If a bigger paycheck is supposed to solve money problems, why are many high earners living paycheck to paycheck?

New research suggests that once incomes climb high enough, financial stress gets higher too.

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A recent survey from Goldman Sachs found that 41% of households earning $300,000 to $500,000 say they’re living paycheck to paycheck — a higher share than among many Americans who make much less (1).

Compare that to 36% of households earning $50,000 to $100,000 who reported the same financial strain. And surprisingly, the group doing the best financially wasn’t the richest, it was households earning $200,000 to $300,000, where only 16% said they were living paycheck to paycheck.

The findings highlight that many high earners are falling into a trap financial planners call “lifestyle creep.”

“Lifestyle creep”, also known as lifestyle inflation, happens when spending rises alongside income.

According to AdvisorFinder, there are a few different psychological reasons why “lifestyle creep” happens. People can quickly get used to nicer things and what once felt like a luxury — like daily coffee runs or frequent takeout — starts to feel normal. Higher salaries can also bring new social circles, where pricier cars, vacations and dinners out become the standard (2).

There’s also the temptation to reward yourself after a raise or bonus, or the tendency to treat extra money as “separate” cash that’s easier to splurge. Over time, these upgrades can eat away at the financial benefits of earning more.

Upgrades such as changing from public to private education, joining exclusive lifestyle memberships, buying bigger homes or luxury vehicles and expanding their travel and entertainment budgets, can quickly turn into fixed expenses that are hard to scale back.

Even smaller changes add up. Higher-end groceries, premium subscriptions, frequent dining out or first-class flights may feel manageable at first, but put together they can raise a household’s monthly “burn rate.”

Personal finance creator Erin Moriarity, who runs the YouTube channel Erin Talks Money, told MarketWatch that this mindset is common once incomes rise (3). People start thinking: “Why shouldn’t I?” But once luxuries become routine, they stop feeling optional.

“All of a sudden, your burn (rate) is just getting higher and higher," Moriarity told MarketWatch.

Interestingly, the survey suggests households earning $200,000 to $300,000 may occupy a financial sweet spot.

They make well above the median household income, which according to the U.S Census Bureau is about $83,700, but may not feel the same pressure to spend on status-driven expenses like joining a country club or buying a bigger home (4).

Meanwhile, ultra-high earners often face additional financial goals, such as saving for retirement and paying for college for their kids.

These pressures can make even large paychecks feel stretched.

It can be frustrating for lower-income Americans to hear six-figure households say that they’re struggling. Currently, 57% of households earning under $50,000 are living paycheck to paycheck which is the highest rate in the Goldman Sachs survey (1).

But financial planners say the lesson isn’t that high earners are worse off financially, it’s that spending habits and not income alone are what determine financial stability.

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The good news is that lifestyle creep is preventable. Financial planners recommend putting systems in place before raises and bonuses start inflating your lifestyle.

1. Automate your savings

When your income increases, automatically route part of the raise into retirement accounts or investments before you see it.

2. Set “lifestyle limits” after raises

Instead of upgrading everything, choose one or two meaningful improvements and keep the rest of your spending stable.

3. Review your spending regularly

Set a monthly date to review subscriptions, memberships and small recurring expenses that can often pile up. Regular reviews can help you figure out what isn’t necessary anymore. One tip from Due.com is using a subscription-cancellation tool to help weed out what you don’t even use anymore (5).

4. Test luxuries before committing

Thinking about a big splurge? Moriarity suggests trying it temporarily, like renting a luxury car for a week before you buy it, to see if it actually improves your life.

5. Define your financial priorities

High earners are also often juggling goals like retirement, college savings, housing and lifestyle upgrades. Writing down priorities can help you formalize your priorities and long term plans. The Consumer Financial Protection Bureau has a variety of online toolkits to help with budgeting or setting goals.

More money doesn’t automatically equal financial freedom. Without intentional planning, earning a higher salary can simply lead to spending more money and having financial stress at a higher level. The key is to make sure your lifestyle doesn’t grow faster than your wealth.

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Goldman Sachs (1); AdvisorFinder (2); MarketWatch (3); U.S. Census Bureau (4); Due.com (5)

This article provides information only and should not be construed as advice. It is provided without warranty of any kind.