Why celebrities go broke
After college, you were making $40,000/year, shopping at Ikea, and drinking bottom-shelf liquor. Fast forward a few hard-working years, and now you’re making $100,000+. You buy custom furniture and search out bottles of expensive wine. Your lifestyle has improved in lockstep with your income, and you don’t feel any better off than you did a year out of school. This is called lifestyle creep, and it’s affecting young professionals everywhere. But here’s what you can do to fight off this pesky disease.
You’ve probably wondered this exact thing at the water cooler (or via a Zoom coffee date) with your work husband/wife. How do some of the wealthiest people on the planet end up more broke than the R train after a rainstorm? Answer: Because celebrities really are just like us. They’re human, and therefore equally vulnerable to falling victim to lifestyle creep.
Just because you can afford it doesn't mean you should
Celebrity lifestyle creep seems impossible because the amounts of money involved are huge. But lifestyle creep can happen to anyone. For most of us, it looks something like this: After college, you were making $40,000/year, shopping at Ikea, and drinking bottom-shelf liquor. Fast forward a few hard-working years, and now you’re making $100,000+. You find yourself buying custom furniture and realizing that your glass of wine tastes “oaky.”
Welcome to Club, HENRY
If you identify with any of those things, you’re officially a HENRY (High Earner, Not Rich Yet). Congratulations, and welcome to the club we started. It’s great that you earn more money. We love that for you. But if your spending increases right along with your salary, you’re essentially still living paycheck-to-paycheck, just like you were in your Ikea days. You’re never getting ahead financially. The only way to make the leap from “high-earner” to “rich” requires something a little less sexy than Nicholas Cage’s collection of exotic pets (why??).
Save it for a rainy day
If you’re dealing with lifestyle creep, you’ve got company. Johnny Depp, 50 Cent, and about 78% of retired NFL players have all gone bankrupt thanks to lavish spending habits and bad financial decisions. We’re going to let you in on a secret—building true wealth is not so much about how much you make; it’s about how much you save. Don’t believe us? Check out this janitor who retired as a multimillionaire.
Don’t be tempted by post-gym Oreos
Making a lot of money but spending all of it is like going to the gym every day, but scarfing down an entire bag of Oreos when you get home. You’re putting in the work, but undoing it almost immediately. Most people convince themselves that, “when I’m making X amount more, then I’ll start to save/invest/etc.” But just like exercising, saving money is a learned behavior. It takes time and automation to see results. And starting small can make a huge difference down the road. Luckily, saving money is also a whole lot easier than sculpting a six-pack. Here’s how to start:
Do this today
Determine what 20% of your take-home pay is. Then, divide that number by 12 or 24, and set up regular, automatic contributions to a savings account that doesn’t sit at the same bank as your checking account. The more difficult it is to access the money, the less likely you are to do so. If and when your salary increases, the amount you contribute should also increase so that you’re always saving at least 20% of your take-home pay.
Do this long term
If you’re not ready to work with a financial advisor on retirement planning yet, you can at least opt into automatic annual contribution increases. Most 401(k) plans allow you to increase your annual contribution by 1% or more so that each year, your contribution increases proportionally with salary increases. You can always edit this setting if things change. If you think you’re ready to work with a financial advisor, make sure to pick one you trust.
Think like The Entertainer
Billy Joel doesn’t play Madison Square Garden every week just because he loves performing—he lost a whopping $90 million by entrusting the management of his fortune to a scam artist. Our Stash Plan is designed for HENRYs™ like you who have all the tools to build real wealth, but just want a little help getting started. We’re fiduciaries, which means we put your financial interests ahead of ours. Don’t take our word for it, though—do your homework and contact us if and when you’re ready to make the commitment.
Stash Wealth provides financial plans designed to assist high earning young professionals build and manage their wealth.
Stash Wealth offers a pragmatic approach to financial planning and wealth management. Whether saving up for Tahiti or a Tesla, we help you achieve your short-term and long-term goals.
Written by Stash Wealth Staff Writer
Stash Wealth Staff Writers are knowledgeable about personal finance topics. Their objective is to unravel the complexities of finance trade jargon, products, and services in order to equip HENRYs with a sound understanding of financial matters.