Understanding why so many highly educated people end up on the never-ending paycheque cycle has to begin with an assessment of why this happens.

Having too much debt may be one reason. 

The Federal Reserve Bank of New York reported in the fourth quarter of 2019 that household debt exceeded US$14.15 trillion. Most of that debt related to mortgages, student loans and credit card debt. 

This doesn’t necessarily mean that high income earners are accumulating more debt because of undisciplined spending habits. Part of the problem is that the cost of living has increased at a rate that outpaces the growth in income.

House prices are an example of a significant cost item that has increased at a percentage rate that far outpaces the growth in most people’s income. Education is another. So, simply paying for a PhD – to the extent that it is not covered by a programme like GATE – will also lead to you accumulating significant debt. In the United Kingdom, where the writer resides, the cost of higher education has nearly tripled in the last twenty years. In fact the writer is old enough that when he went to University in 1984, the cost of tuition was covered by the local authority.

Breaking the cycle isn’t a simple act. The income (wages)/inflation paradox often means that wages fail to keep pace with inflation.

Having a PhD can equate to having a student loan. 

Owning a property – if you can get on the property ladder at all – equals a mortgage and a mortgage likely represents a large slice of your monthly income. Medical bills and unplanned or uncontrolled expenditure can lead to credit card debt and other debt that is hard to pay off. 

Credit card debt is easy to accumulate because credit card companies don’t actually want you to pay off the full amount of your balance every month. 

They make it easy to accumulate and retain large balances over time. That’s how they make money – through a large APR (Annual Percentage Rate). Minimum payments seem fine until you realise that it’s almost impossible to repay the total that you have accumulated in debt.

Having a PhD to the extent it means having more disposable income can create more problems that sustain the paycheque cycle. The temptations are rife, after all a new iPhone comes out every year and who doesn’t want to have the latest phone? If you’re not careful your expenses can easily start to track your income. Lifestyle creep means that as your income increases so does your expenditure as you start to be able to afford items that were previously out of reach financially.

To stop living paycheque to paycheque you need to break the cycle. The following ten steps are designed to help you:

1. Get on a budget and stick to it: Map out your income and expenditure and track where your money goes each month. Focus on the essentials (see item three below) and cut out the non-essentials.
2. Stop living with debt: Debt creeps up on you and comes in many forms – student loans, credit cards, store credit cards, mortgages, personal loans, business loans, payday loans and digital loans that allow you to pay for items over a period (goggle Klarna if you are not familiar with this type of debt trap). Avoid new debt and come up with a plan to get rid of the existing debt you hold. A wealth advisor like Firstline can assist you in this regard.
3. Take care of the essentials in your budget: Essentials are, food, housing, utility payments and transport. Everything else by definition is non-essential.
4. Sell personal belongings that you no longer need: A friend of mine recently subscribed to Spotify which allowed him to sell his compact disc collection. He raised over £1,000 on eBay.
5. Live below your means: Before making a purchase, ask yourself a) is it in my budget and b) is it a necessity? Apple launches a new iPhone every year but trust me you don’t need to upgrade that often!
6. Cut out the non-essentials: Eating out at TGI Fridays or liming at Jenny’s every Friday is not an essential. Cut back on luxuries and axe the things you hardly use. I recently cancelled Netflix because I realised, I simply didn’t have time to watch it.
7. Save for a big purchase rather than using credit: Credit is often too easy to obtain and that’s a reason why people tend to accumulate debt (Klarna is a case in point). Consider saving for items and paying for them in cash. This way you may even value them more.
8. Pay yourself first: I have already written a blog that explains this concept. That blog can be found here.
9. If you can open up a second source of income: Again, I have already written a blog that explains this concept. That blog can be found here. 
10. Open a relationship with a trusted wealth advisor: That’s us. That’s what we do. Come and chat and see if we can help.