A lot of people think just because a household (or even one person) makes 6 figures that they automatically have a lot of money. While some people who make 6-figures certainly have money, it is not uncommon for these people to have very little saved. The old adage, “It’s not how much you earn, it’s how much you save” is very true in this situation.
Yahoo recently published an article called, “Six Figure Salary? Most Have no Savings.” The article reports that based on a financial services surgery, that half of people who earn between $100,000.00 and $150,000.00 have less than $1,000.00 in savings and about 18% had nothing saved.
I know a lot of people will read those figures and will be shocked. However, for those who work in the financial services sector as financial planners, accountants, and, of course, bankruptcy attorneys, these numbers are less likely to shock. Too many people who start making good money let their expenses get out of control. It is quite easy to raise your lifestyle to spend every last dime you make each time you get a raise.
I’ve put together a list of expenses that higher earners often see as necessities, that very simply are not. The following are good things that you can easily cut out of your budget if you aren’t putting money aside in savings:
- Law Care Service/Mowing or Fertilization;
- Housekeeping Service;
- Eating out;
- Smartphones/Hot Spots for Children;
- Traveling Sports for Children;
- The latest and greatest smartphone each time it is released;
- Don’t buy Expensive Hobby Equipment or perhaps even sell some;
- An annual vacation (stretch out the time between vacations);
- Stop buying “stuff” for a few months. You probably have all that you need and more;
- Cancel your cable;
- Wait 2 weeks longer to get your hair cut.
Notice that all of these cuts can be done because they are additional/variable expenses. I’m not asking that you sell your car and buy one that is less expensive (although if you make 6-figures and don’t have a savings account that probably isn’t a bad idea).
Having an emergency fund that will pay for 6-months of your living expenses in case of an emergency cannot be stressed enough. But, you can’t get to 6-months without first reaching $1,000.00. Break up your 6-month emergency fund into smaller, more achievable goals. Having a fully funded emergency fund is an important part of being an adult. If you don’t think you can get there it is time to start making some hard choices such as getting a better/second job and/or realizing that you can’t afford your lifestyle and making hard choices to adjust your lifestyle so that you can save.
Bottom line is that if you are making 6-figures and you don’t have a 6-months of savings in your account, you aren’t doing things as well as you could. Many people who earn significantly less than you have a fully funded emergency fund. Take a hard look at your finances and adjust accordingly. Then, next time you have an emergency you will feel much more secure knowing that you don’t have to rely on credit to solve your problem.