Why 1 in 3 People Making $500K Live Paycheck to Paycheck

I want to start with this question and it's one of the first questions that I ask every new client who sits across the table from me.

So the question is, do you spend an appropriate amount of money on your lifestyle?

You know, most people say, well, I mean, I could stop spending as much or yeah, I think so.

But the keyword is appropriate.

Not a lot, not too much, not less than my brother in law, not more than somebody else, but appropriate.

So today we're looking at that question and we're going to talk about a formula that if you keep it, I don't care what your income is, you will never have major financial issues.

So welcome to the weekly wealth podcast.

I'm David Chudick.

Let's get into it.

Welcome to the weekly wealth podcast.

I am certified financial planner David Chudick.

This podcast and my wealth management practice are both designed to help the mass affluent to live better lives, better by how they handle their money.

We talk about financial strategies, prosperous mindsets, and simply how to build true wealth.

So come on and let's enjoy this journey together.

Okay, so we're talking about the formula that doesn't care what you make.

And the formula works three ways.

Let's break down the formula because there really are only three possible outcomes.

So income minus expenses has to equal greater than zero.

So again, here are your outcomes.

Your difference between your income and your expenses can equal greater than zero.

It can equal equal to zero or it can equal less than zero.

And that means you're borrowing on the future.

You, that's credit cards, home equity rating, savings.

Now every income level has the same math.

So the big point that I want you to hear today is this formula applies to every income level and that's the 24 year old making $30,000 on his or her first job.

The plumber who owns his own truck, the surgeon making $600,000, the athlete making 15 or 20 million dollars.

Same formula, same rules, no exception.

The only thing that changes as income goes up is the size of the numbers and quite frankly, the size of the mistakes.

A bigger income lets you take on a bigger house, a bigger boat note a bigger private tuition bill, which means when it goes sideways, it goes side.

So Goldman Sachs did a survey in 2020-26 and it said that over a third of the 5,000 plus respondents live quote, paycheck to paycheck, and they broke people into six income bands.

So of those who were under $50,000, about 61% said they live paycheck to paycheck.

That makes sense, right?

Rent is higher.

Real estate is higher.

Groceries are higher.

Gas is higher.

The basics eat up everything.

Okay?

Then as income rises, the number drops and it bottoms out at 22% for households making $100,000 to $200,000.

Okay, so that seems a little bit counterintuitive, right?

People making between 100,000 and $200,000, still one out of five of them are living paycheck to paycheck.

And then here's the crazy thing.

It climbs back up.

By the time you get over $300,000, it's back over a third over $500,000.

It's nearly 37%.

So that's a U shaped curve.

Income solves a problem for a while, then expenses catch up.

They always catch up if you let them.

One more number from that survey that should make every high earner wince.

46% Of households earning over $500,000 say they only pay the minimum on their credit cards or less.

Households earning under $500,000, 47%, which is basically identical.

Now, let's go to the extreme end, because nothing proves a point like people who made more money than most of us will see in 10 lifetimes.

And they still ran out.

Mike Tyson, Iron Mike.

Over his career, he earned well over 300 million.

Some estimates put it north of $400 million.

In 2003, he filed for bankruptcy, reportedly about $23 million of debt, a big chunk of it owed to the irs.

He had mansions, he had cars, he had ent on payroll, famously a couple of pet tigers.

And to his credit, Tyson has been brutally honest about it since.

He said he's not used to the big checks and that people around him took advantage of him.

Nicholas Cage, at his peak, one of the highest paid actors in Hollywood with a Fortune reported around $150 million.

At one point, he reportedly owned around 15 homes, including two European castles, a private island in the Bahamas, and supposedly haunted mansion in New Orleans.

And my personal favorite, a dinosaur skull.

He outbid lean order DiCaprio, for which, it turned out, had been stolen and had to go back to mongolia.

By around 2009, Cage owed the IRS somewhere in the neighborhood of $14 million and was selling off properties to catch up.

Now, to be fair, Cage blamed his former business manager.

And the manager said Cage simply spent too much.

I don't need to referee that.

Either way, the lesson is the same.

Nobody was minding the simple formula.

Income minus expenses has to equal greater than zero.

Then the NFL.

You've probably heard the stat that 78% of players go broke within two years of retiring.

Now that number is shaky.

It came from a 2009 magazine article that lumped bankruptcy in with general financial stress.

The better Data is a 2015 study of the National Bureau of Economic Research.

They tracked players drafted from 1996 to 20163 and found that 1 in 6 15.7% filed for bankruptcy within 12 years of retiring.

These are guys who earned on a median career about $3.2 million in just a few years.

And here's a line from the study that stopped me Bankruptcy rates showed little difference based on how long players played and how much they earned.

More money didn't protect them.

So if you remember nothing else from the beginning of this podcast, Income is not a strategy.

The formula is the strategy.

So let's go back to my question that I ask my new clients and that's do you spend an appropriate amount of money on your lifestyle?

So again, I didn't ask how much do you spend?

