4 Signs You’re Not Doing as Well Financially as You Think—And How to Fix It
Key Takeaways
- Even if you have a high income, you might be poorer than you think if you have a low net worth, significant debt, no retirement savings, or live paycheck to paycheck.
- In 2024, the average American consumer was carrying $105,056 in consumer debt, and 20% of households earning over $150,000 per year lived paycheck to paycheck.
- Opening retirement accounts, reducing inflated spending, and paying down debt can help build true wealth, beyond just earning a high income.
In the United States, the middle class covers a wide income bracket. Data from the Pew Research Center indicates that a middle class household of three has an annual income of between $56,600 and $169,800. Lower-income households earn less than $56,600; upper-income households earn more than $169,800.
If you just look at your income, you might be considered middle class, upper-middle class, or even upper-class. But income alone doesn't present the whole picture.
Many households that would otherwise be considered upper-middle class or even wealthy are less financially stable than they first appear. Consider the four measures of financial well-being below to discover if you're one of them.
Net Worth vs. Income
Your net worth is how much money you have if all your liabilities (debt) are subtracted from your assets (savings, investments, and other property). Net worth gives a more complete picture of your financial health than income alone.
You might be a high earner. But if you also have a five-figure mortgage payment, multiple car loans, and high credit card balances that you can’t pay off, then your net worth could be significantly lower than a middle-income earner who has no loans, lives mortgage-free, and pays off their credit cards in full every month.
When you look at your net worth, you might be significantly poorer than your income would indicate. But that doesn't have to be the case.
"Regardless of your current net worth, anyone can take steps to grow their wealth," said Summer Broadhead, CPA, CFP, of Everthrive Financial Group. "I think the key is setting realistic goals and starting now versus later."
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Consumer Debt
For many American households, debt is a fact of life. In 2024, the average American consumer owed $105,056 in consumer debt, such as credit cards and home equity lines of credit, according to an internal Experian study. Carrying significant consumer debt can strain both your financial and emotional well-being, no matter how high your income is.
| Percentage of Each Generation Carrying Consumer Debt | ||||
|---|---|---|---|---|
| Gen Z | Millennials | Gen X | Baby Boomers | |
| Credit card balance | 24% | 36% | 39% | 32% |
| Auto loan | 20% | 33% | 33% | 26% |
Action Steps
Prioritize debt repayment (and spending cuts) so that you can stop your income from disappearing as soon as you earn it. Look into debt management strategies, such as:
- Debt snowball
- Debt avalanche
- Balance transfer credit cards
- Debt consolidation loans
Retirement Savings
Your retirement savings might reveal that you’re poorer than your income indicates. Unfortunately, not all working American adults have retirement savings.
Twenty-nine percent of Baby Boomers, 35% of Gen X, 38% of Millennials, and 48% of Gen Z don’t have any retirement accounts, either through an employer or opened independently. If you’re one of them, your long-term financial well-being is at risk.
"It is really hard for expenses to be materially reduced in retirement," Broadhead said. "For the most part, whatever you’re spending pre-retirement, you’re used to that, and most people will continue it."
If you haven't set aside funds for retirement, you'll likely find yourself without the means of supporting your lifestyle other than by taking on significant debt or continuing to work far past the time you would like to stop.
Action Steps
If your employer offers a retirement plan, talk to the HR department about setting up and funding an account with contributions from your paycheck. Whether or not your employer offers a match, it makes sense to contribute simply for the huge advantage of tax-deferred savings growth. If your employer doesn’t offer a retirement plan, or you are self-employed, open an individual retirement account (IRA) or a Solo 401(k) and begin making contributions on your own.
Even if you can’t contribute much to start, a small, consistent contribution is still valuable, according to Broadhead. The sooner you get started, the longer your money can benefit from compound interest and grow faster.
Living Paycheck to Paycheck
Having a high income doesn’t always mean you have financial flexibility. At the end of 2024, 20% of households making over $150,000 lived paycheck to paycheck. For some households, this could be due to circumstances outside of their control, such as needing to support older family members or owing significant medical debt. For others, it may be having a career with an inconsistent income stream.
For many, however, living paycheck to paycheck is the result of lifestyle inflation and thoughtless spending. And wealth, according to Broadhead, “really depends on your lifestyle and your way of spending.”
Action Steps
Question every expense in your budget, rather than automatically trying to match a certain ideal or expected lifestyle. You can use your library to borrow books, tools, bikes, games, and more, or even to stream TV shows and movies. You can join a local Buy Nothing group to get home goods, clothing, kid gear, or yard equipment for free.
If you need to, consider ways to drastically cut your spending, such as:
- Getting a housemate
- Downsizing to a one-car household
- Skipping vacations for a year or two
- Sharing childcare or after school care with a neighbor or friend
Focus on what you're working to achieve, rather than what you're giving up, to stay motivated.
"Write out short-term goals and long-term goals, and start implementing steps to attain those goals," Broadhead said.
The Bottom Line
Being a high earner might make you rich in theory, but if you aren't thoughtful about your financial decisions, you might be poorer than you think. Focus on eliminating consumer debt, building retirement savings, and escaping the cycle of living paycheck to paycheck to improve your finances and build true wealth.