I was born in 1980, and I still remember the days when “bringing in six figures” was a sign of extreme wealth and success. It was more than enough to buy the perfect house with a white picket fence, after all, and achieving that sort of income implied a certain level of status that nearly everyone aspired to. You could even say that a six-figure salary was seen as the real “American dream,” simply because earning that much money meant that you had “made it,” at least in financial terms. As a child, I distinctly remember dreaming of a six-figure income myself, and fantasizing about all of the amazing things I could do with so much money.

Times have changed since then, but the public’s perception of a six-figure salary hasn’t necessarily changed with it. With the median household income stuck at around $53,093 in 2014, an annual salary of nearly twice that still seems like more than enough money to succeed and thrive in any economy, no matter the circumstances. However, a convergence of factors have fundamentally changed what it means to rake in a “six-figure salary” in America, and many families who look rich on paper are merely struggling to get ahead along with everyone else.

Why Six Figures Isn’t What it Used to Be

Earning a six-figure salary is still a sign of status and success, but it no longer guarantees a lifetime of wealth like it once did, especially in certain parts of the country. A recent analysis by USA Today goes even further to say that the average price of living the American dream has now risen to $130,000 per year due the rising costs of nearly everything. The authors of the study claim that the American dream is about “finding and pursuing a rewarding career, leading a healthy and personally fulfilling life, and being able to retire in comfort,” adding that only 1 in 8 households in the U.S. currently earn enough to achieve those goals. But, what exactly has changed?

According to the experts, a whole lot. A wide range of sources blame the wholesale death of the American dream on many factors, including these:

Inflation

The Bureau of Labor Statistics offers all kinds of nifty data on inflation rates over the years, including this Consumer Price Index inflation calculator. Play around with it and you’ll see that a $100,000 salary in 1980 would go as far as $288,713.59 does today. In other words, today’s family would need to earn $288,713.59 to achieve the same kind of lifestyle as someone making $100,000 in 1980.

This chart shows exactly how the value of the median household income has decayed over the last decade:

*Economic Noise, 2014

The median income has risen slowly in terms of dollar amount, but any gains made have simply been chipped away by inflation. With the rising prices of everything from energy to food, families- even those with high incomes- are forced to spend a larger percentage of their earnings on necessities. A few examples:

*Economic Noise, 2014

Geography

A six-figure income may still go quite far in the Midwest, but the same cannot be said for large cities and coastal areas where the price of real estate has escalated dramatically over the last few decades. For example, the median price of a home was around $282,000 nationally in May 0f 2014. However, the median home price in San Francisco, for instance, topped $1 million just last year.

And in Manhattan? The median home price in one of NYC’s trendiest neighborhoods reportedly topped $855,000 during the last three months of 2013. Imagine trying to live in a high-cost area like the ones I’ve mentioned while simultaneously hearing how a six-figure salary is the key to financial success. Because of the price of real estate in some areas, six-figures is barely enough to get by.

Kids

According to a recent analysis by the U.S. Department of Agriculture, the cost of raising one child for a middle class couple has grown to a staggering $241,080. This figure includes nearly everything it takes to raise a child- including shelter, education, food, and even daycare. While a six-figure salary is nothing to sneeze at, these costs often fall hard on affluent families since they do not qualify for the kind of help and assistance families with lower incomes often have access to.

Help in the form of aid for college and subsidized daycare, for instance, is often not an option for those who bring in six-figures, making it harder for those families to absorb the costs and still pull ahead. Throw more than a few kids into the mix and it’s easy to see why a six-figure salary doesn’t go nearly as far as it used to. It’s also important to note that, according to IRS.gov, the child tax credit begins phasing out once a family reaches an annual income of $110,000 per year. Although this may make little difference to a family’s bottom line, it does add to the overall theme that, once you reach six-figures, you are on your own.

Healthcare

Nothing has the potential to erode the value of a six-figure salary (or any salary) like the growing costs of health insurance and healthcare in the United States. According to the Bureau of Labor Statistics, in 59 out of the last 73 years leading up to 2008, the inflation rate for medical care increased more than any other item. Furthermore, as the BLS noted, the percentage of household income spent on healthcare has had to rise accordingly, albeit to the detriment of the family budget.

