When high incomes don’t automatically build wealth

Saving Money

By: Steve | Think Save Retire

As a personal finance blogger, I’ve never tried to hide the fact that I earned good money during my working career. By the end of our stints in corporate America, both my wife and I were pulling down a combined $250,000 a year.

That’s good money!

There’s no question that earning a ton of cash makes saving money easier. The potential to save, with healthy cash flow, is definitely there.

And, one of the comments that I get a lot goes something like this:

If I made $250,000 a year, I’d be retired too!” – almost like it’s automatic.

But, here’s the thing: You probably wouldn’t. I mean, you could. But, large salaries also come with a deceiving belief that you’re “rich”, and when you’re “rich”, you can afford to upgrade your lifestyle. To spend a little more on nicer things. If you aren’t careful, it quickly spirals out of control.

Why? Let me explain.

You slowly immerse yourself into the “rich” culture. You begin to want things that your coworkers have. Drive similar cars. Live in nicer areas of town. After all, you certainly wouldn’t want to host a party or poker night with your rich friends and coworkers in a poor neighborhood.

That doesn’t reflect well on you.

After all, living in an apartment or small house is something that you did before getting rich. Now, your big income elevates you into a new class of people.

And now, you want to enjoy the fruits of your labor!

Here’s the problem with all that…

The savings problem with high incomes

I’m not the only personal finance blogger who enjoyed a high income during their working careers. Doctors, lawyers, and business executives make good money. But strangely enough, few of us feel like saving money, even with a big income, makes this whole early retirement thing feel automatic.

I asked high-income bloggers to reflect on the weird difficulty of saving cash, and the answers I got were super interesting.


“For physicians,” The Physician Philosopher told me, “the trouble is that the high income is coupled with years of delayed gratification. So when the big payday finally comes, most feel like they deserve a bunch of new stuff just like an NFL/NBA players who signs a big contract just to become bankrupt later.”

Due to the power of pseudo-affluence, the Philosopher said, doctors feel rich simply because their incomes are high. “While many high-income earners have the trapping of appearing rich, they are usually quite the opposite because of the way they utilize their money.”

Here’s when the Philosopher told me something truly amazing. “Truth be told, when I started out with a net worth of negative $208,000 at the end of training, one of the most helpful things was realizing that the panhandler on the street or the toddler with a few dollars in their piggy bank (and no debt to their name) was wealthier than I was. This meant that I was, in fact, not rich…”

Business Executives

What about the cost of living for high-income earners? When Stop Ironing Shirts got promoted into more senior levels of business, he was given expensive advice from his Executive Vice President: “Pay attention to where you move. It was an expectation of the job. “Live in your market” he would say.”

What happens when that market is 5-times as expensive as cheaper areas of town? Now, we’re spending money in order to earn money. And, his boss practically told him to do so.

“Residing in a high cost of living area means a regular apartment in a nearby suburb, without a car, kids or spouse, eating at home most of the time, and traveling just to see family and friends still takes up 1/4 of my high salary,” wrote a lawyer who blogs at The Give and Get.

Robin and her husband started their careers earning $25,000 each. Now, they rack in over $185,000 – and they are living paycheck to paycheck. What was their problem? Lifestyle creep and feeling entitled to buy things because they could. “Peer pressure and looking the part has definitely influenced my husband. He is constantly trying to keep up with the fashion, trinkets, and toys that coworkers flaunt around.”

“I have a college degree, my husband does not. My salary increased a lot faster than his salary did, but we’ve both been equally moronic with our money.”

The high-income savings struggle – point by point

After hearing what high-income earners have to say, we can distill the savings struggle down to a few specific problems:

  • The “I deserve it” mentality, especially after years of delayed gratification
  • Living in ritzy areas of town is the unwritten expectation to continue earning
  • Lifestyle creep continues to eat away at large portions of huge salaries
  • Looking the part (appearing rich and successful) is tough to break through

Before we go on, the intent of this article isn’t to claim that high-income earners are somehow victims. The large majority of the spending problems of the rich are self-imposed, and they admit to it.

However, it’s also far too easy to assume that high incomes make achieving big savings goals or early retirement nearly automatic.

In many industries, you’re forced to live in expensive parts of town and drive nice cars in order to satisfy unwritten expectations of the job. If clients expect their lawyer to drive a Mercedes instead of a 10-year-old Jeep, that becomes the expectation of being successful.

If living in costly areas of town influences career success, that’s also a part of the job.

If I made $250,000 a year, I’d be retired too!

Maybe, but probably not. There’s more to financial independence and early retirement than just a high income. There is no question that more money helps assists in the potential to save, but high-income jobs can also be quite expensive to have.

Are you a high-income earner? What’s been the biggest struggle in the pursuit of your money goals? Do you feel like the expectations of your job prevent you from saving more of your income?

Last modified: December 1, 2018

5 Responses to :
When high incomes don’t automatically build wealth

  1. Steve – this is a great reminder to stay the course rather than fall into life style inflation. Timely article and appreciated.

  2. Okeoma says:

    I think student loans play a huge factor. As a lawyer I took on our over $250k in student loans add my husbands $100k and it took us almost 5 years just to get to a $0 net worth.

    There’s also the more subtle lifestyle expectations. Since I can “afford” it people assume I should hire help (cleaner, childcare, etc) or outsource daily tasks to support my insane hours. While I think it may make sense financially to outsource some tasks in order to make those big bucks, it can get out of hand pretty quickly since you can outsource just about everything these days (grocery shopping, laundry, cooking, etc.).

  3. Tyler H says:

    I’m in a HCOL area and state. Make good money but it costs good money to live here. $52k in state and fed taxes for 2018. Child care is $18k a year. My job does not prevent me from saving. I don’t need a snazzy car or a new suit once a month. We live in a great area which is also expensive but not to keep up with the Jones Fam. We do it for the schools. Primary focus in 2019 and beyond is to grow income with passive streams

    Merry Christmas.

  4. Don’t forget about the taxes. Many low earners have no idea how much high earners are paying in taxes. I often hear complaints about the rich not paying any taxes and I ask them what they think the maximum effective and marginal tax rates should be. They often name a rate LOWER than what I’m already paying!

    Those high incomes aren’t quite as high as you might think once you pay the taxes on them. Add in a fat student loan payment and a late start and it certainly isn’t automatic and that’s not even considering the things discussed in this article.

  5. Xrayvsn says:

    While higher income is nice there are so many downsides as well that bridge the gap between someone saving in a low income range versus a high income range.

    The IRS and progressive tax code really penalize high income earners.

    Besides being in a higher tax bracket, a lot of tax deductions such as student loan interest deduction and roth ira contributions get phased out completely with higher incomes.

    Also those in a higher income tend to be subject to social expectations. A doctor or lawyer is deemed successful if they drive the luxury car and own a Mcmansion. How confident are you in your lawyer if he goes around driving a ’78 pinto?

    And of course you are placed in the cross hairs of people who are looking to make money off of you. Whether via financial advisors or lawsuits or divorce.

    Also you tend to pay a premium for services when they realize your occupation. Plumbers, electricians, and lawyers I’m sure add an extra for the doc rate that I am sure their regular customers don’t have to deal with

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