For years, it’s been the benchmark of success. It’s been this level of accomplishment that allows someone to live a comfortable life. It’s the very classification of “well-off.” Of course, I’m talking about the six-figure salary. Everyone wants a six-figure salary.
But apparently, adding that extra zero just doesn’t mean what it used to. According to Bankrate, Inc, $100,000 is “no big deal anymore.” How could they say such a thing? Well, their reasoning is pretty solid. “Not only has standard inflation steadily eroded the real value of a $100,000 income, but the cost, of housing, health insurance and college tuition have risen dramatically in recent years. Consider the rising costs of food, energy and the necessities of a middle class life, and that six-figure luxury quickly turns to six-figure mediocrity.”
A recent study says that the average middle-class family spends $14,000 a year to raise just one child. And that’s completely ignoring college savings. Thinking about that number made me realize just how much money we spend lately. We’re building a new house soon. And while the extremely weak housing market makes the cost of that seem relatively low, we also have to accept that we won’t get a whole lot of profit off of the house we have now. We’ll be thrilled to break even when we sell it.
Right now, less than 20% of American households break the six-figure benchmark. And that’s using combined household incomes, not just individuals. But even for those who make that impressive feat, the money simply isn’t going as far as it once did. This milestone, which seems to have such a psychological impact for so many, just can’t deliver on the image it’s always promised us. Bankrate breaks down just how six figures can still let you down.
Bryce Danley, a Certified Financial Planner and advanced financial adviser with Ameriprise Financial, says the real power of any income is all about perspective and choices. He says buying too much house, spending too much on automobiles and having too much debt is commonplace with families in the $100,000 income level and largely responsible for the six-figure pinch. In one example Danley uses a household that earns $100,000 a year, owns a $375,000 home, leases 2 vehicles for $450 each per month and pays $250 per month on credit cards. After that household pays the mortgage, car notes, debt and takes out social security and federal income taxes, it has spent 75 percent of its income.
The fact is that making $100,000 a year still demands reasonable choices. It’s not the guarantee that we once thought it was. The scariest part of this whole thing is probably that 80% of American households aren’t even making $100,000. If six-figures isn’t delivering the American dream, just how are the bottom 80% going to get there? And what’s the new benchmark? Somehow, seven-figures just doesn’t have quite the same ring.