Yahoo Finance 6 Things You Must Do If You Have a High Salary But Are Always Broke
Millions of Americans struggling with financial insecurity aspire to earn higher salaries because they assume more money will set them free. But research shows that at least half the country’s six-figure earners live paycheck to paycheck.
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While a high income can go further than a small one, your choices determine whether a good salary brings the lifestyle and financial security that lower-income earners imagine it would for them.
Here’s what you need to do if your W-2 says you should be living large, but you’re still somehow always broke.
When You Earn a High Salary, Plan for High Taxes
A great way to stay broke even with a wealthy person’s paycheck is to plan for tax season like you did when you were earning less.
“High earners often overlook the significant impact of strategic tax planning on their overall financial health,” said John Browning, a 30-year Wall Street veteran, founder and CEO of Guardian Rock Wealth and author of “Build a Life, Not a Portfolio: A Guide to Your Financial Future Based on Your Personal Values.”
“Utilize tax-efficient strategies such as maximizing contributions to tax-advantaged accounts like health savings accounts (HSAs), flexible spending accounts (FSAs) and retirement accounts,” Browning said. “Explore tax-loss harvesting in investment portfolios to minimize capital gains taxes. Engage with a tax professional to ensure your financial strategy aligns with the ever-evolving tax landscape.”
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Recognize New Psychological Triggers To Overspend
Unless you’ve always been well off, a high salary brings exciting new opportunities to live a life you never could before. All of that new cash might make you feel like you can afford the good life, but it won’t be good for long if you don’t keep the carefree part of your brain in check.
“Beyond budgeting, understanding the psychological triggers of overspending is paramount for financial success,” Browning said. “Recognize the influence of psychological factors like retail therapy, social comparison and emotional spending on financial decisions.
“Implement mindfulness techniques to pause and assess the necessity of purchases. Consider using budgeting apps that incorporate behavioral economics principles to encourage healthier spending habits. Addressing the root causes of spending can be as critical as managing the budget itself.”
You Have the Means To Buy High-Priced Convenience — Don’t
A bigger salary allows you to turn a gym membership into private sessions with a personal trainer. What was a shopping excursion can now become personal concierge services. You can now replace your daily commute with a door-to-door car service.
You can, but you probably shouldn’t unless you want to stay poor.
“Convenience expenses often erode financial well-being, and high earners may be particularly susceptible,” Browning said. “Uncover hidden costs associated with convenience, such as food delivery fees, premium memberships and subscription services. While these conveniences may seem small, their cumulative impact can be substantial.
“Evaluate whether the convenience is worth the financial trade-off and consider implementing cost-saving alternatives. Redirecting these funds towards savings or investments can lead to significant financial gains over time.”
Realize That Emergencies Tend To Cost More As You Earn More
Experts recommend saving three to six months’ worth of salary to handle the emergencies that are sure to arise no matter how much you make — but even though crises tend to cost more as you earn more, many high earners don’t scale up their rainy day funds to match their growing paychecks.
“Even with a sizable income, unexpected costs can derail one’s finances,” said Jake Claver, a finance expert with a qualified family office professional (QFOP) certification who serves high-net-worth clients as the founder of the wealth management firm Digital Family Office. “Without an emergency fund in place, you’ll find yourself borrowing or digging into savings. Regularly set aside a portion of your income for unforeseen events. This not only provides a safety net but also peace of mind.”
Make Sure Your Financial Education Keeps Pace With Your Growing Salary
As previously stated, your tax obligations, investment opportunities and savings benchmarks change when you earn more money. That means the level of financial proficiency that sufficed during your last job is probably no longer enough.
“Despite high earnings, not everyone is equipped with the knowledge to manage their finances effectively,” Claver said. “It’s essential to educate oneself on budgeting, investing and tax strategies. Seek out resources, attend workshops or even hire a financial planner. Knowledge is the first step to financial freedom.”
If You Spend More As You Earn More, Expect To Stay Broke
There’s no harm or shame in enjoying the higher salary you’ve worked so hard to earn, but even the world’s richest billionaire can’t outrun the arithmetic: An extra dollar earned minus an extra dollar spent will always equal zero.
“One of the most common culprits is lifestyle inflation,” Claver said. “As incomes rise, so do expenses. Instead of saving or investing the extra income, many upscale their lifestyles — bigger homes, luxury cars and frequent vacations. It’s imperative to recognize this trap and consciously decide to live within or below one’s means.”
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