earners cap their salary. Nothing to do with lifestyle creep. It’s a punitive tax system.

It also damages the less well off as those on higher pay work less and pay less tax as a result at all the bottle necks - benefits levels, then child benefit level, then loss of personal tax allowance/ 30 free hours level. My doctor sibling stopped working on Sundays once the state was taking about half as might as well spend time with children - patients were the loser there because tax is so high on those who pay the most tax.

I would rather once you had paid a fixed amount there was no more income tax or NI - a "capped" tax which I think Gibraltar has - it has a capped flat tax.

Don't most people? Dh and I are not high earners, only reasonable, but everyone we know needs to be paid at month end - paye, or have their invoices paid - self employed. Most people do.

Young couples may have big childcare costs. Now we've got Ds1's uni costs ti factor in! It never ends! There's always something.

Because the cost of living is high, perhaps.

Yes but the government has to her money some how and it's via tax on earnings. So many people in this country hardly pay tax or don't at all and still need public services

I would check you are entitled as I don't know if that funding has the same rules as the later 3 year funding where you aren't entitled if earning over £100k.