How to make $500,000 a year and have no savings

A paradox of being a white-collar, high-earning professional: as your salary grows, so do your needs. Childcare, mortgages, car payments. Pretty soon, it’s easy to become subject to lifestyle inflation: instead of the office coffee, you prefer the artisanal cold brew; instead of the discount airline, you splash out on business-class seats. The cramped old apartment gives way to a sprawling house, and instead of the old car, you have a new Land Cruiser; and the kids take every kind of lesson.

All of this feels like living within your means, because $500,000 is a lot of money by anyone’s count. But by the end of the month, much less the year, it becomes easy to be left with nearly nothing.

Personal-finance blogger The Financial Samurai delved into this question with a look at several families who have $500,000 a year in gross income. (Spoiler alert: he uses the breakdown to pitch his own financial planning services).

His breakdown explains why even high-earning Americans back themselves into living paycheck-to-paycheck — imitating 76% of the country, where people make a fraction of six-figure salaries.

Here’s the most striking chart, as shared by Josh Brown, the CEO of Ritholtz Wealth Management.

These are the expenses  for a family that lives in New York City, where housing costs are among the highest in the country. (For instance, this couple paid $1.5 million for an apartment that is only 1,700 square feet — large square footage for the city, but relatively small compared to houses at that price in the rest of the country.)

As you can see, the couple is saving barely anything; they’re maxing out their 401(k) contributions, but they’re very short on ready cash.

What can we draw from that? It’s tempting to judge how this couple decides to live, with what some might dismiss as #firstworldproblems: the expensive house, three vacations a year and luxury cars led one commenter on Twitter to say, “there’s so much fluff in this budget it’s ridiculous. This couple is choosing everything but saving.”

That’s absolutely true: looking at your budget, cold-eyed, shows your priorities, and this couple does not consider saving a priority. As the Financial Samurai puts it, “the couple will need to work for 93 more years given their savings rate is so low.”

That said, it’s rare for others to do better, regardless of income. Two economists, Emmanuel Saez and Gabriel Zucman, found recently that the top 10% to 1% of income earners in the U.S. save only 12% of their (large) incomes.

The bottom 90% of earners, the economists found, barely scrape together under 5% of their incomes in savings.

Most Americans have no emergency savings at all, across a range of incomes. There are many factors for that, including stagnant wages for the middle class; “the American middle class hasn’t had a raise in 15 years,” noted There is also rising student-loan debt, which has ballooned to $1.2 trillion; and rising costs including housing and more expensive consumer goods.

Still, it’s pretty chilling to see how easy it is to feel like you’re living within your means when in fact, your large income is a high-wire act: carrying you from year to year, but if you lose your job or face unexpected expenses, it all gives way pretty quickly.

What that means: if you’re earning a lot but blowing all your money now, you will be tethered to your job and your paycheck, and you won’t be able to make the career choices you want. So, before your next salary negotiation, make sure you’re not wasting your money first.