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 remember my first job in London I was on about 22k before tax and then went to 55k in 3 years.
I thought I would feel richer and I did not. In fact I had bigger debts. And none of it was “being thick”. It was purely life style creep and also having a poor approach to managing my finances. (I strangely told myself I did not earn enough to save, so I did not, but did earn enough to pay for the experiences I valued in life such as travel and time with friends).

Fast forward years later and I am much better with finances. I still live pay cheque to pay cheque but that is because I put about 25% of my post tax income into savings and investments.

I still am not on the property ladder but that is a direct consequence of old me’s behaviour. But if I had children I could imagine living pay cheque to pay cheque as I would want to have private school, would need childcare etc.

But most importantly life style changes as you earn more.

I do wonder if it is this. I've had several affluent friends claiming they can ' only just about afford their mortgage', yet always eat out on family day trips, regularly eat out with friends, have lots of leisure activities that cost money and go on several holidays a year.

I do at the moment, yes, but my own fault really, I don't know where it goes and I don't make enough effort to control it. I earn about £6500 after tax each month and support a family of five. £1500 mortgage, £1000 bills, £260 cleaning, £100 car maintenance , £200 fuel, £75 gym, £ £500 kids activities, £100 eating out, £600 holidays, £800 food, £200 hobbies, £90 tube fares, £70 mobiles...still doesn't add up to £6500 though. From a quick review, it looks like we overspent on kids stuff over the summer holidays, loads of activities and clothes and days out that have ended up in overdraft.

I would say they are idiots, who think they are 'entitled' to have whatever they want, whenever they want, rather than being prudent. Plenty of them about.

My husband is a high earner, I earn an average amount. When our initial relationship became more serious, and we first made a monthly budget/shared finances info, I was really shocked at his spending vs his savings.

It was lifestyle creep for him in the finance bubble, plus living alone renting a nice 2-bed London flat, travelling, eating out all the time, and enjoyed his money/life/experiences after growing up quite poor. I don't really blame him, but it was a shock to me as I am the polar opposite & quite frugal.

I don't believe there's any reason someone on over £100K should be 'struggling'. Realistically they are 'struggling' to keep up with their social circle who may have private/prep school/beautiful holidays/new cars on finance/new kitchen/huge mortgage, but they shouldn't objectively be struggling and living paycheck to paycheck?. I do however accept nursery fees are a killer.

Now, with our combined income, I manage our finances, we are able to live on his wage alone, and save all of mine. Security is important to us, we could have bought a flashier house and maxxed our mortgage affordability, brand new cars (we have two old fords paid off), and renovated our house quicker, but we choose to have savings in the bank and don't care about keeping up with the jones'. I don't see how people in our position are living paycheck to paycheck, we've never had any family help financially either, we've just learned to cut our cloth appropriately.

High mortgages, childcare fees, school fees if they’re keeping up with the Joneses, expensive car finance, debt repayments, holidays to keep up with the Joneses, expensive extracurricular clubs for kids. All sorts of reasons.

Our mortgage went up £700pcm and our PS fees are about to go up £700pcm. All of our other outgoings have also gone up.

3 years ago, we would have been around £2.5k a month better off.

This says more about you.

A lot of people are getting needs confused with wants. Like the OP saying their car loan costs 1k a month. You don't 'need' such an expensive car. Ppl don't need to send their kids to private school. And as for all of these massive mortgages, why not downsize or move to a cheaper area? I appreciate that childcare costs are crippling for some but hopefully this will only last a few years.

The cost of living today is nuts. Inflation has been crazy recently.

I got my first professional job in London in 2002. I was paid £60k. I was single, living in a flatshare and could not believe my riches.

According to the Bank of England inflation calculator, goods that cost £60k in 2002 would cost £108k today. Everything has gone up in price massively. Wages have not kept pace. Plus I now have a mortgage, childcare, school fees, house repairs, etc. I feel far poorer even though I earn much more. Large sums get swallowed up by housing and childcare in particular.

Regarding downsizing or moving to a cheaper area.

A £400k mortgage might be costing you 2.5k at the moment.

