Making Six Figures. Is That Even a Big Deal Anymore?
Posted On May 27, 2021
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Earning over $100,000 a year was once considered a definitive status of financial success…
In 2021, is making six figures still considered a lot of money?
Let’s take a closer look.
So How Much is Six Figures?
Making Six Figures is when you earn between $100,000 and $199,000 per year. Anything over that amount is considered multiple six figures. To make six figures per year, you need to make roughly $47.91 per hour or $383 per day. If you earn a straight salary, make a base salary plus overtime, or are purely an hourly worker, you are considered to be making six figures if your gross pay is 100K or more.
In 2011, my first job out of college was for $17/hr with $108,000 of debt. So I had six figures….of debt….
How Common Is A Six Figure Salary?
Not very common. According to data from pulling Company YouGov, just 9% of working Americans make over $100,000 a year.
Compare This To The Average Employee Salary
$52,000. If you take a look at the Bureau of Labor Statistics’ most recent weekly for April 2021, earnings for the nation’s 112.1 million full-time workers, the weekly median weekly salary is $989 or $52,000 annualized. Annualized simply means 989 * 52 weeks.
Ok $52,000 vs $100,000. It is a huge difference. It’s nearly double!
Which brings me to my next point
Are You Considered Rich If You Make Six-Figures?
Well, the answer is complicated…..
Many factors come into play which makes the average six figure earner not feel wealthy despite their relatively high income. Let’s take a look at the most significant considerations.
Where You Live (Location, Location, Location!)
Finance, Insurance, Technology, and many Fintech companies have a significant presence in New York and San Francisco largely due to the population density, proximity to elite colleges and universities, and a considerable talent pool among other things.
They also have a considerable number of those coveted 100K+ salaries.
However, Higher salaries = higher costs of good & services because there is simply more demand.
Coastal cities (like New York and San Francisco are atleast 30 % More Expensive)
Using the Bankrate.com Cost of Living Calculator, which looks at the average price of housing, food, and common household items, the tool calculates that if you earn $100,000 in North Carolina, you would need to earn nearly $133,000 to maintain the same lifestyle in the NYC Metro area.
But it gets worse
The same calculator estimates that if you earn $100,000 in North Carolina, you would need to earn nearly $183,000 to maintain the same lifestyle in the San Francisco Metro area!
Location is only one major factor though.
Student Loan Debt Impacts Many High Income Earners
If you have a six figure salary, there’s a likelihood you took out some form of student loan debt to finance your education.
According toeducationdata.org, 43% of college graduates have educational debt. Public university attendees borrow a little over $30,000 to earn a bachelor’s degree. While making six figures is a nice salary, paying back those student loans significantly reduces your bottom line.
Plus, many six figure earners have advanced degrees such as a master’s degree. And to take it a step further, educationdata.org also points out that 54% of master’s degree holders owe an average of $70,000.
Now it gets thornier….
It’s All Relative To Your Peer Group
If you’re making six figures, there’s a much higher probability you went to a 4-year university and have a white-collar job. So, everyone around you probably has a similar background, education, and professional career. If you make six figures and 5 of your friends do too, do you even consider it a big deal?
Definitely not if you’re playing Keeping Up With Joneses.
I remember in high school, I had that friend who I thought was “Rich.” Lovely house, nice cars, clothes, etc. The thing is, I lived in a pretty blue-collar area, so that family’s income was way above the average income of our town. They seemed to me to be my town’s Rockefellers. Fast forward to now, I’d probably say they are upper-middle-class, but it’s funny how it is all kind of relative.
Inflation Erodes The True Value of Your Salary
“Six figures isn’t even that much if you take into account inflation.” I’ve heard that statement way too many times.
The Federal Reserve aims to keep inflation at around 2% per year on average over the long term. So yes, inflation erodes the “Real Value” of six figures.
Put simply, inflation means if you can buy a hamburger today for $10 it will cost $11 next year due to rising inflation.
Inflation made headlines recently. For the 12 months ending in April 2021, inflation was 4.2%, after rising only 1.2% in 2020. A little inflation is considered healthy because as the economy grows, demand for goods, services, and labor increases.
This is only 1 of the 2 types of inflation I am talking about, though. The other one is self-inflicted….
When you’re working in New York City or San Francisco, there appears to be wealth everywhere.
And when you’re working hard, making good money, you want to enjoy the fruits of your labor. Right? A nicer apartment, designer clothes, more vacations, and a brand new iPhone. This is also known as Lifestyle Inflation or Lifestyle Creep.
The point is if you’re making six figures, but spending all your money on luxury items, then your wallet is still the same at the end of the month.
The next factor is self-inflicted too, but in a good way…
Contributing To a Retirement Plan Reduces Your Take-Home Pay
If you’re making six figures, you’re likely contributing to a retirement plan such as a 401(k) or 403(b). Those retirement plans are funded with pre-tax dollars and will reduce your paycheck.
In 2021, the maximum amount you can contribute to an employer-sponsored retirement account is $19,500.
So, if you make $100,000 and max out your retirement account, your salary reduces to $80,500. Yes, the money is still yours, but you can’t access it until you’re 59 1/2, unless you want to pay a 10% penalty.
Coupled with a high student loan payment and an NYC rent. That 100k is evaporates quickly.
So if 6 digit salary doesn’t take you that far…
Is It Hard To Get a Job That Pays Six Figures?
It depends on what you mean by “hard.”
Most commonly, if you are earning six figures or close to it, a very high percentage of those employees already have the necessary prerequisites to make a six figure salary reality.
A 4 Year College Degree
An Advanced Degree ( MBA, Master’s Degree, Doctorate)
Advanced or Specialized Skills ( Coding, Software Development)
If you have one or more of the traits listed above, the odds are definitely in your favor that you’ll be earning six figures before you’re in your mid-40s. Unless you are a lawyer, doctor, investment banker, or dentist, chances are your first job most likely won’t be six figures. Still, as you climb the corporate ladder, you will eventually be able to earn that coveted six digit salary.
Without those credentials, it’s more challenging but not impossible
For example, jobs that can pay a six figure salary without a 4 year college degree are:
Commercial Pilot (My uncle Is a Pilot)
Real Estate Agent or Broker (My cousin Is Real Estate Agent)
Law Enforcement (My cousin is a police officer)
Despite not requiring a bachelor’s degree, all three careers require licenses, extensive training, and examinations before even starting.
At the end of the day, earning a high income doesn’t mean you’re wealthy. The key to wealth is through continuous education.
So, I’ll finally answer your question…Is six figures still alot of money?
The Bottom Line
A six figure salary is still a good salary no matter where you live.
At the same time, you’re not “rich” by any statistical measures, especially if you live in a high-cost city like New York or San Francisco.
However, you can still definitely lead a comfortable life.
The key here is to live below your means regardless of your salary or income. Whether this is by lowering expenses such as rent, grocery bills, or even reoccurring expenses such as your cell phone bill or entertainment subscriptions, you need to spend less than you make. Plain and Simple.
What kind of lifestyle do you think you can lead with a six figure salary?
Founder and author of realworldpersonalfinance.com [RWPF]. A blog dedicated to personal finance for millennials that want its readers to know they can be perfectly imperfect. Over the past 10 years, his net worth went from -$108,000 to $365,000, mainly through debt reduction, living below his means, and navigating the corporate world. There have been mistakes along the way, and he is still learning too. He's here to offer honest opinions and real insight that's based on his own personal experiences.