If you’re in your 20s or 30s and making six figures, congratulations! You’re off to a great start with your finances.
But, wait a second—being a high earner doesn’t mean you’re not susceptible to making the same financial mistakes as everyone else. In fact, having a lot of money to play with can actually make it harder to avoid some of the typical pitfalls of money management!
We’ve compiled a quick list of the most common financial mistakes we see our high-earning clients making. Good news, though; they’re pretty easy to fix!
1. LIVING ABOVE YOUR MEANS
Lifestyle Creep is real. Your friends (or Instagram feed) are doing it, so you feel the need to do it, too—even if it’s outside your budget. It’s easy to get caught up in what others are doing, especially with the constant stimulation of social media. You want to appear as successful as your friends, so you overspend to keep up.
Unfortunately, the only person you’re fooling is yourself. Living outside your means will come back to bite you in the ass, usually in the form of credit card debt. The only way to build wealth is to make more than you spend, period.
There are many ways to stop overspending (see: reverse budgeting), but an easy one is to remember that things on social media are not always what they appear. Just because someone’s feed looks expensive doesn’t mean they’ve got a bank account to match. You have no idea what’s behind the filter; they could be in credit card debt, living off an inheritance, or exaggerating their circumstances. Stop stalking, and start focusing on your own goals.
2. WAITING TO START SAVING
A lot of 20-somethings think they can put off saving till they’re 30. This notion is the financial equivalent of thinking you can go to the gym once and be in top shape. Just like a perfectly toned bod, building wealth takes time, and the younger you start working at it, the better off you’ll be.
Don’t believe us? Here’s a quick refresher on why one penny doubled for a month is better than getting $1 million today.
Thanks to compounding interest, the sooner you begin saving, the less you have to save overall. Do your future self a favor and start saving now.
3. AVOIDING CREDIT CARDS
Credit cards get a bad reputation because it’s easy to get into debt. However, if you have the rest of your financial sh*t together, credit cards can actually be a good thing!
Using your credit card responsibly (read: paying it off in full every month) allows you to take advantage of reward points. It’ll also help you build good credit, which is something you’ll need if you ever want buy a home or take out a large loan.
Remember—a credit card isn’t free money! It’s a smarter way to spend the money you already have. Keep your cash in a high-yield account all month and let it accrue interest. Put expenses on your credit card. Then, use the cash in your account to pay off the card.
Keep in mind, this method only works if you are not making mistake #1, living above your means. Only charge expenses you have the cash for! Think of your credit card as a debit card that debits once a month, when you pay the bill in full.
4. KEEPING YOUR SAVINGS ACCOUNT AT A BRICK AND MORTAR BANK
We don’t care so much where you keep your checking accounts, but there’s no need for your savings accounts to be at a brick and mortar bank like Chase or Bank of America. Instead, opt for a high-yield savings account at an online bank like Ally or CapitalOne360.
Banks with physical locations have more expenses, so they tend to charge higher fees and have lower interest rates. Online banks don’t have to pay rent, so they can offer higher interest rates on savings accounts, charge little or no fees, and will often reimburse fees at ATM machines.
5. OVER-SAVING FOR RETIREMENT
Whoa, that’s a thing? Yep. We work with a fair amount of high earners who are actually saving more money than necessary to their various retirement accounts.
Media hype about millennial financial mistakes has instilled a fear in many of us that we’re not saving enough for retirement. Our advice? Tune out the noise! Focus on your own strategy and don’t worry about what others are doing.
Everyone’s situation is unique, of course, but as a general rule of thumb, you should set aside anywhere from 12–15% of your gross income toward retirement. If you have an employer match, contribute enough to take full advantage of it—it’s free money! And finally, make sure your retirement portfolio is diversified.
We love hearing from our readers! Share any financial mistakes you’ve made (or solutions you’ve found!) in our comments section.