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The #1 reason you are still living paycheck to paycheck

Over the past of couple years, I’ve worked with clients who make $60,000 a year and regularly contribute to their 401(k) as well as build healthy savings accounts. They’re able to go on vacation and purchase what they want and need. I’ve also worked with clients making $600,000 a year who live paycheck to paycheck. Whether […]

Over the past of couple years, I’ve worked with clients who make $60,000 a year and regularly contribute to their 401(k) as well as build healthy savings accounts. They’re able to go on vacation and purchase what they want and need.

I’ve also worked with clients making $600,000 a year who live paycheck to paycheck.

Whether we realize it or not, we as humans,  tend to adapt to our environment. And we do the same thing with our paychecks – increasing our cost of living with every pay raise.

When we get a raise, we buy a nicer car. The next raise, we get a bigger house. The next raise, we purchase a vacation home. Ultimately, we never give ourselves a chance to let our income increase over our expenses.

It is this reason why it’s not what you make, but what you keep that counts!

Here’s the thing: I hear a lot of people say “If I just made $30,000 more a year, I would be able to save enough money for retirement,” and don’t get me wrong, another $30,000 would be helpful in most financial situations. However, if you haven’t established good saving habits to begin with, then when you receive this extra money, it is likely it will be spent, not saved.  

The truth is that the number one reason medium to high income earners are still living paycheck to paycheck is their savings rate is way too low.

The chart below is a comparison of entry level employees who can save 20% of their income with a salary of $60,000 versus corporate executives saving 6% of their $120,000 income. In these examples, each employee invested his/her savings in equities earning an average return of 7%.

 Year 1Year 2Year 3Year 4
Entry Level Employee$12,000$24,840$38,579$53,279
Corporate Executive$7,200$14,904$23,147$31,968

As you can see, the higher your savings rate, the better off you will be in the long run. The good news is that, (I know what you are thinking: how could there be good news about living paycheck to paycheck?) the savings rate does not discriminate.

1.    ANYONE, at any income level, can realistically become financially sound with the correct savings rate in place.

2.    Accelerating financial independence boils down to increasing this number.

The power lies within you to start increasing your savings rate. For most of you this means writing down a budget, automatically putting savings away from your paycheck, cutting out unnecessary spending, and using cash instead of swiping your credit cards.

Start slowly if need be. Even increasing your savings rate by 1% can make a huge difference in retirement. A 45-year-old with a $70,000 salary who saves an extra 1% annually must save $58 more a month now, but will receive an additional $160 of monthly retirement income in today’s dollars accordingly to Fidelity.

Unfortunately, 80% of Americans are living paycheck to paycheck. So, to the 80% of you out there who are: I ask you, are you committed to doing whatever is necessary to increase your savings rate?

Listen, there will be times when you are ahead and times when you are behind with your savings goals, but there is no better time than NOW to start increasing your savings rate.

The race to financial freedom can seem unreachable, but in the end, it is within you.


Marissa Greco is a registered representative of Lincoln Financial Advisors.

Securities offered through Lincoln Financial Advisors Corp., a broker/dealer (Member SIPC).  Investment advisory services offered through Sagemark Consulting, a division of Lincoln Financial Advisors, a registered investment advisor.  Insurance offered through Lincoln affiliates and other fine companies. Greco Nader and Associates is not an affiliate of Lincoln Financial Advisors. CRN-2469749-032019

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