How To Stay Rich Once You Get There, According to Experts
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Andrew Lisa
5 min read
It’s hard to imagine that there’s a working person in the country who doesn’t want to earn more money, but a higher income by no means guarantees a higher net worth or even a better lifestyle. There’s no shortage of stories about star athletes who went from rags to riches and back to rags again after tearing through royal fortunes at breakneck speed.
But high earners can watch their treasure vaporize even if they live outside the fast lane of mansions and supercars. Here are bad money habits to break, because, as it turns out, they tend to follow people up every rung of the income ladder.
When Incomes Rise, Spending Is Rarely Far Behind
If you get a raise, it’s only natural to want to buy things that you couldn’t afford on your previous salary. The problem is, something will always be just out of reach no matter how much money you earn. If getting your hands on that thing is your yardstick for success, no amount of income will ever be enough.
“It’s often as simple as baseline expectations for one’s quality of life increasing in proportion to one’s salary,” said Chris Motola, a financial analyst with MerchantMaverick. “If an upwardly mobile person changes his or her tastes from Burger King to Shake Shack or a staycation to a European vacation, that individual may easily still wind up in a situation where he or she is living paycheck to paycheck.”
There’s a term for the phenomenon that Motola describes.
“It’s lifestyle inflation,” said Michael Miller, CEO of VPN Online. “Most high earners think that since they earn a lot of money, they can afford to buy whatever they want.”
Brian Davis, a real estate investor and founder of SparkRental, put it even more concisely: “Most people spend nearly every dollar they earn, no matter how many dollars that is.”
It’s a Slow, Gradual Crawl to Irresponsible Spending
When cash is tight, it’s all you can think about, but financial security can lead to a dangerously blasé attitude toward money. Spending habits offer differ between whether you got ‘rich’ fast or slow.
“For the slow rich, you’ve likely been managing your spending for years or decades,” said James Holbach of Steelyard Invest. “For the fast rich, it might be a little [trickier]. In either case, if you’re worried about lifestyle creep or extravagant spending eating into your wealth, there’s an easy solution. Track what you spend.”
Tracking your spending is the easiest way to make sure you don’t overdo it. “There are plenty of low-cost or even free software solutions to do this on your own, but if that sounds like a pain you can also hire a high-touch financial planner to do it for you,” Holbach added.
High Earners Feel Like They Got the Hard Part Out of the Way
A raise or a promotion can spark a perfectly healthy dose of well-earned confidence, but when it festers into overconfidence, a financial fall is never far off.
Building wealth is only the first step, which is a common misconception regarding money. The true effort is put into maintaining money. It’s easy to fall victim to negative attitudes and bad behaviors when you’re making a lot of money. You might let your financial position get out of control by living beyond your means, making poor investment choices, and failing to plan for the future. When making purchases or other financial commitments, be cautious that being overconfident in your financial stability might enable bad habits.
It’s Easy To Ignore Hidden Expenses, but They’re There Just the Same
An outsized salary can lull you into thinking that you can afford the finer things, but the bigger the purchase, the bigger the hidden costs.
“Many high earners try to keep up with those in their circle yet do not understand a lot of the basics of finance,” said Aviva Pinto, managing director and wealth manager at Wealthspire Advisors.
In Pinto’s experience, people who earn high salaries often fall into the same financial traps as those who come into wealth quickly, like lottery winners or pro athletes. All, according to Pinto, have a tendency to ignore — willfully or otherwise — the following considerations:
When your income grows, so do your tax obligations: An athlete’s $5 million contract can dwindle by 40% or more before the athlete sees even a single dime of it.
Big purchases tend to have big associated expenses: A $1 million house costs a whole lot more than $1 million when you factor in things like maintenance, furnishings, real estate taxes, pool and grounds upkeep, alarm systems and utilities.
Inflation and longevity: People are living much longer lives and the cost of goods and services always trends up.
So, How Do You Get Rich Off of a Poor Person’s Income?
Earning too much money is a good problem to have — so how do broke rich people get out of their own way? The trick is to let your lifestyle plateau as your income climbs.
“Word to the wise,” said Davis, who lives off of 40% of his income with his wife before saving and investing the rest. “If you want to truly get rich, freeze your lifestyle spending where it was in your mid-20s. As you get raises, put it all towards investments. By delaying gratification, you can build true wealth, rather than just running on a bigger hamster wheel.”
