Money Expert Rachel Cruze: 5 Reasons Wealthy People Live Paycheck to Paycheck
Rachel Cruze’s insights on Americans living paycheck to paycheck, shared in a recent video, make it clear this isn’t just a problem for those with low or middle incomes. Wealthy individuals face unique financial challenges that can lead to the same struggles, albeit in a different tax bracket.
When not kept in check, the cost of living can sneak up on anyone. No matter your income level, if you are looking to break the cycle and stop living paycheck-to-paycheck, it never hurts to heed a financial expert’s advice.
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Quick Take: Lifestyle Creep
For many, the wealthy living paycheck to paycheck might not seem like a relatable problem, but that doesn’t negate the reality of the situation. The overarching theme of this situation seems to be the tendency toward lifestyle creep. This happens as a correlation between increasing income and your standard of living: Simply put, as both improve, what were once luxuries are now deemed necessities.
Cruze explained, “As your paycheck grows over time, so do your expenses, and most working Americans experience gradual salary growth along with steady inflation throughout their professional career.”
She pointed out that, due to the gradual increase in salary — “Rarely does someone go from making $35,000 a year to $400,000 a year overnight” — it’s easy to not notice your lifestyle getting more expensive, so tracking and managing your expenses gets harder.
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Why the Wealthy Live Paycheck to Paycheck
As your paycheck grows over time, so do your living expenses, but if you want to save money instead of spend, it may be time to make some budgetary edits. Cruze gave five reasons the wealthy may be living paycheck to paycheck and how to avoid it.
Inflation
As income rises, so do expectations and expenditures — and the added financial exhaustion of inflation. Cruze pointed out that many wealthy individuals fall into the trap of lifestyle inflation or just regular inflation, along with everyone else.
Cruze explained, “Things are starting to cost more money over time … If you’re feeling the pain of inflation, I’m right there with you, but unfortunately, none of us have the power to change the cost of our essentials, and things are going to cost more over the years, so the question is: What are you going to do about it?”
Without careful budgeting and financial planning, these expenses can quickly consume even a substantial salary, leaving little room for savings or unexpected costs.
Debt
It’s a common misconception that high earners are immune to consumer debt. In reality, wealthy individuals can find it difficult to pay off their debt after accumulating high mortgages, car loans, credit cards and other lines of credit.
Cruze emphasized that maintaining a lavish lifestyle often leads to borrowing money to cover expenses. “Debt might not feel like a real problem for someone that’s bringing in six figures, but sometimes, when people start to earn more money, they start to think that they can just take on more and more debt … but unfortunately, the reality is … debt is debt. It’s always going to steal your paycheck and feel like a burden. You’re not invincible just because you got a raise.”
She pointed out that, even with a higher income, interest and debt payments and late fees are still a reality if you’re in debt.
Increased Expectations
The pressure to maintain a certain image can be intense among affluent circles. Cruze noted that the desire to keep up with friends and colleagues can lead to excessive spending on social events, designer clothing and other status symbols.
Cruze advised that you shouldn’t feel you have to do or pay for everything you think is expected, like a bigger house or a home in a high-end neighborhood, or try to keep up with what people in your new income bracket are spending.
Lack of Adequate Insurance
Wealth doesn’t make one immune to life’s unexpected challenges or expenses. Cruze highlighted that medical emergencies, house repairs or other unforeseen events can strain even a robust bank account. Cruze is here to tell you that if you haven’t updated your insurance to reflect the value of your upgraded lifestyle, it could cost you.
“If your salary and standard of living have slowly crept up, don’t forget to properly insure the things that you own — so housing, car and health. It’s crucial that you’re fully covered in all of these areas in case of an emergency,” she said. “… The last thing you want is for a big, unexpected emergency to wipe out your insurance coverage and your emergency fund savings, so make sure you are covered.”
No Monthly Budget
Even those with significant earnings can suffer from a lack of financial literacy and planning. Cruze explained that without a solid financial plan or a proper budget, it’s easy for money to slip through the cracks. This includes failing to set up emergency funds, not investing wisely and neglecting retirement savings.
Without a clear strategy, wealthy individuals may find themselves living paycheck to paycheck despite their high income. She explained, “Wealthy people feel like they’re living paycheck to paycheck because they don’t follow a monthly budget. Even high-income earners need structure and need a plan.
“Remember, a budget doesn’t keep you from spending money — it actually gives you permission to spend money, and it takes all of the guesswork out when it comes to your bills and your expenses.”
She pointed out that having a budget means knowing you can pay your expenses. “You have a plan, so it’s never about the specific salary number that you’re bringing in. It is about your behavior and possibly needing to adjust that to see progress when it comes to your money.”
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This article originally appeared on GOBankingRates.com: Money Expert Rachel Cruze: 5 Reasons Wealthy People Live Paycheck to Paycheck