The passage of the Patient Protection and Affordable Care Act (PPACA), also known as Obamacare, also underscored the general idea that families in the six-figure range should be able to afford to pay for the entirety of their family’s healthcare, whatever the cost, by capping subsidies off at 400 percent of the Federal Poverty Limit, or around $94,000 for a family of four. (For more, check out ObamaCare: The Good, the Bad, and the Ugly) The following graph also illustrates how much more Americans pay for healthcare per capita than other countries as of 2008:

The Henry J. Kaiser Family Foundation, Health Costs, 2011

How to Stretch a Six-Figure Salary Even Further

It’s important to note that, while a six-figure salary doesn’t go as far as it used to, it’s still nearly twice the median salary in the U.S. and far more money than many people will ever see. I’m certainly not suggesting that we should have a pity party for those who earn six-figures, nor am I implying that their lives are harder than they should be. I only hope to highlight that, while the perception of what a six-figure income means has not changed much, the reality of what that money is worth has changed immeasurably.

However, some people seem to have a knack to stretch their income to the max, even when living in a high-cost area or having higher expenses than most. Here’s how they do it:

They live a frugal lifestyle- Earning a six-figure salary often means that you can save a large percentage of your income for the future, invest more than most, and use your earnings to fund your future goals. And, no matter who you are or where you live, living a frugal lifestyle is what will get you there. There are a lot of ways to be frugal, but you can start with driving older (paid-off) cars and tracking your expenses to ensure that your family spending aligns with your values and goals.

Earning a six-figure salary often means that you can save a large percentage of your income for the future, invest more than most, and use your earnings to fund your future goals. And, no matter who you are or where you live, living a frugal lifestyle is what will get you there. There are a lot of ways to be frugal, but you can start with driving older (paid-off) cars and tracking your expenses to ensure that your family spending aligns with your values and goals. They invest…a lot- Investing in tax-advantaged accounts is one way to lower your tax liability and accomplish a plethora of goals in one fell swoop. For example, those who max out their employer-sponsored retirement plans and make the most of applicable tax deductions will be far better off when it comes to tax time than someone who does not. Self-employed individuals, specifically, can shelter much of their income from high taxes by harnessing a retirement vehicle created specifically for the self-employed, such as the SEP IRA or Solo 401K. Maximizing your future retirement funds while simultaneously reducing your tax bill is an all-around good idea, especially for higher-earners who stand to benefit more than most. (Need help with your investments? Personal Capital can help.)

Investing in tax-advantaged accounts is one way to lower your tax liability and accomplish a plethora of goals in one fell swoop. For example, those who max out their employer-sponsored retirement plans and make the most of applicable tax deductions will be far better off when it comes to tax time than someone who does not. Self-employed individuals, specifically, can shelter much of their income from high taxes by harnessing a retirement vehicle created specifically for the self-employed, such as the SEP IRA or Solo 401K. Maximizing your future retirement funds while simultaneously reducing your tax bill is an all-around good idea, especially for higher-earners who stand to benefit more than most. (Need help with your investments? Personal Capital can help.) They don’t keep up with the Joneses- A six-figure salary will never be enough if you try too hard to keep up with the lifestyles of those around you who, in many cases, cannot afford it either. Instead of keeping up with the Joneses, learn to live with less. Set a goal to save a certain percentage of your income and find creative ways to make your money stretch. When you don’t keep up with the Joneses, you’ll have more money in your pocket to spend on the things that matter most.

And that’s not all you can do to ensure your six-figure income actually helps you get ahead. Don’t feel like your earnings are enough? Consider getting a second job, consulting on the side, or coming up with a money-making endeavor you can work on in your spare time. Struggling to get by in a high-cost area? Consider whether it makes sense to move your family to a lower cost area where your dollar will stretch much further.

The bottom line is this: A six-figure salary is no longer a guarantee of financial success. And, with the cost of living rising every year, it’s inevitable that it will be worth even less in the future. Fortunately, there are a plethora of ways to stretch your dollar further and continue “living the dream.” A six-figure salary may not mean you’re rich, but it doesn’t mean you’re helpless either.

Do you think that a six-figure salary is still rich? Why or why not?

Photo credit: Robert Lz

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