If you earn $100,000 annually, you earn over twice the median annual wage for all U.S. workers in 2023, which was $48,060, according to the Bureau of Labor Statistics.
$150,000 a year? That’s 3x the national median annual wage average. $200,000? That’s 4x the average.
You get the point.
For many, lifestyle inflation results from these benchmark numbers of “making it.” Fast forward a year or two, and you wonder where your money went, or your spouse wonders. After all, you earn great money, but it’s disappearing.
Consider the Economic Well-Being of U.S. Households in 2023 report released in May 2024. 28% of middle to high-income earners reported “just getting by” or “finding it difficult to get by.”
You might be tapping into savings to pay for your current lifestyle, falling slowly into credit card debt, or feeling like you’re living paycheck to paycheck. It’s not sustainable.
What follows are problems in your marriage.
Whoever notices your money disappearing is likely puzzled, frustrated, or perhaps downright angry. You found yourself arguing more about money. If you’re not careful, contempt can set it. According to the leading marriage expert Dr. John Gottman, contempt is most frequently the emotional origin of divorce.
3 Reasons Why You Might Overestimate Your Earnings
1. Too Complex
My first job was mowing lawns. I made around $20 a lawn. I was in the fifth grade and loved buying and trading baseball cards.
Small numbers based on around an hour of my time made the math simple when I considered buying baseball cards. I would ask myself whether a card or a pack of cards was worth an hour of work.
It’s not that simple if you earn a salary unless you’ve taken the time to do the math.
I surveyed folks who reported they earned between $47,000 and $400,000 annually. I asked them three questions:
The pattern was clear: the more a person earned, the more they overestimated their hourly earnings, at least based on the assumptions I made using SmartAsset to make the calculations.
The Assumptions
2. Our Minds Are Tricking Us
We all have biases that influence our financial decisions, often without realizing it. A bias is a tendency to think in a certain way, leading to systematic deviations from logic or rationality in decision-making.
Said more simply, our minds try to rationalize the irrational.
These biases can cause us to overestimate our financial capacity, leading to financial and marital stress. If you’re a higher-income earner, here are the specific biases you are susceptible to.
Ego Depletion Theory
Think of the prefrontal cortex as the thinking part of your brain. Dr. Metanchuk states in this Penn Medicine article,
"Willpower activates your prefrontal cortex, which is in the front part of your brain near your forehead."
In other words, your desire to think about something or willpower required to resist temptation is not strong enough to use the energy needed to do either.
Ego depletion is at least in part a loss of motivation. After exerting self-control in one task, you do not feel like making an effort in another, although you could do it if you really had to. – Daniel Kahneman
If you're married, part of "thinking about it" might include discussing the decision with your spouse. And if you know, deep down, that you're probably spending more than you should or on something that you shouldn't, you subconsciously act on impulse.
Moreover, self-control and decision-making drain limited willpower reserves. So, if it's the end of the day, you probably don't have the cognitive stamina to make a significant and thoughtful financial decision.
Anchoring Bias
Anchoring bias occurs when we rely too heavily on the first piece of information we receive (the "anchor") when making decisions.
If you're a six digit earner now you might feel like you have plenty of money. The days of penny-pinching are over, and so is the agreement that you need to talk to your spouse about spending decisions. It's not long before at least one of you begins to wonder where the money went.
Decision Fatigue
Decision fatigue is the deteriorating quality of decisions after a long decision-making session. When we're tired, we're more likely to make impulsive purchases, or we're just not up to a quick check-in with our spouse before making a purchase.
Decision fatigue can strain a marriage if one partner consistently makes poor financial choices due to decision fatigue.
Slack
Slack refers to our extra financial resources. When we overestimate our slack, we might feel justified in spending more than we should. For instance, thinking you have plenty of time to save for retirement or your kids’ college might lead you to spend more now, putting your financial goals at risk.
Mental Accounting
Mental accounting refers to the tendency to categorize and treat money differently based on where it comes from or how it is intended to be used. For instance, you might treat a tax refund or big bonus as "fun money" rather than toward the financial goals you established together. This can lead to overspending and frustrations in your marriage.
Pro Tip
If you enjoy learning about the psychology of money like I do, you'll enjoy my favorite five books on the psychology of money: Nudge, Scarcity, Psychology of Money, Thinking Fast and Slow, and Atomic Habits.
