A staggering 25 per cent of professionals earning at least $175,000 a year say they are either “very poor,” “poor,” or “getting by, but things are tight,” according to a survey conducted by finance researcher Bloomberg.
The survey, which studied 1,000 workers in the top 10 per cent of US taxpayers, also revealed that just 50 per cent of the Americans described themselves as “comfortable” with their income.
Twenty-five per cent said they felt “rich” or “very rich.”
Researchers at Bloomberg also revealed that some respondents who said they felt broke were generating an annual income of more than five million dollars.
While the respondents were listed as some of the highest-paid US earners, just one in four said they feel better off financially than their parents, and almost 60 per cent said they had financial anxieties.
Nischa Shah is an accountant, investment banker, and money expert who has worked in finance for over 13 years. According to Shah, there are two main reasons why so many high earners often feel broke:
The Diderot Effect
The Diderot effect is a phenomenon that describes a spiral of consumption among workers.
“This is when buying one thing can lead to a chain reaction of buying one more because you want your other items to match it,” Shah explained. “This can trap you in a cycle of earning and spending and never feeling like you can escape.”
A common example would be buying a shirt to “reward yourself.” Before you know it, you’re looking to buy shoes, pants, and accessories to go with the shirt and to complete the outfit. Workers can avoid the Diderot phenomenon by living off of a personal allowance.
“Pay yourself first,” the money expert advised: “Before spending on any upgrades, save a portion of your pay check right when you receive it and only spend on what’s left.”
@nischa.me Earning 6 figures doesn’t mean being wealthy👇 4 TIPS TO FEEL RICHER: Follow me for more finance tips — Limit your essential living costs to 60% of tour income — Optimise your contributions to your workplace pension — Conform that your tax code and deductions are correct — Budget! More on my profile #finance #personalfinance #budgetingtips #moneytips #budgetingtips ♬ original sound – Nischa
Pay Check Deductions
Another reason those earning more than five figures have financial worries is pay check deductions in the form of taxes.
Considering that 75 per cent of new job vacancies ask for a bachelor’s degree, according to research published by the advocacy group Opportunity@Work, those working high-paying jobs must pay back their student loans.
“You need a degree to land most of these high-paying jobs, and that doesn’t come without a student loan,” Shah said.
Paying higher tax rates also poses a financial threat to high earners, the money expert explained.
“Once you get that job, there’s even more deductions in the form of taxes,” Shah said, revealing: “Whilst you have to pay it, there are ways that you can increase your income in ways that the government views as non-taxable.”
In the UK, workers can increase their income by optimising their contributions to their workplace pension, considering employers deduct the contribution and the government contribution as tax relief before deducting tax.
The money expert advised that employees should also double-check their tax codes. This is because more than two-fifths, 43 per cent, of UK adults have found that they have been paying more tax on the wrong tax code – according to research published by insurance and wealth management agency Canada Life UK.
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