No one is immune to making mistakes.
Believe me, I see mistakes being made around money everyday.
Some have to make these mistakes as they only learn from experience.
But for other people, they can learn from blogs, podcasts, stories from others, etc.
One of the biggest value adds I have more clients is around helping them avoid big mistakes, and I want to do the same for you all through this post.
Let me walk you through 6 of the Biggest Mistakes High Income Earners Make:
Business owners, salesman, etc. will have 1 good earning year and assume it will stay like this forever. And do you know what they do?
They go a finance a nicer car, bigger house, send their kids to private school, etc.
Then the next year rolls around and their income is half of what is was the year before and they feel stuck. They don't want to have to back out of their lifestyle.
So how do you avoid this?
Always base your expenses around what your income was 2 years ago. Make sure this change is real and expected to stay before you make all these drastic changes.
This one goes hand in hand with number 1.
I honestly do not think I can hard on this point too much, it is the #1 mistake I see.
If you make a good income, save, pay down debt, and invest then you are going to be fine at the end of the day.
Unless you raise your lifestyle to fast and then can do none of those things.
I see it happen all too often. You start by upgrading homes. Then a few months later you get a new car. Then you add a nanny, a house cleaner, nicer vacations, a fancier gym, a country club, etc. and all the sudden you have 2-3x your monthly expenses.
This results in less saving, less investing, and less options to scale back on work, have 1 spouse stay at home, etc.
Be careful here. Some lifestyle inflation is okay, but make sure you are investing enough of your income.
I know, this bullet point is contradictory.
But many people choose to go to opposite sides of the extreme.
I have seen way too many people ignore retirement accounts because they want to retire before 59.5, but this does not make much sense. First of all, if you do not use your 401(k), you are oftentimes going to be giving up the match. This is a lot of money for high income earners. Second of all, there are ways to get funds out before 59.5. And third of all, Roth contributions can be taken out penalty free. And most importantly, you may retire at 50 and have about 10 years you should not touch these funds, but you also have another 30-40 where you will need funds and those funds can come from these accounts.
Do not miss the match. Do not miss the tax deferral or tax free growth. Use a mix of retirement accounts and brokerage accounts.
Everyone knows someone who fits in this boat. They get overconfident, they allocate to much of their net worth to a few investments, and then those investments blow up. The goal of getting a really high return to retire faster is blown up and they end up having to start over and retire even later than if they would have just invested correctly.
Do not let this be you. Be smart with your investments. If you save and invest, the market will do its' work. Let it.
As someone who does not sell insurance, I know I harp on it a lot. But the importance of insurance cannot be overstated.
If you are a high net worth individual, your biggest risk is around large outlays of cash.
This could be from some slipping and falling at your house.
It could be from a serious car accident.
It could be from losing your income and not being able to work again.
It could be from losing a spouse early.
All of these can be protected from insurances. It is not enough to just know you have life, disability, homeowners, auto, umbrella, etc. You need to make sure you have the right coverages.
This is a really big one. Oftentimes, wealthy individuals decide to try and cut corners and hire the cheapest professionals they can find. This can be CPAs, financial advisors, estate planning attorneys, etc.
Do not cheap out here. There is a huge difference between great advice for you and very average advice.
Hire the right professionals for your situation that all work together as a team. This helps you avoid big mistakes, optimize and make the right decisions on all the big things, etc.
Please avoid these 6 crucial mistakes that other high income earners are making. Be the person that can learn from stories not just your own mistakes.
Financial Advisor