To most working class families, a six-figure salary may seem like the antidote to all financial troubles. But earning more doesn’t necessarily confer superior financial management skills, and even high-earners find that it’s shockingly easy to fall into one particularly nefarious debt trap — living beyond one’s means.



“As incomes rise most [people] adjust their standard of living up,” says Kevin J. Meehan, a certified financial planner in Itasca, Ill. “The challenge is that the higher your income goes, the more variable it becomes, [because] much is based on bonuses, options and commissions. When the income goes down — whether on a permanent or temporary basis — most have little free cash to fall back on.”



Often, the higher your income bracket, the more pressure there is to have the kind of lifestyle -- whether it’s from your neighbors, your family or yourself. On top of that, high-paying careers come at a hefty price, typically in the form of college education. A 20-something today will graduate with more than $29,000 worth of student loan debt, certainly enough to put a dent in any future earnings. Add graduate school to the mix (an MBA from a top 20 business school cost $102,000 in 2012), and even with a $100,000 job, you’re still looking at years of loan payments with little room left for saving.









“We have encountered many clients who are high earners, but are not big savers,” says Kacie Swartz, a certified financial planner in Austin,Texas. “It’s no surprise that a higher income can change one’s perspective of ‘want’ and ‘need’.”

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“Once I put everything on paper, I was just paralyzed."

Ruben Omega, 34, was pulling in more than $100,000 as a product manager at a pharmaceutical company when he realized he was broke.



It was 2010, three years after he and his wife bought their first home in the San Francisco Bay area and had just welcomed their first son. Omega was taking home close to $6,000 a month (after taxes), and yet they were still overdrafting their bank accounts. Debt collectors were constantly calling. Each month, his $3,000 mortgage bill brought another wave of terror and yet their loan servicer told them they earned too much to qualify for a loan modification. He felt poorer now that he was earning six figures than he had scraping by on the $33,000 he was making out of college.



“Something just didn’t click,” Omega told us. “[My wife and I] felt that our income should be OK but we didn’t feel comfortable. It was like panic mode all the time.”



Grudgingly, they sat down together and brought out the calculator. Even before factoring in their mortgage, the couple owed nearly $190,000 – $168,000 worth of student, home equity, and 401(k) loans, plus another $20,000 on credit cards.



“Once I put everything on paper, I was just paralyzed,” he says. “I actually couldn’t do anything for a while after seeing that.”



When the shock wore off, the real work began. His wife, who cared for their two sons during the week, took up waitressing on the weekends. They used spreadsheets and budgeting websites like ReadyForZero and You Need a Budget to track their progress. Dinners out and vacations stopped. When they needed a new car, they bought used and paid in cash. They got rid of their landline. One of the toughest changes they made was consolidating their three checking accounts so they could keep better track of their money flow.



Their biggest financial mistake was also the hardest to rectify — their house. San Francisco is one of the most notoriously expensive housing markets, and Omega bought the home from his uncle for $520,000 at the peak of the bubble. With an interest-only loan, the $3,000 he shelled out each month didn’t even cover property taxes or insurance. It was way more than they could afford.



“I probably attempted three times to do loan modifications but [my bank] kept saying we made too much,” he says. “Finally, the mortgage was transferred to another lender in 2011, and we were granted a modification.”





























Ruben Omega and his family have paid off $100,000 of debt in the last three years (Photo: Elley Photography) More

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