A lot of the people I work with have had the same situation happen.
They went from making let’s say $200k to making $500k-$1mil+ in just a couple years.
This type of income change is really exciting, but it also brings on a ton of complexity and planning opportunities.
So in todays blog, I am going to walk you through the things you need to consider and plan for when something like this happens.
Many who find themselves in this situation are:
For many of these groups, this income is not guaranteed every year. It’s not a set salary.
And if it’s not a set salary, then you want to raise your lifestyle way slower.
Why?
This income might not be there next year.
If it is a salary and you are secure in your job, then you can raise your lifestyle somewhat quicker.
But hear me when I say to be careful here.
It’s not easy to back out of a bigger house, nicer cars, private school, vacations, etc.
Let’s say you were living on $10k a month before. If you decide to just raise your lifestyle only by a little and start spending about $14k a month, you will be in a great spot.
This means you grew your income by 250% but only grew your expenses by about 40%.
This is how you start to get ahead and build real wealth.
Focus on growing your income way quicker than your expenses and see where you end up. You will be so glad you did this.
I am not even talking about what you should invest in.
Obviously, what you invest in matters. But what matters even more is that you invest a lot and in the right places.
This is the hierarchy I think through:
From there, focus on investing in a diversified portfolio across the world. Way too many try individual stocks or other high risk investments and have to lose a ton of money before making a change. Do not let this be you.
It pays to start doing tax planning when you are starting to pay 6 figures a year in taxes.
Some things you want to consider:
Just to name a few.
You are limited in the tax planning you can do so you need to really utilize the options you have.
Very few people I work with find themselves in a healthy balance here.
They either spend too much today and don’t plan well for the future.
Or.. they save too much and don’t enjoy what they have created.
It is a hard balance to strike, but it is totally doable.
Lay out your future goals and get a plan in place to see what it takes to get there.
Then spend the rest on the things you enjoy.
But don’t be stupid and just spend to spend. This is why I love reverse budgeting.
Automate your savings and investments and then spend what is there on a monthly basis. If you have extra, then go save and invest more.
And make sure you are doing the things you love with the people you love. Life is not all about work.
These are the income levels where you start to get approached about certain investments, products you don’t need, etc.
It is easy to get caught up in this and want to invest in every different thing brought to you.
But I promise you, you do not need to do this.
You will almost certainly end up losing a lot of money this way. I have seen it time and time again.
At the end of the day, you are in an awesome spot if this is your situation.
But make sure you don’t let it go to waste.
Plan well!
Financial Advisor