Why a $100,000 per Year Salary Is Actually Low in the US

 In Personal Finance

 

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Once upon a time, earning a salary of $100,000 per year meant that you’d “made it”. You were living the dream. Anyone with a six figure salary could afford just about anything they wanted, and their quality of life was very high.

However, things have changed. A salary of $100,00 per year today doesn’t mean what it once did. In fact, depending on where you live in the US and the number of dependents in your household, you might be only bringing home about $69,000 or so.

Add to that the cost of living, various types of insurance, tax on your home and real property, and you can quickly see how that $100,000 would not be what it once was.

You’d think that earning $100,000 per year or more would pretty much eliminate the need to live hand to mouth. However, according to a recent survey conducted by SunTrust, 25% of people in the US earing at least $100,000 per year actually live paycheck to paycheck.

You read that correctly – they have no buffer at all, and if it weren’t for their earnings, they’d be bankrupt. That should be a very real “eye opener” for those who think they’re earning too little, and that the grass would be greener on the other side of the $100,000 mark.
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Why Have US Salaries Not Kept Pace?

Before we go much further, understand that the median earnings in the US actually over just over $50,000 per year. If you’re earning an annual salary of $52,000, a six figure salary certainly seems like a lot. It’s not what it’s cracked up to be, though. Why is that? There are actually quite a few reasons.

Your Region

A lot of how far your money goes depends on where you live. If you’re in rural Kansas, it probably goes pretty far. However, if you live in New York City or San Francisco, $100,000 is not much of anything. The same thing applies to most of the California, many areas of Florida, and other regions of the country.

Insurance

Insurance is one of those necessary evils. You’re now required to have health insurance, or you face fines from the federal government. You’re required to have auto insurance. You need to have home insurance. You might also have life insurance and other types. Each of those policies comes with a cost, even if you never use it.

Add to this the cost of healthcare, which is all too often lumped in with insurance, but is actually a separate issue. According to the Bureau of Labor Statistics, medical care costs increased almost every single year for the last 73 years, and it was also the biggest increase of anything.

College Tuition

Earning $100,000 per year really just means that it’s easier for you to pay back that massive amount of college debt you owe. You’ve also got to worry about helping your kids pay for school. Grants are almost impossible to get, and even scholarships only go so far, assuming your child qualifies for them.

Inflation

One of the largest contributing factors to the fact that American salary options are no longer what they once were is inflation. Consider the fact that in 1980, a salary of $100,000 would have been the equivalent of almost $300,000 today.

That should clearly show you just why your money doesn’t go as far as it once did. So, if you’re basing your understanding of being “well off” on notions from the past, and most of us are to some extent, you’re in for some serious disappointment.

The Cost of Everything Has Risen

The cost of living is another very significant reason that your salary doesn’t go as far as you’d like. For example, a dozen eggs cost under $1 in 2000. By 2014, it had doubled. If you wanted an organic or free range or cruelty-free eggs, you might be paying as much a $4 or $5 per dozen.

The average cost of a new car in 2000 was just over $20,000. In 2014, it was $31,500. The average rent paid in the US was $635 in 2000. In 2014, it was $890. So, your money doesn’t go as far because everything costs more, and your earnings have not kept up.

Keeping Up Appearances

Too many people think that they need to keep up with the Joneses or they’re not really successful. Don’t be that person. Define what success is to you, and then pursue it. Realize that just because a friend spends $90,000 on a new car, it doesn’t mean that you’re a failure if you don’t.

Children

Kids are great. However, they’re also expensive. There’s more food to buy. More clothes are needed. You’ve got to pay for additional medical care, education and more.

They want video games and toys. In fact, the US Department of Agriculture just noted that the cost to raise just one child in middle-class America now costs a staggering $241,000.

How to Make Your Not-So-Substantial $100,000 Annual Salary Stretch

There are reams of information written on making your money stretch farther. Stop eating out. Buy fewer clothes. Be more frugal. It’s all good advice. However, if you want to see your wealth grow, rather than decline or remain stagnant, and you actually want to live the American dream rather than sit on the sidelines, you need to do one thing – invest.

Investing allows you to grow your wealth without tacking on an additional 30 hours of work per week. Successful people with a $100,000 a year salary don’t sit on their laurels, and they don’t scrimp and save.

They invest, and they do so wisely. They diversify their holdings, with some stocks, bonds, CDs, an IRA, a 401(k) and more.

Earning a higher salary doesn’t necessarily mean that you’ll enjoy financial freedom.

The real key is using what wealth you do have to build a brighter, more stable tomorrow.
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Sergey Sanko
Sergey had started an IncomeClub after years of being an investment advisor for high affluent investors and managing fixed income securities. He is the lead investment advisor representative and holds a Series 65 license. Sergey earned his Executive MBA degree from Antwerp Management School.
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