Backward Motion: Why Earning More Money Often Means More Debt

Think about a friend, a family member or even yourself as it relates to money. More specifically, the last time you got a raise at work or perhaps a new job and that equated to a paycheck whose numbers every other week went up, rather than down. Simply put, you’re making more money, so what should you be doing with it? Apparently, most people who make more, spend more. The average household that brings in more than $150,000 ends up paying more interest and having more debt, meaning that making more money doesn’t mean the consumer is thinking about saving that extra income but rather spending it. And then, spending more of it. The general thought process tends to be that a raise, more money or any change to your budget that is in your favor (i.e., increase in income) should be lauded and celebrated with being able to buy the things you typically couldn’t previously. You have to consider that, for instance, if your salary doubles from $35,000 per year as an individual to $70,000, you might look at that as a windfall, similar to winning a jackpot at a casino or a modest lottery fortune. Those fixes to the house, getting a car that runs for more than just a day or two before needing a mechanic or even a vacation that you’ve been sitting on and wanting for years is going to come to fruition thanks to this income change. But why do you have more debt even though technically you’re making more money and can thus pay off debt faster? The better bet is that extra cash should be part of that 10% of your paycheck that goes into the bank into a much-needed savings account. The other, better choice for that extra salary should be dedicated to your retirement fund. Instead of always averaging 3 or 4 percent put toward the gross income of every check that finds its way to your retirement, why not increase it to the max. The company might be ready to match what you put into the account, and even if they’re doing a 50 percent match, you’d be crazy not to take advantage of what ends up as free money. This is going to secure your financial future but also put money into an account that isn’t more clothes, shoes, restaurant dinners and anything else that is fleeting when your finances need to be more about something that is firm and reliable. Extra money or getting a bump in pay is particularly exciting, especially when it is something of substance but that financial salvation should be looked at through more than just the set of eyes that are wide and wondering what they can do with that money that isn’t necessarily wise.

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