Making $80K vs. $150K: Where the Extra Money Actually Goes
It’s hard to imagine that anyone wouldn’t want to double their income — or at least get close. But where does the money go for those who actually make such a leap after changing careers, completing a degree or opening a business?
Many who have transitioned from a respectable, but fairly common $80,000 salary to the wealth-building potential of $150,000 per year ended up no better off than before — but plenty of others capitalized on the life-changing opportunity. It all depends on where the extra money goes.
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It’s Easy To Be Broke on a 6-Figure Salary — But It’s Certainly Avoidable
Recent studies from the Harris Poll and the consulting firm Kearney found that a six-figure salary is no longer the magical milestone it once was. More and more people earning $100,000-plus are living on the financial edge, struggling with debt, working side hustles to make ends meet, and even skipping meals to get by, despite the illusion of affluence that accompanies such an enviable paycheck.
Surely some face genuine obstacles that overspending didn’t create: expensive medical conditions, the challenge of financing both aging parents and growing children simultaneously or living in an exceptionally high-cost-of-living city. Unsurprisingly, however, both reports found that struggling high earners often suffer from self-inflicted high costs: overly ambitious mortgages, substantial debt and inflated lifestyles.
Virtually no one starts off with a six-figure salary, and generally, the choices people make immediately after achieving a major pay bump determine whether the new income makes them wealthy or turns them into a cautionary tale of what not to do.
Resisting Lifestyle Creep Is a Necessary Start — But Just a Start
Lifestyle inflation — spending more as you earn more — is the most common and obvious killer of a newly outsized income. However, MoneyLion spoke with a certified financial planner (CFP) who cautioned that resisting the urge to splurge on what you couldn’t avoid yesterday isn’t enough on its own. That foundational discipline must be paired with strategic allocation of the extra money before complacency sets in.
“The clients who build real wealth aren't the ones who just resist upgrading their lifestyle,” said Camille M. Gagliardi, CFP with Stepping Stone Wealth, a private wealth advisory practice of Ameriprise Financial Services. “They're the ones who pay down debt and automate savings before the new income has a chance to just become the new normal.”
A Successful Transition to the Upper-Middle Class
Those who manage the dramatic leap from a salary that’s comfortably middle class to one that puts them at the entry-level of upper-middle-class affluence typically do so through two different paths, depending on their age, according to Gagliardi.
“The money splits three ways, and life stage decides the proportions,” she said.
The success stories who haven’t yet reached middle age usually direct their newfound dollars toward repaying the ones they borrowed during the preceding lean years.
“Younger clients jumping from $80,000 to $150,000 put a real chunk toward debt first,” said Gagliardi. “Credit cards, student loans, sometimes a car loan, before any of it reaches savings.”
Those who age into higher salaries typically come to Gagliardi with cleaner slates — less debt, but an intense desire to make up for lost time with missed savings contributions.
“Clients in their 40s and 50s making the same jump usually skip that step,” she said. “Debt is already handled, and they send the increase straight to catching up on retirement or building the reserve they never had room for.”
Either way, the success stories handle those shortcomings before they go shopping or book a luxury vacation.
“Across both groups, spending only expands after the first two are covered,” said Gagliardi.
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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