Given the price of property in London, where are you going to downsize to?

We moved out of London when my DS was 6 months old as we wanted a house with a garden instead of our 2nd floor flat. (Also because of the riots). And I don't regret it one bit. So there are options. London isn't the b all and end all.

@SLeanne how much does the house you moved to cost (today), and how much does it cost to commute into London?

With £400k you still aren’t going to get a lot of house within commuting distance of London and it will still cost you £2500 a month in mortgage repayments.

What kind of price range are you thinking? Keeping in mind of course that even if you reduce the mortgage by X, you need to consider Y in commuting costs.

But this is the point, you’re putting away 20k to savings and holidays - some people have to only live off 20k for rent bills, food- everything. People can’t act hard done by when they spend their money on luxury’s and act like they have no money in their bank - because you spent it on luxury’s and have thousands and thousands in savings🤣

We don't commute to London. I never said we did. There are jobs in other parts of the country you know!

@SLeanne so ‘downsize and move to a cheaper area’ is actually… quit your jobs, take your children out of
school / nursery, sell your house and move somewhere you may have no network, friends or employment.

Easy!

The question is ‘how do people on these salaries live paycheck to pay check’ - well, this is how. It’s not as easy as just giving up everything and moving to another part of the country.

And - buying a house today is a very different prospect to 15-20 years ago. That experience is not really relevant to today’s workers and young parents.

We moved out of London roughly 13 years ago and with the sale of our flat we bought a small (but lovely) terraced house and paid off the mortgage. We have since moved into a large detached house and with the money we saved on having no mortgage, we still have no mortgage. If you want / need to live in London, then that's fine, but it isn't for everyone, and I for one wouldn't want to be working every hour God sends just to break even. That makes no sense to me at all.

No, we did it when our first child was 6 months old, and the 2nd hadn't been born.
I am not saying that is what people should do, I am saying that there are other options for those who find London is too expensive for the lifestyle / home they want to achieve.

@SLeanne what was true 15 years ago isn’t necessarily the same today.

Im pretty sure if I’d owned a house in London 15 years ago I’d be mortgage free if I moved out now too - but I’m not, and the average age of a FTB here is 34.

And in any case - it’s not just the cost of the house, it’s that having a young child may cost you the same again in nursery fees, per child. That is an issue nationwide.

And of course - outside of London salaries are lower, so the headline figure is meaningless really. And particularly once childcare costs are taken into account, which is the most common theme among these ‘struggling’ higher earners.

15 years ago my husband and I wanted to get out of London with our young children. Our skills are niche and this is where the jobs are for us.

We consoled ourselves that even though all our money went on the mortgage, at least some day we would have a valuable asset. Not sure how thst will pan out with wealth taxes coming …

There's a lot you can do when you don't have a mortgage, including one of you taking a career break, thus having no nursery fees. Again, I'm not saying this is for everyone, but people seem to think that they are stuck with the situation they are in and then complaining they have no money left, and this that and the other is too expensive!

Also it's a generalisation to say salaries outside of London are lower.

How many parents of six month old babies do you think have enough cash to buy a house almost outright, anywhere?

It is quite apparent being mortgage free would make anyone’s financial health rather better, but without massive family wealth this is completely unrealistic for 99% of young people. If you’re buying a property today as a first time buyer, you aren’t going to be making massive equity gains in a short period of time as some experienced in London 15+ years ago.

And - it’s not desirable to take ‘a career break’ for a lot of women, for their own financial independence and future opportunity to retire.

”oh just buy a house in cash then you can quit your job and have no childcare costs”. Brilliant.

Nowhere did I say the woman 'should' take a career break. I said it is an option for one of you if that's what you want to do. Please don't twist my words.
If any person chooses to have children and continue with their career / vocation, then good for them, but they know beforehand what the nursery is likely to cost, so why moan about it afterwards.

DH and I are reasonably high earners, him £70k and me £60k, plus £20k bonus that goes straight to savings and holidays.

That’s a pretty big bonus vs salary ratio. Intrigued as to what industry or are you just both young starting out?