Why a High Income Doesn’t Guarantee You’ll Retire Rich

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No matter how much you earn, it’s easy to assume having more money would solve your economic woes. If you could just bring home a bigger paycheck, get that big bonus or raise you’ve been after, or score a new job with incrementally higher pay, you’d be set.

Unfortunately, personal finance isn’t quite so cut and dry. If more money was the solution to all financial problems, then high-income folks would all be rich and our government would be flush with cash. Obviously, neither is the case.

More money can help you get ahead financially for sure, but it’s what you do with the money you have that has the greatest impact. And if you don’t save for the future, well, even a hefty income won’t help you retire rich.

Seven Signs Your Big Paycheck Won’t Help You Retire Rich

We asked financial planners who meet with high-income clients to chime in on how and why rich people sometimes struggle to maintain their wealth, and they offered several different explanations.

If you’re a big earner – or hope to be one – who’s counting on your high income to retire wealthy, look out for these signs that you may be off track:

#1: You have poor spending habits.

While bringing in more cash than you need is the best way to set yourself up for financial success, it’s easy to let a penchant for splurging get out of hand. When you can technically “afford” a lot, it’s harder to keep your spending in perspective and even to tell yourself “no.”

That new Audi you’ve been after? You can afford it, so why not? Been craving a bigger house? It’s technically feasible, so go for it. Need a new wardrobe for work? At this point, you might as well.

While none of these decisions spell disaster on their own, the cumulative effect of upping your spending can make your increased earnings disappear in a hurry.

While it may be hard to believe, people with larger-than-average incomes are struggling for this very reason. A recent survey from CareerBuilder showed that 9% of families earning six figures were living paycheck-to-paycheck this year. Further, 59% of those with six-figure salaries reported having consumer debt.

Kansas City-based financial advisor Clint Haynes says he sees this with his higher earning clients frequently. To help them escape their own bad habits, he encourages them to make their savings automatic and then learn to live on the rest.

“Sure, go out and buy fun things, but also remember that the No. 1 priority should be saving first,” he says.

#2: You’re not keeping your fixed expenses low.

While earning a lot can absolutely help you build wealth faster, keeping your expenses low is the other side of the cash-building coin. Avoiding debt, buying a house you can actually afford, and avoiding common money pitfalls like huge car payments and expensive hobbies can take you just as far as earning more than your peers.

Joseph Carbone, a financial advisor on Long Island, shared a story with me of two clients he meets with regularly, and how their expenses play a bigger role in their retirement than their income ever did.

One of his clients lives the most amazing retirement lifestyle, with European vacations, a second home in Florida, and plenty of comfort and security. The kicker is, they only generate about $4,000 in income per month. The reason they can live such a lavish lifestyle, he says, is because they have zero debt and extremely low monthly expenses.

On the flip side, he has another client in retirement that generates about $15,000 per month in income, yet still struggles to stay afloat because they have debt and a lot of financial liabilities.

“Perception isn’t always reality,” he says. Sometimes those with smaller incomes end up much wealthier simply because they kept their expenses low and made savings a priority.

#3: You spend most of your cash on depreciating assets.

Earning a lot of money makes it a lot easier to reach your financial goals, but what if you pour all your cash into depreciating assets?

Financial advisor Ryan Cravitz of Milestone Wealth Management & Insurance Solutions told me this is a common theme among some of his clients. Specifically, he shared the story of meeting a new couple in their early 50s. Their combined income was around $300,000 — and they spent every penny they earned each year.

Unfortunately, this couple was under the illusion they could eventually earn more and accelerate their savings. Like a lot of people, says Cravitz, they poured their cash into depreciating assets like cars and material possessions that made them feel fancy without helping them build wealth.

What the couple really needed, says Cravitz, was to get more realistic about their spending, and make some hard choices now instead of expecting future income gains to bail them out.

#4: You’re trying to keep up with the Joneses.

While poor spending habits can leave anyone financially broken, one phenomenon – keeping up with the Joneses – tends to affect high-income people in droves and make their problems much worse.

