Why High Earners Are Quietly Struggling More Than Ever With Cash Flow
A six-figure salary seems like ballast against cash flow woes. With that kind of money, you should be able to do far more than cover the basics — you should be growing your wealth. Right?
Maybe not.
Behind closed doors, more high earners are dealing with stretched budgets, rising lifestyle costs and a shrinking cushion for unexpected expenses.
That doesn’t surprise Andrew Lokenauth, a financial expert, investor and founder of Be Fluent in Finance. Through his work with high earners, he’s seen a quiet struggle with cash flow — and he has clear ideas about what’s causing it.
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Common Cash Flow Woes for High Earners
Lokenauth readily acknowledges that cash flow struggles at a high income look different from being broke. Still, they’re stressful — and common.
The phenomenon can look like earning $250,000 and having only $800 in a checking account — or making $500,000 and sweating a $15,000 property tax bill.
“During my time in private banking, I worked with clients making $300,000 to $600,000 who couldn’t come up with $10,000 in cash for an emergency without shuffling money around,” he said. “Their wealth was all locked up — equity in a home, retirement accounts they can’t touch, stock options that haven’t vested. They looked rich on paper and felt poor in practice.”
He’s identified several signs of cash flow strain among high earners:
Carrying credit card balances despite high income
Timing bill payments around paycheck deposits
Declining social invitations because money is tight that week
Choosing between maxing out a 401(k) and paying down debt
Selling stock to cover unexpected expenses
Taking out home equity lines of credit for nonemergency spending
Feeling anxious about money despite earning three times the national average
Compounding these money woes is a pervasive sense of shame. High earners know they make good money, and they know others wouldn’t feel sorry for them.
“But cash flow problems don’t care about your salary,” Lokenauth said.
High Earners Often Live in High-Cost Areas
It’s easy to blame high earners’ financial crunch on lifestyle inflation alone. Pressure to keep up with the Joneses — even if you can’t truly afford the Joneses’ luxury car or home — can eat away at a high salary like Ms. Pac-Man.
Still, that isn’t the whole story. A catch-22 is that high-paying jobs are often based in elite, expensive cities, where housing, child care and daily costs are much higher than the national average.
“High earners often live in high-cost areas because that’s where high-paying jobs are,” Lokenauth said. “You can’t work at a tech company in San Francisco and live in a low-cost area. You can’t be a corporate lawyer in Manhattan and commute from somewhere cheap.”
He breaks down a hypothetical scenario for someone earning $250,000 in an expensive city:
Gross income: $250,000
Taxes (federal, state, local, FICA): $85,000–$95,000
Take-home pay: $155,000–$165,000 per year, or about $13,000 per month
Monthly fixed costs:
Housing (rent or mortgage): $4,000–$5,000
Child care: $2,000–$3,000 per child
Health insurance: $800–$1,200
Student loans: $1,000–$2,000
Car payment and insurance: $800–$1,000
401(k) contribution: $1,500–$2,000
“That’s $10,000 to $14,000 per month in fixed costs before food, utilities, gas or anything discretionary,” he said. “You’re making $250,000 and you’ve got maybe $1,000 to $3,000 per month in breathing room.”
Other location-driven expenses — notably health care, child care and school tuition — also hit high earners hard. Student loans, Lokenauth adds, are “definitely claiming their pound of flesh.”
Taxes Hit Take-Home Pay Hard
Lokenauth refers to taxes as “the killer nobody talks about” when it comes to high earners’ finances.
“High earners get destroyed by taxes in ways that don’t show up in salary discussions,” he said.
To illustrate, he points to what happens when someone gets a raise from $200,000 to $250,000. Congratulations — now here’s what happens when it actually hits the bank account:
Federal tax (35%–37%): $17,500–$18,500
State tax (5%–13%): $2,500–$6,500
FICA (on wages under $168,000): $3,825
Net increase: $21,000–$26,000
“So that $50,000 raise turns into about $1,750 to $2,200 per month in take-home pay,” he said. “Less than half of what people expect.”
In addition, high earners can phase out of key tax benefits, including:
No child tax credit above $400,000
No student loan interest deduction above $185,000
No traditional IRA deduction above $230,000 (married)
Higher Medicare premiums above $200,000
Alternative Minimum Tax exposure
“I worked with clients who got raises and saw their effective tax rate jump from 35% to 45% because they crossed multiple phase-out thresholds,” he said. “Their raise cost them money. The phase-outs create a perverse situation where earning $195,000 can leave you better off than earning $210,000.”
Lokenauth adds that many high earners are effectively stuck in a zone where each additional dollar is taxed at rates approaching 50% once federal, state and payroll taxes are combined.
The Bottom Line
Being a high earner doesn’t make you immune to cash flow problems. While these struggles aren’t the same as being truly broke, they still limit high earners’ ability to enjoy the money they work hard to earn. And many of the forces driving those pressures are well beyond their control.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal, or tax advice.
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