- A Midwestern couple earns $200,000 but has debt caused by ‘lifestyle creep’
- The couple lives paycheck to paycheck with a mortgage and personal debt
- This situation is common among high-income people who spend way too much
A Midwestern couple is nearly $800,000 in debt, despite both working, owning rental properties to generate extra income, and living in a relatively inexpensive Midwestern city.
The pair, who live in Des Moines, Iowa, have fallen into what financial advisor Dave Ramsey calls “lifestyle creep” — a phenomenon in which consumers increase spending as quickly as or faster than income.
Despite the husband and wife earning a base salary of $175,000 and taking in another $20,000 from rental properties, the couple still finds themselves living paycheck to paycheck after racking up a massive $785,000 debt load.
A Midwestern couple told financial advisor Dave Ramsey (pictured) that they make $200,000 a year but are in debt due to ‘lifestyle creep’
The couple lives paycheck to paycheck with a mortgage and personal debts (file photo)
Husband Aaron plans to sell the couple’s $325,000 rental home to alleviate their debts, but his wife is reluctant to sell because she has emotional attachments and does not believe in a debt-free life.
Such a scenario is common among high-income earners, with nearly half of all six-figure earners living paycheck to paycheck.
According to the latest Census data, the median American household income in 2022 was $74,580.
Aaron’s $175,000 salary, combined with passive income from rental properties, put him in the top 20 percent of earners in the country.
But Ramsey identified “lifestyle creep” as the reason behind Aaron’s primary cause of increased spending. This is where an increase in revenues has also led to a corresponding increase in expenses.
“You have a pretty severe level of denial within your household,” Ramsey said bluntly. “I think I’m more upset about this than you are.
The pair, who live in Des Moines, Iowa, have fallen into what Ramsey calls “lifestyle creep” — a phenomenon in which people increase spending as quickly or faster as the income they bring in.
“Less than a year ago my salary doubled and we went a little crazy,” Aaron Ramsey said of his podcast.
The couple has racked up a huge amount of debt with an outstanding mortgage of $450,000 on their main home and another $192,000 on an investment home.
Additionally, the couple has a mix of personal loans, car loans, student loans, and credit card debt.
Rising interest rates have only made it more difficult to tackle debt.
“You guys are really broke!” Ramsey stated after analyzing the couple’s situation. “You will starve to death while making $200,000 and spending money as if you were in Congress.
“You have a pretty severe level of denial within your household,” Ramsey said bluntly. “I think I’m more upset about this than you are.
Ramsey says the couple must quickly get their spending under control, sell the rental property and overcome any psychological barriers to financial freedom
‘I think you have to understand that you can’t live like this. This is ridiculous. You work your hardest and you go backwards,” Ramsey said.
Ramsey says the couple must quickly get their expenses under control, sell the rental property and overcome any psychological barriers to financial freedom.
At $325,000, the proceeds from a sale would be enough to cover their outstanding debts so they could focus on their mortgage.
Ramsey and co-host Jade Warshaw noted that many Americans spend too much to keep up appearances, but emphasized that financial well-being improves when you stop trying to impress others.
“It doesn’t matter what people think it’s a superpower,” Ramsey says, believing that ignoring the opinions of others is a “superpower” that can significantly improve financial health.