Because honestly, who really knows that when I ask people to guess their annual spending, then we actually pull their bank and credit card statements, the real number is usually way higher, sometimes a lot higher.

Nobody's lying.

We just don't remember the Amazon orders, the Costco runs, and the while we're here, we might as well get dinner.

And I didn't ask do you spend too much?

Because that question makes people defensive.

And defensive people don't tell the truth, even to themselves.

Appropriate is the word that does the work.

It's not a judgment, it's not a measuring stick.

Appropriate compared to what?

Well, compared to your income, Is there a real gap between what comes in and what goes out?

Appropriate compared to your goals?

Is the gap big enough to actually get you to where you want to go?

And what about to your values?

Is your money going to the things that genuinely matter to you?

So a $15,000 family vacation can be completely appropriate for one family and totally reckless to another family.

This is the same trip, this is the same price tag.

It's a different formula.

Now this cuts both ways.

And here's where people get surprised.

Inappropriate spending doesn't only mean too much.

I've sat across the table and I can think about a couple clients specifically who've done everything right.

They have money, they have literally millions in the bank and they're afraid to take a trip, afraid to help their kids, maybe afraid to replace a 20 year old car.

Maybe they don't sleep at night because they're afraid that their investments are going to go significantly down.

So the formula is wildly positive Right.

Income minus expenses for them equals way more than zero.

But they're miserable and they have stress, so that's inappropriate too.

Money's a tool.

If it never gets used for the life it was meant to build, something's off.

This is where Bill Bacharach's values based financial planning comes in.

The question isn't how little can I spend, it's what's important about money to me.

Spending that lines up with your values feels good.

Spending that doesn't, well, that's just leakage, right?

So when I ask the question, here are the warning signs I listen for in the answer.

I don't know your number.

Savings is a quote.

Whatever's left at the end of the month, spoiler.

There's really rarely anything left over.

The lifestyle went up with every raise.

That's what we called lifestyle creep.

We talk about that all the time.

And that's the most common way that high earners end up on the wrong side of that Goldman curve.

Another sign is maybe you need that next bonus or next big month to cover the life you're already living.

Or when I ask that question, the spouses just look at each other.

You know that look.

And there's typically maybe one of the spouses that is a spender.

So if you want a rough yardstick, many planners point to saving somewhere around a 15 to 20% of gross income for retirement.

For a lot of high earners and business owners, it needs to be more because Social Security replaces a smaller slice of a big income.

But that real answer is personal.

That's the whole point of the word appropriate.

So if the first part of this week's episode has you thinking like, I honestly couldn't answer that question with a straight face, that's not a failure, that's a starting point.

Go to www.weeklywealthpodcast.com Vision Book a 20 minute vision call with me.

There's no pitch, there's no pressure.

We'll talk about where you are, where you want to go, and whether your formula is actually pointing you to.

Now, you've all heard some of these, quote, financial experts that have podcasts and that have Instagram sites and they're talking about obsessing over the expense side.

You know, skip the latte, cancel the streaming service, make your own coffee.

Don't go to the inside of the restaurant unless you're going there for your second job.

Expenses do matter.

And that's what this segment is going to be about.

But here's the thing about cutting.

There's a floor you can only cut so far.

You still have to eat.

Now, you may not need filet mignon, but you need something.

You still have to live somewhere.

And we've all heard about affordability of real estate.

You still have to insure the house.

So the income side, for a lot of you listening, there's no ceiling.

If you're listening to the weekly wealth podcast, there's a good chance you own a business.

And if you own a business, you have some control over your income.

Maybe you're an executive that has bonus potential.

Maybe you're in sales and you could work a little harder and smarter and get bigger commission checks.

So the people with the most control over that side are exactly the people this show is built for.

And let's be honest.

If you're a salaried W2 employee, your income lever is stiff.

You maybe get a raise once a year, and that may be 3, 4, 5%.

Now, yes, you can negotiate, you can build skills, you can change jobs, and you should, but it moves slowly.

But if you're one of these three, you've got your hand on the right lever.

Here's what I tell owners.

Pay yourself a consistent, reasonable salary from the business and build your household lifestyle on that number.

Not on the best year, but the average.

Not the number when that big bonus or the big sales hit, but on the numbers that you can generally count on and stop using the business as a personal atm.

When personal and business money blur together, you can't see either formula clearly.

And when it's time to sell, a buyer will see it.

It'll cost you.

Clean margins and clean books make a business revenue worth more.

So the real magic is pulling both levers.

Grow income, keep the lifestyle appropriate, and the gap widens from both sides at once.

So let's be honest about my profession for just a moment.

A lot of financial planning is genuinely complicated.

Tax planning, estate planning, exit planning for a business owner, Roth conversions, entity structure, insurance design, coordinating a liquidity event.

You need real expertise for those, and you should get it.

This formula is not one of those things.

Nobody hires me to do subtraction, but here's what I've learned.

Simple is not the same as easy.

One of my favorite authors, Jim Rohn, he says what's easy to do is also easy not to do.

So think about weight loss, right?

