Living Beyond Your Means: Is There Ever A Good Excuse?

For the past two years, my husband and I have lived on a gross income of less than $50,000 – and while we were never part of the “entitled” 47% of Americans who didn’t pay income tax (our effective tax rates during those two years averaged out to about 5-6%), we definitely learned what it was like to live under a strict budget.

Maybe that’s why I’m always baffled by high-earning professionals who live paycheck to paycheck.

Regional Inequalities

I understand that earning power is a regional thing, as fellow personal finance blogger John from Married with Debt wrote about in a recent post. I’ve witnessed this first hand. Two of my best friends from undergrad ended up pursuing careers as attorneys. They both went to top tier law schools, but after graduation, one took a position in the Midwest, while the other began working for a firm in New York City. The lawyer in NYC earns easily twice as much as the lawyer in Indianapolis, despite the fact that their resumes and jobs are nearly identical.

In other words, due to cost of living differences, a person making $150,000 in a major metropolitan area may not be able to stretch that money as far as someone bringing in the same amount in a less expensive city; in some situations, it’s a valid excuse.

Paying Off Student Loans

I’ve written about the difference between good debt and bad debt on this site, and I stand by what I said – in my case, my student loans are most likely an example of bad debt, not good.

But this isn’t true for everyone. I have a friend whose husband is an oncologist; he spent four years in medical school, three years in his residency, and another three years in a fellowship position. During those ten years, he deferred his student loans, racking up a grand total of more than $225,000 in student loan debt. Yet, when he got his first post-fellowship job, he scored a salary that, as his wife told me, would allow them to pay off all his student loan debt in three years or less.

WOW.

To me, student loan debt is a valid excuse for why a high-earning professional may have to live paycheck to paycheck – at least their first few years on the job market.

Supporting A Family Member

The guy who used to live across the street from us was an entrepreneur. Before he reached the age of 25, he’d already started up – and sold – a pair of Internet-based businesses. Yet, he and his wife had no investments and virtually no emergency fund. I was always shocked at what they said they couldn’t afford, especially when they were so transparent about what they had coming in.

But one day, as we were taking our dogs for a walk around our neighborhood, the guy offhandedly mentioned to my husband that he was financially supporting his two younger half-brothers. Their father was out of the picture, their mother was horrible with finances, and somehow this twenty-something man was paying for everything from his brothers’ soccer team dues to their household’s electricity bill.

I’m not going to say this was a healthy situation, but family is family – if you’re supporting a family member through tough times (under certain circumstances, this may include alimony or child support), I understand why you may be a little cash strapped, despite a lucrative paycheck.

The Invalid Reasons

I’ve been thinking about this for a while, and truly, the above examples are the only three worthwhile reasons I can come up with why a person may live paycheck to paycheck even if they are a top earner. Here are some reasons that are just excuses:

  • You’re mired in debt, like car loans, credit cards, or an unwieldy mortgage. This is lifestyle inflation to the max.
  • You fail to budget, and don’t pay attention to what’s coming in – and going out – until you find yourself in the red month after month.
  • You’re obsessed with keeping up with the Joneses, and always buy the latest gadgets as soon as they are available; instead of a savings account, you have an iPhone; instead of a 401(k), you have a 70-inch Aquos TV.

Reader, did I miss any “valid” reasons for high earners living paycheck to paycheck?

 

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