You may also enjoy subscribing to The Decision Lab.
Related: Check out our Book Reviews page.
3. We Lack Financial Knowledge
Taxes
Referring back to my surveys, the more they made, the more likely they were to overestimate their hourly earnings. For example, one survey respondent who reported an annual income of $400,000 believed they were making $180 hourly when, in fact, it’s likely to be closer to $130.
If we made $300,000 last year and $400,000 this year, our minds would do the simple math: we would have 25% more to spend, right?
Wrong.
Our federal income tax system is progressive, meaning the more you earn, the higher the rate of taxation for that additional income.
In our previous post, IRS Announces 2024 Income Tax Brackets: Answers to 13 Common Tax Questions, we included an excellent video illustrating how tax brackets actually work.
You’re likely married if you’re reading this post. A rule of thumb to remember is that in a dual-income home when the non-breadwinner earns a raise, that raise has a higher probability of being taxed at a higher rate than if that person was single.
Reading a Pay Stub
The 2023 TIAA Institute-GFLEC Personal Finance Index (P-Fin Index) provides critical insights into the state of Americans’ personal finances. One question required respondents to identify the determinants of wages and take-home pay. As you can see from the results, roughly half of adults failed to do so.
Two Simple Ways to Avoid Overestimating Your Earnings
1. Keep it Simple: Calculate Your Hourly Earnings
Understand your hourly take-home earnings so you can decide before making a purchase how many hours of your time that purchase is worth to you.
Assuming you are a salaried employee and did not work overtime, you can use these numbers to calculate.
When you are paid weekly
Net income / 40 hours
When you are paid bimonthly
Net income / 80 hours
When you are paid monthly
Net income / 160 hours
I realize that some months include more than 160 hours; feel free to do that math on your own.
Remember that the additional money earned from pay increases or bonuses will be taxed at your marginal tax rate (highest rate) or higher if you jump up a bracket.
2. Communicate
Talking about money with your spouse often requires a strategy. Here are a couple evidence based ideas to keep you and your spouse on the same page.
Money dates
Schedule regular money dates. A money date is a scheduled conversation between you and your spouse in a comfortable environment that allows you to discuss your shared goals, values, and relationship with money. Money dates keep couples on the same financial page -- allowing both partners to control money in the relationship.
Money dates are referred to by some as household business meetings. Regardless of how you define it, you should speak regularly with your spouse about the household finances.
Dr. Megan McCoy, CFP®, LMFT, CFT-I™, AFC® is an Assistant Professor at Kansas State University's Department of Personal Financial Planning. She is a licensed Marriage and Family Therapist, an Accredited Financial Counselor®, and a Certified Financial Therapist-I™.
Dr. McCoy makes a brilliant suggestion for starting your money date in our Marriage Toolkit. Her suggestion is included in the free toolkit preview.
Check ins
Dr. Bruce Ross, LMFT, CFT-I™, AFC® is an Assistant Professor at the University of Kentucky. He holds a Ph.D. in Human Development and Family Science with an Emphasis in Marriage and Family Therapy and a specialization in financial counseling and financial therapy practices.
Dr. Ross is also a Marriage Toolkit contributor.
I asked Dr. Ross, for couples with shared bank accounts, is there a number you encourage couples to use before making a purchase? According to Dr. Ross,
"That can be a tricky question, as it depends on a number of factors and what your family budget may allow. Instead, I would focus on open, honest communication first and foremost, which should occur before any purchase is made.
At a foundational level, each partner should be in agreement with the amount that goes into savings and is needed for expenses each month and how any remainder can be spent. There should be no such thing as a large, surprise purchase from a partner (outside of emergencies, which you should have an emergency fund for!) because it should always align with your financial goals as a couple- meaning there were many conversations about life plans that already took place.
Couples with shared bank accounts, and even those with completely separate accounts, need to think of their money spending and, therefore, planning as a couple. There is always space for individual needs and wants, but that is about supporting a partner as a couple and having meaningful conversations about how to best support one another.
I want to emphasize, as this surprisingly rarely comes up when this question is asked, but there should be NO surprise, large purchases if you are truly communicating as a committed couple."
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