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Earning six figures and still feeling broke

To most working class families, a six-figure salary may seem like the antidote to all financial troubles. But earning more doesn’t necessarily confer superior financial management skills, and even high-earners find that it’s shockingly easy to fall into one particularly nefarious debt trap — living beyond one’s means.

“As incomes rise most [people] adjust their standard of living up,” says Kevin J. Meehan, a certified financial planner in Itasca, Ill. “The challenge is that the higher your income goes, the more variable it becomes, [because] much is based on bonuses, options and commissions. When the income goes down — whether on a permanent or temporary basis — most have little free cash to fall back on.”

Often, the higher your income bracket, the more pressure there is to have the kind of lifestyle -- whether it’s from your neighbors, your family or yourself. On top of that, high-paying careers come at a hefty price, typically in the form of college education. A 20-something today will graduate with more than $29,000 worth of student loan debt, certainly enough to put a dent in any future earnings. Add graduate school to the mix (an MBA from a top 20 business school cost $102,000 in 2012), and even with a $100,000 job, you’re still looking at years of loan payments with little room left for saving.

“We have encountered many clients who are high earners, but are not big savers,” says Kacie Swartz, a certified financial planner in Austin,Texas. “It’s no surprise that a higher income can change one’s perspective of ‘want’ and ‘need’.”


“Once I put everything on paper, I was just paralyzed."

Ruben Omega, 34, was pulling in more than $100,000 as a product manager at a pharmaceutical company when he realized he was broke.

It was 2010, three years after he and his wife bought their first home in the San Francisco Bay area and had just welcomed their first son. Omega was taking home close to $6,000 a month (after taxes), and yet they were still overdrafting their bank accounts. Debt collectors were constantly calling. Each month, his $3,000 mortgage bill brought another wave of terror and yet their loan servicer told them they earned too much to qualify for a loan modification. He felt poorer now that he was earning six figures than he had scraping by on the $33,000 he was making out of college.      

“Something just didn’t click,” Omega told us. “[My wife and I] felt that our income should be OK but we didn’t feel comfortable. It was like panic mode all the time.”                                 

Grudgingly, they sat down together and brought out the calculator. Even before factoring in their mortgage, the couple owed nearly $190,000 – $168,000 worth of student, home equity, and 401(k) loans, plus another $20,000 on credit cards.

“Once I put everything on paper, I was just paralyzed,” he says. “I actually couldn’t do anything for a while after seeing that.”

When the shock wore off, the real work began. His wife, who cared for their two sons during the week, took up waitressing on the weekends. They used spreadsheets and budgeting websites like ReadyForZero and You Need a Budget to track their progress. Dinners out and vacations stopped. When they needed a new car, they bought used and paid in cash. They got rid of their landline. One of the toughest changes they made was consolidating their three checking accounts so they could keep better track of their money flow.

Their biggest financial mistake was also the hardest to rectify — their house. San Francisco is one of the most notoriously expensive housing markets, and Omega bought the home from his uncle for $520,000 at the peak of the bubble. With an interest-only loan, the $3,000 he shelled out each month didn’t even cover property taxes or insurance. It was way more than they could afford.

“I probably attempted three times to do loan modifications but [my bank] kept saying we made too much,” he says. “Finally, the mortgage was transferred to another lender in 2011, and we were granted a modification.”

Ruben Omega and his family have paid off $100,000 of debt in the last three years (Photo: Elley Photography)
Ruben Omega and his family have paid off $100,000 of debt in the last three years (Photo: Elley Photography)

They worked as a team, but the stress of tackling so much debt at once took its toll. Omega said he’d sometimes hound his wife, who has an engineering degree, to get “a real job” instead of waitressing. “If anything, it might have been more stressful for her because she was on the other end of my complaining and she takes care of the kids,” he says.

The family is in a much better place today. Buoyed by Omega's $120,000 salary and new budgeting routine, they’ve paid down nearly $100,000 in debt with $70,000 left to go. The effort will take at least three to five years, he estimates.

“I feel happier now than I did before,” he says. “There’s great certainty in knowing where [my money] is going. Whenever someone calls my phone now and I don’t know the number, I just answer it.”


"You feel that you deserve nice things and you just have to get over that."

On paper, Jessica Michaels is one of the lucky ones. The 28-year-old Chicago native landed her first job out of a law school in September, a $100,000-plus position at a major law firm in Washington, D.C.

But ask her about her 401(k) balance and the nerves start to creep in.

“I have zero retirement savings at this point, and that’s one of my anxieties,” she says. “I have a fear that I’m not going to save enough for retirement.”

It’s a familiar feeling for Michaels. Less than five years ago, she was a beat reporter for a local newspaper in Colorado Springs, Colo., just “$40 away from qualifying for food stamps,” she says. What she could not afford, she put on plastic. By the time she gave up on journalism and decided to take a stab at law school, she had accrued more than $10,000 worth of credit card debt.