Seattle financial advisor and author of The Art of a Plan Josh Brein says he has seen this happen with his clients – and even in his own life.

At the start of Brein’s career, the extra money he made simply made him a target for banks, credit card, companies, and advertising. “Instead of looking to save more and stay out of debt, I was more concerned with keeping up with the Joneses,” he says.

The problem the rich face when it comes to keeping up with the Joneses is the simple fact that the stakes are higher. Sometimes those six-figure families are trying to keep up with other families who make double, triple, or more each year. That’s a recipe for disaster no matter how much you earn.

#5: You assume you’re as good at managing money as earning it.

Arizona financial planner Charles C. Scott of Pelleton Capital Management offers a completely different explanation for why many high-earners never retire rich. He says far too many feel a little too confident with themselves.

Let’s say you’re a doctor, a lawyer, an entrepreneur, or a scientist. You might have studied and trained for years — failing sometimes, but ultimately succeeding because of the time you put into mastering your skills. Unfortunately, Scott says, many smart and successful high earners believe they’re above needing to seek financial advice – and they often lose out on huge benefits of their wealth due to this belief.

“Without that same commitment of time to mastering the necessary skills for creating wealth, you run the risk of not getting there,” says Scott.

#6: You’re not tracking your spending or using a budget.

While poor spending habits can be the death knell for your financial goals, so can failing to track your spending. While this is true for people at all incomes, it’s especially true for those who earn a lot. Why? Because there’s more room for waste.

“It’s much easier to keep tabs on $5,000 per month than $25,000,” says San Diego-based financial advisor Taylor Schulte. “Given that the first step towards retiring wealthy is having a clear understanding of where your cash is going each month, a high-earner with bad money management habits could be working a lot longer than expected – or maybe forever.”

No matter how much you earn, tracking those dollars is crucial. A high income can leave you with more wiggle room, but it shouldn’t be used as an excuse to buy whatever you want and fly blind. After all, even rich people can’t afford to buy everything they want. (Unless you’re Warren Buffett rich, of course.)

And remember, anyone can benefit from using a monthly budget, and budgeting doesn’t have to be restrictive. The most important details to grasp are how much you’re earning, how much you’re spending, and how much of your income is going to savings. If you don’t track these figures, nobody will do it for you.

#7: You want to reward yourself.

Ryan Inman, a fee-only financial planner for physicians, says his job advising doctors gives him a unique perspective on why many big earners don’t retire rich. Big paychecks don’t necessarily translate into a high savings rate, and that’s especially true for those in professions where individuals have had to delay gratification for a decade or more.

Doctors, other medical professionals, and even dentists, for example, may spend eight or 10 years in school. They often borrow well over six figures to finance their higher education, then spend years in a low-paying residency before they start earning the six-figure salaries these professions are known for.

Inman says a lot of his clients just throw caution to the wind and go crazy at that point. They’ve worked so hard for so long that they’re ready to enjoy their earnings – even with multiple six figures in loans hanging over their heads.

“When I work with physicians, I encourage them to think about their long-term goals and what would allow them to live a truly fulfilled life,” he says. “Buying a new Tesla might seem like the perfect reward right now, but when I ask how they want their lives to look 10 years down the road, usually their short-term priorities shift.”

Final Thoughts

A high income gives you a distinct advantage when it comes to building wealth, but that advantage can only take you so far. To get ahead financially and retire wealthy, you have to save and invest regularly while (hopefully) keeping your expenses low.

While this is bad news for six-figure earners who wish they could blow all their money, this is good news for everyone else. Being a doctor doesn’t guarantee you’ll retire rich, just as working as a teacher doesn’t mean you’ll retire poor.

Whether you’re rich, poor, or middle income, it’s what you do with your extra dollars that matters, so make sure you make them count.

Holly Johnson is an award-winning personal finance writer and the author of Zero Down Your Debt. Johnson shares her obsession with frugality, budgeting, and travel at ClubThrifty.com.

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