You consider yourself to be one of the high earners, but that doesn't mean that you're making all the right money moves. Many high earners fall into the "High Income Trap." It's hard to make a lot of money, but it's even harder to keep it. When you're a high earner, companies know it, and their sales staff will encourage you to become a customer or increase the amount you spend with them. You may also find that the financial advice you're getting at this level is actually bad advice. Here's a look at a few of the biggest financial mistakes that you can make as a high earner.
Mistake #1: The "Lifestyle Creep" Trap (The Golden Handcuffs)
It might be that you got a promotion at work and a healthy raise to go with it, or accepted a new job with a significantly higher pay rate. What are you going to do with all this extra money? Money is the golden handcuffs. You increase your spending and financial commitments to match every raise, so you're always in a cycle of needing more money to live on. You can break this cycle. Instead of establishing a new spending routine, create a savings routine, where you save at least 50 percent of each new raise or bonus.
Mistake #2: Unprotected Income (The "Invincibility" Complex)
You have access to disability insurance, but it's provided through your employer. This can leave you at risk if you can't work in your specific high-stress field due to injury or burnout. You would lose all of your income without a resource or disability policy available to minimize your loss. You can offset this risk with your own disability insurance policy instead of your employer's. With this type of policy, you get paid if you can't do the job you currently have, but can do another job in a different field. This is a portable insurance policy that stays with you as you change companies.
Mistake #3: The "Head in the Sand" Student Loan Strategy
Student loans aren't another monthly bill like cable or electricity. You need to view student loans as a strategic debt. You need to have a plan to pay them off and put them behind you. You might find yourself ignoring refinancing options or Public Service Loan Forgiveness (PSLF) rules. You might choose to aggressively repay your student loans or pay the minimum, so you can invest more and earn higher returns. You should never pay only the monthly minimum without a strategy in place to pay them off or invest to make more money than you'd pay back in interest.
Mistake #4: Hiring a Salesperson, Not an Advisor
Many high earners make the mistake of hiring a financial advisor who is actually an insurance salesperson. Instead of investing your money, they sell expensive whole-life insurance or load-heavy mutual funds and earn commissions on these sales. You need to demand a fiduciary. There is one main difference between a fiduciary and a salesperson. A fiduciary must act in your best interest, while a salesperson does not.
Contact Us at HEFCU to Learn More About Our Banking Services
When you're ready to start making the best financial moves you can, it should start with who you work with to get your banking services. From checking accounts and personal wealth management to auto loans and business accounts, HEFCU wants to partner with you to grow your future. Contact us now.
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