Why You Still Feel Broke with High Income & 4 Steps to Address It

• Why do I make more money than I ever have, but have little to show for it?

• Why isn't my big salary relieving the financial pressure I feel?

• How do I balance enjoying life and being financially responsible?

• Why do I feel poor even though I make a lot of money?

• How can I make the most of the money I have?

• What do I need to do in the short term to create wealth in the long term?

• As we say at Convergent, how do I move from providing to thriving... without sacrificing all the fun in today?

These all ask the same question. With different words, people are expressing that they are bewildered… on paper, they have a lot of money coming in, yet they don’t feel like they are experiencing the lifestyle or creation of wealth that goes along with it. The money leaves their bank account as quickly as it arrives.

So we effectively have all of these high income earners who are living — or nearly living — paycheck to paycheck. If they are saving, they wonder if it will be adequate down the road. And they are understandably frustrated. They wonder, ‘Why do I still feel broke with high income? When will I ever earn enough?’

Needless to say, it’s not  a good feeling, but I can assure you that the situation is not hopeless! I'll break it down like this: why we feel financially strained despite high income, what we can do about it, some practical tips, and end with both my caution and my challenge for you.

SIDE NOTE: If you're reading this and you just aren’t there yet in regard to your income, don’t despair. I have clients who never had what would be considered high income, but they did the right things, and now they have genuine financial security. Your behavior and choices can overcome your income (or lack thereof) in most cases. In this blog today, I’m simply talking about the challenges that are more specific to high income earners. But stick around because much of it will be applicable to you, too.

WHY YOU STILL FEEL BROKE WITH HIGH INCOME

🔎 Economic Inflation

In the last 10 years, inflation on new cars is around 50%. The cost of gas has increased nearly 40%. And we have all seen the increases on basic groceries like chicken, bread, milk, and eggs. There have been some pockets of reprieve during this timeframe, but overall I think we can agree that almost everything feels more expensive... because it is. So economic inflation is definitely a factor in what we experience financially today.

🔎 Lifestyle Inflation

As income increases, our spending often rises to match it. One of the easiest places to spot this is with bonuses; do you count on your bonuses to support your normal lifestyle or do you treat them as genuine financial bonuses? Here’s another thing I see: we often find ourselves with really large vacation expenses that take a larger chunk of our annual budget than necessary. So from the outside we look like we’re living really well, but on closer inspection, things aren’t quite what they seem. (To be clear, I love vacations and I think they are important. That’s why we at Convergent have the tagline “Guiding you from providing to thriving… without sacrificing all the fun in today.” But, as my wise friend has said, we also need to make sure that we aren’t building a life we constantly need vacation from!)

🔎 High Fixed Expenses

As income increases over the years, so do our financial obligations. People with high incomes tend to have larger mortgages, luxury car payments, travel sports expenses, and often private school or college tuition for one or more children. These, along with lifestyle inflation, can leave us feeling cash-strapped on a monthly basis no matter how much we earn.

🔎 Social Comparison

This one has become so common that there’s a new term for it: money dysmorphia. I think we can all agree that it’s easy to notice that new car in our neighbor’s driveway or how often they are away with their children’s travel sports teams. To make matters worse, advertisers have more access to us than ever, and their job is literally to make you feel like you don’t have something you need so that you’ll buy it from them. If we don’t have the right frame of mind, we fall into the trap of feeling inadequate and anxious, which causes us to buy more things… which again exacerbates the financial strain.

🔎 Lack of Financial Literacy

One of the things that I have been pleased to see in the public education system in South Carolina is requiring a Personal Finance course to graduate high school. In my kids’ school, that course was Dave Ramsey’s Financial Peace University. The reality for the rest of us, however, is that we got little to no education on budgeting, investing, wealth management, or money management in general. What that often leads to is debt as we try to keep up with the American standards. That debt can be in the form of school loans (which can be as high as a mortgage!), credit cards, luxury vehicles, and even second mortgages. Again, all of these contribute to financial pressure despite having a high income.

🔎 Limited Liquid Assets

Some of the top income earners I see have their wealth tied up in non-liquid assets like business equity or real estate. As a business owner myself, this is true for me to a certain extent, so I’m not suggesting everyone should liquidate immediately. What I am saying, however, is that having our money tied up in these other things can amplify the feelings of financial constraint in our daily living. We just need to be mindful of it and plan for how we’ll optimize our non-monetary assets.

🔎 Fear of the Future

There are two aspects to this one. The fear of loss of income (in the form of a job loss or loss of bonuses, for example) and how to maintain lifestyle through that can be amplified when the cost of maintaining it is so much higher. There are just bigger gaps to make up if income is lowered, and that can be stressful. Second, because so much of our income is used to support our lifestyle, there is a tendency not to save enough along the way to support our standard of living in retirement. In both cases, we have that fear of the future, but often push it to the back of our minds because we just don’t know what to do about it. (Stay with me. We’ll get to it, I promise.)

🔎 Psychological Factors

I’m not an overly emotional guy, but this one is significant, and there have been times I’ve felt it myself. I have even written other blog posts called Freedom from the Money Trap and Unpack Your Backpack about it years ago. What it amounts to is that the pressure to earn and the long hours we work to maintain our lifestyle can overshadow the enjoyment of our financial success. We can be left with the feeling that we’ll just never have enough time to earn enough money in spite of our high income.

