What Kind Of Life Can A Six-Figure Salary Buy You?

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A six-figure salary can be a lot of money, or very little. It all depends on how it’s spent. There are many different ways to spend this type of income depending on your needs, lifestyle, and preferences. This article will explore some important considerations about what it means to earn a six-figure salary and how those who earn that much can make sure they’re spending their hard-earned dollars wisely!

How Much Is Six-Figures in A Year?

A number is described as six-figures when it’s made up of a total of six integers (e.g., 123456, 593596, etc.). With that definition in mind, a six-figure salary is any salary that equals a figure containing six integers. In simpler terms, it’s an annual salary between $100,000 and $999,999. One dollar less than $100,000 and you’re earning $99,999 – a five-figure salary. One dollar more than $999,999 and you’re earning $1,000,000 – a seven-figure salary.

That’s a huge range of income that encompasses a huge cross-section of the socio-economic spectrum. To get a better sense of what a six-figure salary really looks like, let’s break it down a bit. For all the breakdowns we’ll assume that the person earning the salary is a full-time employee working 8 hours a day 261 days a year:

Breakdown Of $100,000 A Year Salary

  • Hourly: $47.89
  • Daily: $383.12
  • Weekly: $1,915.6
  • Monthly: $8,333.33

As you can see, a person earning $100,000 a year is earning the equivalent of $47.89 per hour. That’s roughly 560% more than the federally mandated minimum wage!

Breakdown Of $500,000 A Year Salary

  • Hourly: $239.46
  • Daily: $1,915.68
  • Weekly: $9,578.40
  • Monthly: $41,666.67

A person earning an annual salary of $500,000 is equivalent to an hourly wage of $239.46 – roughly 3200% more than minimum wage earners!

Breakdown Of $999,999 A Year Salary

  • Hourly: $478.93
  • Daily: $3,831.44
  • Weekly: $19,157.20
  • Monthly: $83,333.25

Finally, at the upper end of the six-figure spectrum, we can see that people earning $999,999 annually are earning the equivalent of a $478.93 hourly wage. That’s about 6,500% more than minimum wage earners!

How much is taxes on a six-figure salary?

It’s worth noting that the figures above represent pre-tax incomes. The actual take-home incomes for six-figure earners are often considerably lower due to the high rates in the tax brackets they typically fall into. Like all U.S. citizens with earnings above the mandatory minimum, six-figure earners are required to pay federal income tax and state income tax (unless they live in a state the doesn’t levy one).

Federal Income Tax for six-figure salary

At a federal level, income tax rates for six-figure earners vary in relation to where on the six-figure spectrum they fall:

  • $100,000: Someone earning $100,000 annually falls into the 24% marginal tax bracket which equates to an effective tax rate of 15.10%. That means they owe $15,100 in federal income taxes.
  • $500,000: Someone earning $500,000 annually falls into the 35% marginal tax bracket which equates to an effective tax rate of 29.09%. That means they owe $145,455 in federal income taxes.
  • $999,999: Someone earning $999,999 annually falls into the 37% marginal tax bracket which equates to an effective tax rate of 32.98%. That means they owe an impressive $329,839 in federal income taxes!

State Income Taxes for six-figure salary

As you’re probably aware (the name is a big hint), state income taxes are set by states independent of the federal government. That means there’s a huge range in the rates people pay.

Some states (Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming) don’t levy any kind of income tax. In any of these states, six-figure earners wouldn’t be required to pay anything except federal income taxes.

To get a sense of the other end of the spectrum, let’s take a look at what six-figure earners would pay in California state income taxes (the highest in the country):

  • $100,000: Someone earning $100,000 annually falls into the 9.30% marginal tax bracket which equates to an effective tax rate of 5.99%. That means they owe $5,989 in state income taxes.
  • $500,000: Someone earning $500,000 annually falls into the 11.30% marginal tax bracket which equates to an effective tax rate of 9.30%. That means they owe $46,506 in state income taxes.
  • $999,999: Someone earning $999,999 annually falls into the 12.3% marginal tax bracket which equates to an effective tax rate of 10.70%. That means they owe $106,968 in state income taxes.

What Does That Mean for Take-Home Salaries?

It’s safe to say that someone earning a six-figure salary can expect to pay a lot in taxes. That has a big effect on take-home pay. Here are the approximate ranges that six-figure salary earners can expect to see in their take-home earnings:

  • $100,000: $78,911 to $84,900
  • $500,000: $308,038 to $354,545
  • $999,999: $536,192 to $670,160

So, it turns out that earning $100,000 a year doesn’t actually mean earning a six-figure take-home salary. Likewise, while earning $999,999 a year might seem awfully close to earning $1,000,000 a year… it’s really not after factoring in taxes.

Is $100,000 A Year Enough?

While earners in the middle and upper end of the six-figure spectrum do pay a lot in taxes, their take-home pay is still more than enough to support an extremely high quality of life. Can the same be said for people on the lower end of the spectrum (e.g., someone earning $100,000 per year)? Living wage calculations can be a relatively simple way to answer this question.

What Is a Living Wage?

A living wage is a calculation that takes into account the cost of housing, food, transportation, childcare, health care, and other basic necessities. It’s a minimum amount of money needed for a household to live above the poverty line without government assistance.

Six-Figure Salary For Single Adults

For single adults, the question of whether or not $100,000 is enough depends on how many children they’re supporting and where they live:

  • No Children: For single adults with no children, there is no state in the U.S. where earning $100,000 per year would leave you struggling to support yourself. The state with the highest cost of living for single adults is the District of Columbia. There, a take-home salary of only $33,083 is enough to meet all your basic needs.
  • One Child: According to living wage calculations, someone earning $100,000 a year should be able to support one child in every U.S. state.
  • Two Children: Someone earning $100,000 a year would probably be able to support two children in every U.S. state except for California and Massachusetts.
  • Three Children: Someone earning $100,000 a year would not be able to support three children in California, Massachusetts, the District of Columbia, Hawaii, Maryland, Oregon, and New York.

