Apr 12, 2024
Discussing finances is never easy, especially if it feels like you’re letting your partner down.
According to a report by LendingClub, 45% of consumers who earn more than $100,000 a year are living paycheck-to-paycheck. It’s assumed that this is largely due to general inflation and the rising cost of living, but there is another key factor at play: lifestyle creep.
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Kevin and April, both in their mid-30s, are part of a growing cohort of Americans who make relatively sizable incomes — but have ramped up their spending at an even faster clip.
During an episode of Ramit Sethi’s podcast, I Will Teach You to Be Rich, the couple — who have been married for 12 years and share two kids — revealed that they make $139,000 combined income a year, but were still struggling with debt.
As April told Sethi, “We’re not broke, we’re not poor-poor, but at the same time, we’re barely making ends meet.”
Here’s how bad spending habits and unrealistic expectations can derail anyone’s budget.
Bank accounts are “deep red”
After reading Sethi’s book, I Will Teach You To Be Rich, Kevin decided to sort out the family finances and set a tighter budget. “I think I had a midlife financial crisis or something,” he admitted.
Unfortunately, the crisis worsened when the couple looked through their financial statements. “I realized that we were in the negatives and that I went past what we were supposed to spend,” April said.
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For instance, she said she’d put $1,500 on a credit card recently even though she’d agreed to cap her spending to $500 for the month.
“Once again we were in the red,” Kevin sighed. “Dark red.”
Tens of millions of Americans have similarly red statements. Households across the country paid $9 billion in overdraft fees last year and have spent an aggregate of $300 billion in overdraft fees over the past 20 years, according to the Consumer Financial Protection Bureau. This indicates that many people have a tendency to spend more than they earn every month.
The rising cost of living and stagnant incomes are certainly at play. However, couples like Kevin and April earn much more than the average household’s median income of $74,580.
April, who works as a teacher, appears to recognize the fact that her emotional spending habits are the biggest barrier to the couple’s financial goals.
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Unrealistic expectations
“For me, you’re poor if you have to check price tags,” April said, admitting that she rarely looks at price tags herself. In fact, she’s so committed to the carefree lifestyle that she has a classroom sign that says: ‘Work Hard So You Can Shop Harder.’
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She explained how her perceptions around money and lifestyle were shaped by her own family. “I grew up with my parents not cooking Friday, Saturday, Sunday and it was fine. It's something that I want to do, it sucks that [we can’t].”
Sethi argued that the cost of food, housing and travel have changed drastically since April was a child and that she’s setting herself up for disappointment by anchoring her expectations in that previous lifestyle.
To be fair, altering our expectations and adjusting them for new realities can be difficult. A study from the University of Cambridge found that children observe money-spending patterns that can ultimately shape their own financial habits from as early as the age of seven.
Unfortunately, many younger Americans now face the uncomfortable reality that they can’t afford their parents’ lifestyle. Nearly half (49%) of Americans believe they are in a worse financial position than their parents, according to data from LendingTree, while the World Economic Forum suggested that wages haven’t kept up with inflation.
To overcome these hurdles, April and Kevin understand that they must make adjustments and sacrifices. “This shouldn’t be our life right now,” he said, while April revealed she wanted to start saving for the sake of their childrens’ education. “We can’t go on like this,” she admitted.
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Vishesh Raisinghani is a financial journalist covering personal finance, investing and the global economy. He's also the founder of Sharpe Ascension Inc., a content marketing agency focused on investment firms. His work has appeared in Moneywise, Yahoo Finance!, Motley Fool, Seeking Alpha, Mergers & Acquisitions Magazine and Piggybank.