🔎 Tax Burden

We have a progressive tax system, which means that as your income increase, so does your tax rate. Now there are some nuances to this and common misunderstandings, which Matt will address in an upcoming blog, so stay tuned for that. But for now let’s all just recognize that paying taxes leaves everyone with less disposable income and that is yet another thing that can make us feel cash poor.

🔎 Misaligned Financial Goals

I see it over and over again. What people tend to focus on is spending. I don’t mean that they are shopaholics. What I mean is that they spend their time and effort as it relates to money on how to maintain their current spending habits. So they have these abstract goals of “creating wealth” or “leaving a financial legacy” without any idea of how to materially achieve them because all the attention goes to paying for the spending commitments already made. Worse, because they’re so distracted maintaining current spending, they never move beyond that point. In effect, the goals are more like dreams, because we just don’t know how to bring them to fruition.

Can you identify with these obstacles? I want to encourage you: they are not insurmountable! Your current salary can translate to financial security today and into the future. You just have to start making some different choices -- and not all of them require sacrifice!

💡 WHAT TO DO ABOUT IT: 4 STEPS

1. STOP: Take a break from the hamster wheel to allow yourself time and mental space to process through the pressures and fears that you’re feeling. If you keep pushing them to the side, they will mount, but you are unlikely to do anything about it until there is some sort of crisis point. That is obviously not ideal, so face your feelings head-on, but don’t stop there… use them to make the decision to take meaningful action.

2. START: Make a basic financial plan, including investments, for yourself. I give a general outline of how to do that in a 3-part blog series called The Money Checklist | A Plan You Can Actually Follow. Once you’ve done that, there are many other blog posts in our library to help you move beyond the basics.

3. FOCUS: Once you're implementing your plan, stay focused on your personal goals and progress rather than external benchmarks. I have seen the gamut of financial situations in my job. Trust me when I tell you that what you observe from the lifestyle, home, or car of a person is not always indicative of their financial health. If you are looking around at your friends and neighbors, then your attention is likely captured by the areas where they are not sacrificing, which gives you the illusion that nobody is sacrificing anywhere. That is simply not true. Keeping your eyes and mind on the visible aspects of others’ spending will not help you progress toward your own goals. So let's all put our eyeballs back in our heads and keep moving.

4. REWARD: Set small but significant milestones and then reward yourself when you reach them. As I said earlier, our tag line is “Guiding you from providing to thriving… without sacrificing all the fun in today” for a reason. Many of you reading this are married and possibly have children. For your plan to be successful, you have to get more than yourself on board. So set some fun family goals with pre-determined rewards for you to enjoy together. There might be some sacrificing you do together to get there, but the rewards make it more palatable. Setting and achieving new goals will unite and connect your family in ways you might not have expected, and maybe even provide some much-needed levity. In fact, I can remember when our children were very young and we hit some milestones and were able to reward our family with a new-to-us boat and a much longed for family dog. Because we had been sacrificing for quite a while to start a business, and were able to get two rewards at once, one of my children asked, “How can we afford this? Did you rob a bank?” with genuine skepticism and concern! If you know my kids, you can probably guess which one posed the questions. (For the record, nobody robbed anything. It just took us a long while to reach that milestone!)

☝🏼 TIPS TO BE SUCCESSFUL

1. I see it time and time again… you will be much more successful if you and your spouse are on board together. If you could use some guidance in this area or with your children, check out my blog series on Marriage & Money and Kids & Money.

2. For those who are financially healthy, I notice that they sacrifice in one or two areas now to be in a better place down the road. For example, I have clients who commit half of every bonus toward their long-term goals. They aren’t sacrificing everything, but they are sacrificing something. And it shows on their balance sheet and the way they experience financial peace today. They have determined that what they’re gaining is worth the perceived sacrifice today.

⚠️ MY CAUTION TO YOU

One of the biggest obstacles I’ve seen facing high income earners is lack of time. You earn a lot, but the time demands to do that — and still keep up with your family in meaningful ways — doesn’t leave you with a lot of free time to manage the complications of planning, goal setting, investing, etc. Still, some people are great at doing it themselves; they are willing to devote the time it takes to do it well and actually enjoy it. I applaud them and encourage them to keep going! But there are others who, despite the best of intentions, just don’t get it done because of the other demands in their lives. So…

MY CHALLENGE FOR YOU

I challenge you to set an actionable deadline. For example, if 3 months from today you are not well on your way to mapping out a complete financial plan and investment plan as described in step 1 above, get help. (Please just make sure you’re talking to a fiduciary advisor who is not selling products! I have a post full of tips and cautions here.)

There is no shame in needing expert advice to optimize cash flow, create effective tax strategies, manage investments for greater gains, preserve wealth, and the like. Engaging with a fiduciary with strategies beyond the standard “diversification and time” approach can relieve the pressure so many feel now. That allows you more enjoyment in life with the peace of mind that you’re on the right track financially. Bonus: You and those around you will enjoy the less-stressed version of you!

I truly hope this blog has been helpful and gives you the resources you need to start taking your next step. If you have any questions, just shoot me a quick email and I’ll get back to you. If you already know what the outcome of my challenge above would be for you and you want to schedule your first meeting, you can do that here.

As always, wishing you the best,