An annual household income of $200,000 is nearly four times as much as the median annual income in the United States. But although bringing in that much puts you in the upper class, it doesn't guarantee that you'll feel rich.
To illustrate this point, personal finance blogger Sam Dogen of Financial Samurai broke down the hypothetical budget of a couple living in San Francisco with one child, each making $100,000 a year, for a $200,000 total annual income.
Here's exactly how this family could spend its money — and end up without much left over.
For a detailed breakdown of how Dogen arrived at each of these numbers, read the full post on Financial Samurai.
In this example, the couple contributes to their 401(k) plans — although they don't max them out — and are working on paying down credit card debt. But even though they qualify as "upper class," after taxes, fixed costs, childcare and discretionary expenses, there's only $5,700 left each year to go towards other savings goals, investment accounts or retirement funds.
They're rich by many standards and yet they appear to be just getting by.
This deficit highlights a crucial lesson: Thanks often to lifestyle inflation, as well as the high cost of certain necessities, earning a higher salary doesn't always translate to financial peace of mind — or to a well-padded savings account.
Earning more money isn't always the answer to financial woes. Prioritization and budgeting can be.
Case in point, also highlighted by Dogen: The family of four who earn a combined salary of $500,000 a year and still feels average. Although these parents make more than twice as much as the $200,000 couple, lifestyle inflation still leaves them with only a few thousand more at the end of the year.
Lifestyle creep isn't inevitable, however. There's a simple way to combat it: When your earnings increase, don't boost your spending — instead, put that extra money directly to savings.
The same strategy can be used for any surplus or surprise, like a bonus, birthday check or small windfall. Instead of planning trips or grabbing gadgets, consider directing at least some of it towards lingering debt, a retirement savings account or an emergency fund.
Need more inspiration to save? Check out these tips and tricks:
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