Six-Figure Salary For Couples

For households with two working adults, things are much more promising. In the District of Columbia (the state with the highest cost of living), two working adults could support three children on a combined household income of $100,700. If one of these adults is earning $100,000 per year, the other would only need to make $700 per year – not incredibly difficult!

Who Can Earn Six-Figure Salaries?

In the U.S., earning a six-figure salary is rare. According to the most recent available data, only 5.4% of the population earns this much in a year. That’s only around 18 million people out of 330 million living in the U.S.!

So… who are they?

Men… Mostly

A 2020 SmartAsset study of six-figure earners in the U.S. found that only around 12% were women. This figure varied highly between different cities with women representing 43.35% of six-figure earners in Washington, DC, and only 1.41% in Hialeah, Florida!

Thankfully, this imbalance has been improving with time as more women are beginning to occupy jobs that offer six-figure compensation.

Post-Graduates

A study conducted by the Georgetown Center on Education and the Workforce found that people with master’s degrees earn around 15% more per year than those with bachelor’s degrees. The same study found that people with a doctorate earn about 38% more per year on average than someone with a bachelor’s degree.

While attaining a post-graduate degree isn’t a prerequisite for earning a six-figure salary, it certainly helps!

STEM Workers

Around the world, people working in STEM fields earn far more than their peers in other fields. Here are some STEM jobs with median salaries in the six-figure range:

  • Physicist: $128,950
  • Data Scientist: $122,618
  • Midwife: $111,134
  • Full-Stack Web Developer: $109,668
  • Astronomer: $109,534 
  • Software Engineer: $107,904

It’s certainly possible to earn a six-figure salary in other fields, but research shows that it’s most likely in STEM fields.

How To Budget on a Six-Figure Salary?

People earning six-figure salaries can struggle with money just like anyone else. Sure, it might not happen as often as someone earning a more average salary, but it’s certainly a possibility. If you earn a six-figure salary, it’s important to set a budget so you don’t overspend. One of the best budgeting strategies for people earning six-figure salaries is the 50/30/20 model.

What Is A 50/30/20 Budget Model?

Budgeting can seem complicated at first, but a 50/30/20 model makes it easy. There are plenty of other budget models out there, but this one works well for those who earn six-figure salaries.

It’s simple:

50% goes to needs – the absolute minimum you need to pay each month to cover your bills and other essential costs.

30% goes to wants – the things you buy that aren’t essential. This might be anything from eating out at your favorite restaurant to buying a new gadget every month.

20% is for savings and paying back any debts you may have accrued in the past. Now, you should aim to save more than 20%, but for this example, let’s stick with 20% so it’s easy to see.

Note: Just because you can spend a certain amount of money on needs and wants doesn’t mean you need to. If you don’t reach the limit in one or both of these categories, the differences get reallocated to savings.

50/30/20 Budget Example for $100,000 A Year Salary

To see what this budget model looks like in action, let’s apply it to an imaginary person earning $100,000 per year. Based on our tax calculations we know that someone earning that much can expect to see a take-home salary of between $78,911 and $84,900. For this example, we’ll split the difference and assume a take-home salary of $81,900 which works out to a monthly income of $6,825.

Needs (50%)

Right off the bat, we calculate the amount this person should budget for needs by halving their take-home monthly income. When we do that, we get $3,413 (rounded to the nearest dollar). This is the amount that the person should allocate to necessary expenses. For example:

  • Housing: $1,700
  • Car: $350
  • Utilities: $300
  • Health: $600
  • Groceries: $400
  • Total: $3,350 (+$63)

Wants (30%)

Next, we find out how much the person can spend on wants by calculating 30% of their monthly income. That works out to be $2,048 (rounded to the nearest dollar). This is the money they can allocate to anything they want to do each month. For example:

  • Travel: $500
  • Restaurants: $300
  • Concerts: $100
  • Movies: $40
  • Gifts: $50
  • Shopping: $500
  • Subscriptions: $100
  • Total: $1,590 (+$458)

Related: How much is that coffee habit costing you?

Savings (20%)

Finally, we calculate how much the person should budget for savings by taking 20% of their monthly income – $1,365. However, we also need to account for the surpluses in the needs and wants categories – $521. All told, our example budgeter should be devoting $1,886 to savings each month. That might look something like this:

  • Investing: $300
  • Emergency Fund: $302
  • Savings: $529
  • Debt: $755
  • Total: $1,886

The 50/30/20 budgeting model is a fantastic tool because it makes budgeting incredibly intuitive. There are only three categories to worry about and it makes perfect sense why each is important. For someone earning a six-figure salary, it’s especially helpful because it allocates funds for future benefit.

However, if you’re earning closer to around $50,000 a year or less, you may want to try the 70/20/10 budgeting method instead. It’s a bit more versatile across lower salary earners and may prove to be a lot less stressful psychologically.

One of the biggest pitfalls that people making six-figure salaries run into is the fact that they don’t think about the future. Their economic security makes it easy to spend the money they have without worrying about the consequences. This is a huge mistake that the 50/30/20 model helps address.

Final Thoughts

A six-figure salary is a lot of money, but it’s not necessarily as much as you might think. Someone with a six-figure salary could be taking home anywhere from $80,000 to around $500,000 depending on where they live and what they do for money.

How much they get out of their money largely depends on how well they budget it. By making smart choices – for now, and for the future – six-figure earners can get the most value possible from their money.