5 Bills To Trim When You Start Making $100K
Earning a six-figure salary makes it easier to save and invest, but those same earnings can fuel lifestyle creep and put you deeper into debt. That’s why it is good to take inventory of your current expenses and minimize how many new costs enter your life.
These are some of the top five bills that you should trim when earning $100,000 per year. At the minimum, you should keep them steady instead of boosting them because you got a salary bump.
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1. Upgraded Car Payments
Most people do not need a new car just because their income went up. You can keep riding your current vehicle or consider a similar replacement instead of looking for the newest model.
Jeff Bell, a former investment banker and strategy consultant at Bain & Company and founder of Gold Creek Pond LLC, cited upgraded car payments as a major expense to trim or avoid.
“There's nothing wrong with upgrading your car eventually,” Bell said. “The mistake is to do it automatically when a raise comes in, without considering what that money could be doing elsewhere.”
If you aren’t careful about upgraded car payments, Bell warns that you can end up paying an extra $400 to $500 per month.
“The real cost isn't actually in the payment. It is [what] the money might have grown into if invested. That $500 a month invested in an index fund that averages 10% a year will grow to around $340,000 in 20 years. Meanwhile, the car loses its value over the years and by year five, is only worth a fraction of what you paid for it,” Bell said.
2. Insurance
It’s not just the high costs that trip up people. The smaller expenses also add up.
“[High earners] don't even check anymore if there is a better rate available somewhere else,” Bell said. “The problem is, car insurance rates can differ by hundreds of dollars a year between companies for the same coverage, and most car insurance companies increase their rates at renewal time, knowing you probably won't notice or shop around. The same applies to cell phone plans.”
While comparing insurance quotes isn’t the most exciting thing in the world, Bell encourages people to focus on how much they can save and how their extra investments can compound.
“If you would actually run a real comparison once a year on insurance, phone and utility companies, you would be reducing around 15%, which would total to $1,000 to $2,000 a year. If you would redirect that money into an index fund instead of just sitting as a slightly smaller monthly bill, that same $1,000 to $2,000 per year compounds into real money over a decade,” Bell said.
3. Convenience Spending
Some services offer convenience for a higher price tag. For instance, you can order food on DoorDash instead of going to the grocery store, but you will end up paying a lot more. Ashley F. Morgan, a debt and bankruptcy lawyer in Northern Virginia, doesn’t believe you should get rid of convenience spending entirely, but it’s worth knowing the trade-off and monitoring your finances.
“The issue is intentional versus automatic spending," Morgan said. "Budgeting for a daily coffee because you enjoy it is completely reasonable. Ordering food four nights a week because you stopped paying attention to what you spend is different. Higher income makes it much easier to stop noticing $20.00, $30.00, and $50.00 purchases, and those expenses add up quickly.”
Morgan encourages people to assess their convenience spending to determine if they are getting real value out of it or if the costs are too high to justify.
4. High-Interest Debt Payments
It’s normal to get into debt for various purchases and emergencies, but once you have a high income, you should prioritize paying off all your balances. Morgan said that paying off high-interest debt now will eliminate a monthly expense from your budget for the rest of your life, as long as you stay out of debt.
“With additional income, you can increase how much you pay on debt rather than simply making the minimum payments. If someone reaches $100,000.00 while carrying credit card balances at 25% or 30% interest, they should apply a meaningful portion of the raise toward eliminating those balances,” Morgan said.
5. Housing
Housing is another big expense that tends to inflate over time. Higher incomes often translate into larger homes, but it doesn’t have to be that way. While a new home can make sense, Morgan encourages readers to consider a few points before upsizing.
“Increasing your biggest expense often creates the biggest potential burden to your cash flow," Morgan said. "Making $100,000.00 doesn’t necessarily mean it is time for a larger apartment or more expensive house. Before upgrading your housing, I would ask whether your current housing actually doesn’t meet your needs or whether you are just looking for something nicer."
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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