Jan 31, 2025
You’d think that the more money someone earns, the more financially stable they’re likely to be. So how is it possible for two people earning the exact same amount of money to wind up in opposite boats, where one is doing well and the other is struggling financially?
The median U.S. annual wage is about $62,000, according to the Bureau of Labor Statistics. With that in mind, you’d think people earning significantly more than that would be in great financial shape.
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But according to a 2024 report by PYMNTS, 48% of people who earn more than $100,000 a year say they live paycheck to paycheck, and 36% of people earning more than $200,000 a year shockingly say the same.
So how can it be that so many six-figure earners are struggling to cover their bills and have no savings to fall back on? It all boils down to adopting the wrong financial habits.
Great financial habits that can set you up for life
The amount of money you make is only part of your financial picture, and it’s the habits you get into that will ultimately determine how financially secure you end up.
One great habit to fall into is tracking your spending with a budget. In 2024, a good 90% of Americans were following a budget, according to Debt.com, and 89% say that budgeting has helped them get out or stay out of debt. So if budgeting isn’t something you do, you may want to change your ways.
The good news is that budgeting can be pretty easy. All you have to do is create a spreadsheet where you list your expenses and track how much each one costs. If you see you’re spending your entire paycheck (or beyond your paycheck) month to month, you’ll know to make changes. You can also start using a free budgeting app to help track your spending.
Maintaining a solid emergency fund is another great habit that could work wonders for your finances. A 2024 Empower survey found that 21% of Americans have no emergency fund, while 37% could not afford an emergency expense over $400. This is consistent with recent Federal Reserve findings, which point to 37% of Americans being unable to cover an unplanned bill amounting to $400.
If you don’t have an emergency fund, make that your priority so you’re covered in the event of unexpected expenses or a period of joblessness. It could be the thing that spares you from expensive debt. Many financial experts recommend a three-month emergency fund at a minimum, but six months’ worth of bills in your emergency fund buys you that much more protection.
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Finally, automating savings is a great way to meet long-term financial goals. If you have access to a 401(k) plan through your employer, signing up means you’ll have money taken out of your paycheck every month and allocated to your retirement fund.
If you don’t have a 401(k), find an IRA that lets you set up automatic transfers. From there, arrange for whatever sum you can afford to move into that IRA from your checking account each month.
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Bad financial habits that can hurt you
While following a budget, maintaining an emergency fund and automating savings are smart financial habits, there are certain poor habits that could throw your finances for a loop and cause you to live paycheck to paycheck. One particularly dangerous one is ramping up your spending as your income grows.
It’s a trap known as lifestyle creep, and it has you increasing your spending across the board simply because you’re able to. If you keep taking on new expenses as your paycheck grows, you aren’t going to be able to save any of it.
So instead of continuing to do that, set priorities. Decide which expenses are the most important to you and splurge there, while keeping the rest of your spending in check.
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Taking on large amounts of debt is another trap that can leave you strapped for cash. During the third quarter of 2024, U.S. household debt reached $17.94 trillion, with credit card balances hitting the $1.17 trillion mark, according to the Federal Reserve.
TransUnion reported that same quarter that the average credit card balance per consumer was $6,380. But racking up scores of credit card debt means throwing money away on interest instead of being able to save and invest it.
Instead, aim to keep credit card debt to a minimum, or better yet, try to avoid it altogether. And also, don’t take on too much house. Keeping your housing costs to 30% of your pay or less could help you stay in solid financial shape.
A recent survey found that about 22% of U.S. households are house poor, spending beyond 30% of their income on their homes.
Finally, giving in to impulse purchases can result in extra spending that puts you in debt and makes it difficult to save. Capital One Shopping says that 89% of consumers have a history of impulse buying, and that unplanned purchases cost the average consumer about $282 per month.
Breaking that habit could improve your finances, so to that end, don’t shop out of boredom, and don’t store your credit card information on your phone and devices. The harder you make it to complete impulse purchases, the less likely you are to waste money on them.
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Maurie Backman has been writing professionally for well over a decade. Since becoming a full-time writer, she's produced thousands of articles on topics ranging from Social Security to investing to real estate.