“I shouldn’t have been living the lifestyle I was living when I wasn’t making that much money,” she says. “That was a mistake I made and I didn’t really think about it. Now I’m paying for that.”

She got a near-perfect LSAT score and was accepted to the University of Chicago. But even after scholarships, she still had to take out $150,000 in loans to cover her tuition and living expenses.

After factoring in her $2,500-a-month student loan bill, saving to replace her rapidly dying car, credit payments, and rent for the D.C. apartment she shares with her boyfriend, more than three-quarters of her paycheck is gone the minute she gets it. Less than a year after moving from Chicago to D.C., they’re already planning to move to a smaller apartment.

“I need to save enough money to move. Ideally, I’d pay off my credit cards first and save up $10,000,” says Michaels, who admits some ambivalence about not being able to afford her desired lifestyle despite a good income.

“But at this point, when I think about how long it will take me to do these things, I get a little overwhelmed. At the same time I [think] I shouldn’t feel that way because I’m making that much money. You feel that you deserve nice things and you just have to get over that. I can’t afford it.”


Photo: Theresa Lee
Photo: Theresa Lee

“There’s at least one week every month where we are broke."

Theresa Lee, 28, earns more than $100,000 as a product manager for a media company. It’s the kind of income she dreamed of as the first kid in her family to attend college.

But like many 20-somethings just starting to get a grip on their careers, Lee says she’s still paying for her years of financial hardship.

“There’s at least one week every month where [my fiance and I] are broke after we’ve paid all of our bills and we’re waiting for the next paycheck,” says Lee, who lives in Bradley Beach, N.J.

By the time she graduated from a private college in Queens, N.Y., Lee had racked up more than $60,000 in private loans that offered little in the way of flexible payment plans. For a few years, she bounced from one mediocre paycheck to the next, earning $50,000 at the most.

“I was having to stagger my rent payments in order to pay my loans,” she says. “One paycheck went to loans and the other went to rent [for my apartment in Manhattan].” What little surplus she had was spent on food, leaving next to nothing available for savings.

By late 2012, Lee worked her way to a comfortable marketing position at a financial services company. Then she and her fiance learned they were pregnant and she suddenly found herself taking maternity leave just months after starting the job, leaving her savings account as empty as it had ever been.

With the addition of their newborn daughter last March and the time Lee took off, funds today are far from free-flowing.

“We’ve been using generic everything for the baby’s expenses and we shop in bulk,” she says. “I contribute only 1% to my 401(k) right now and as for emergency savings, I have none. None. All of our disposable income is going toward the cost of our wedding at this point.”

They had planned on downsizing from their $2,300-a-month apartment but put it off when the baby was born. The plan is back on the table now.

“We’ll be saving about $500 a month, but we’ll be further away [from our jobs],” she says. “I feel like we’re not drowning, but for the amount of money we make we should not have to stretch our paychecks like we were in college.”

"I don't feel financially comfortable"

Ruben Neira is no stranger to failure. The 56-year-old Chilean immigrant has always been an entrepreneur at heart. After moving to Plano, Texas with his wife and two daughters in 1995, he designed their family home and oversaw its construction and launched a successful career as a private physical therapist, bringing home more than $100,000 a year.

But lately, his penchant for new business ideas has proven costly. Since 2006, Neira and a business partner have struggled to get a software company they founded off the ground. They plan on licensing software that helps physicians digitize their medical records. In the meantime, he’s maintained his day job as a therapist, working about five to six hours a day. However, seven years in, his personal investment in his side business began to take a toll.

“I’ve invested a couple hundred thousand dollars of my own money into the business,” he says. “It’s just starting to make money but until six months ago, we had to pay for everything. And now that the company is starting to sell licenses, the [profits] are basically just paying for more software development.”

In the seven years it took to get the business off the ground, Neira found himself sinking deeper into debt. He and his wife are working to pay down $40,000 worth of credit card debt. And he recently found out he had been underpaying his taxes, resulting in a staggering $40,000 IRS bill. Even with an installment plan in place, it will take him five years to settle his tax debts.

To help, he and his wife decided last year to sell their home, which would relieve them of $2,000 monthly mortgage payments and free them to move into an apartment. So far, their timing has been good. Property values in his neighborhood have gone up nearly 10% since they put their home on the market.

Despite his losses, Neira, who has continued working part-time through his physical therapy practice, is hopeful his software business will one day pay the bills.

“In the past, my wife and my daughters have hated my passion for doing new things, but I’ve had way more debt than this before from another business that didn’t work out and I got it down to zero,” he says. “I know that it just cannot be a success overnight. It takes time and hard work and patience. I have so much fun with what I do.”


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