Calories in, calories out.

Everybody knows the formula, and it's one of the hardest things on earth for people to actually do.

Money's the same.

The math isn't the hard part.

Behavior is the hard part.

So smart people break this simple formula for a few different reasons and see if any of these apply to you.

Comparison.

Keeping up with the Joneses used to mean the neighbors.

Now it's Instagram Joneses, and there are millions of them.

Lifestyle creep seems and feels to be earned.

You work hard.

I deserve a nicer car, right?

I deserve a nice dinner.

Well, deserve is in a line on a cash flow statement.

Avoidance.

If I don't look at the number, the number can't hurt me.

Well, it can and it will.

Then optimism about future income next year will be bigger.

Well, until it isn't, right?

So should we be making today's spending decisions based on our projections of next year's income?

That's why I tell you, a big part of being a financial advisor is being a behavior coach.

And for me, that looks like asking the uncomfortable question like is inappropriate out loud and on purpose.

What about accountability?

Looking at the numbers together on a regular rhythm.

So drift gets caught early instead of in year five being a speed bump before the big decision.

The second home, the boat.

The $90,000 truck caught me first.

There's a good chance the math will help me to say yes, but let's run the formula before the ink dries.

And then keeping you steady when the market drops and everything you want and everything in you wants to bail.

That's behavior, too.

And interestingly, that same Goldman Sachs survey found that even with AI tools everywhere, most people still say they'd prefer human guidance for things like major life events and emotional reassurance that tracks with what I see every day.

You don't have to white knuckle discipline by yourself.

Find your who and remember Tyson.

Remember Iron Mike?

He had plenty of people around him, just not people sitting on his side of the table.

That's the difference a fiduciary makes.

Somebody legally and ethically obligated to put your interests first, who's willing to tell you what you don't want to hear.

So let me close the loop with the Freedom Point, which longtime listeners know I talk about a lot.

The formula never goes away.

Not in your 20s, not in your 50s, not in retirement.

What changes is where the income comes from.

During your working years, income is your labor, your trading time for money, your salary, your commissions, your business profits.

Your Freedom Point is the moment the formula still works, when the income comes from your assets instead.

So this is your portfolios.

The proceeds from selling your business may be rental income, maybe some Social Security and pensions.

So income minus expenses must equal greater than zero.

That's the freedom point.

And that is where work becomes optional.

And this is why the word appropriate matters so much.

Every dollar of lifestyle has to be funded twice.

Once now by your paycheck and again later by your portfolio.

So here's a rough rule of thumb.

Using the 4% guideline, which is a starting point and not a guarantee, every $10,000 a year of lifestyle spending requires roughly $250,000 of assets to support in retirement.

So the extra $2,000 a month you're really tracking, that's 24,000 a year.

That's roughly $600,000 more you'd need to reach your freedom point.

The gap you build today is what buys you your freedom point.

And how appropriate your lifestyle is decides how big that number needs to be.

Pull the last 12 months of your bank and credit card statements and use whatever app you've got and total up what you actually spent.

Before you look, write down your guess, then compare.

Then sit down with your spouse or partner and answer my question honestly.

Do we spend an appropriate amount of money in our lifestyle?

Whatever the answer is, you'll know more than you did yesterday.

And that's where every good plan starts.

So let's recap.

Income minus expenses must be greater than zero.

It applies whether you make $40,000 or $4 million, and Mike Tyson, Nicholas Cage, and a whole lot of NFL players prove that income alone won't save you.

Appropriate is the word that matters.

Expenses are only half the equation.

So if you control your income, use that lever and that formula is simple.

But simple isn't easy.

That's why behavior beats math and business owners.

Remember what I said about clean margins making your business worth more?

Find out where you stand.

Go to www.weeklywealthpodcast.com saleabilityscore and take our free Sellability Score assessment.

It'll show you how a buyer would see your business today.

Thanks for listening to the Weekly Wealth Podcast.

I'm David Chudick.

Go make your formula greater than zero and I will talk to you next week.

The information presented on this podcast is for general educational purposes only and does not constitute financial, investment, legal or tax advice.

Parallel Financial is registered with the U.S. securities and Exchange Commission as a registered investment advisor.

Registration does not imply a certain level of skill or training, nor does it constitute an endorsement by the sec.

All investing involves risk, including the potential loss of principal.

Please consult a qualified financial professional before making any financial decisions and here is.

Your bonus content for this week's episode.

This show is brought to you by by a partnership with NIA National Insurance Agency.

And if you'd like to maybe look at some of the expense side of your equation being your insurance expenses, email Ashley.

That's a S h L e I g h atjoin the NIA.com she can do two things for you.

She can do a risk management review to make sure that you are covering the risks that you should be covering, you are transferring the risks that you should be transferring, and you are retaining the risks that you should retain.

But she will also see if she can place your coverage with a company that will do all those things, but possibly charge you less money.

And less money definitely helps the expense side of the equation.

So Ashley a S H L E I g h atjoin the NIA.com all right, that does it for this episode.

Have a great week.