Achieving a high income is a significant accomplishment. You’ve put in the hard yards, climbed the ladder, and now you’re pulling in the big bucks!
But don’t be mistaken; a high income does not automatically equate to financial security. Just because the money is rolling in today doesn’t mean you’re protected from tomorrow’s uncertainties.
Assuming that a large salary guarantees long-term security without considering long-term financial planning, can be downright risky. So, before you get too comfortable, it’s time for a reality check.
When “more” becomes the norm
Earning more often leads to spending more, a phenomenon known as lifestyle inflation.
As your income grows, so does your desire for bigger and better things—a nicer house, a new car, dinners at fine restaurants. This lifestyle upgrade can feel deserved, but without careful planning, it can leave you no better off financially than when you earned less.
For instance, imagine a couple earning a combined income of $350,000 a year. On paper, that sounds like a strong financial position. But, between a large mortgage, car loans, private school fees, and regular international holidays, these expenses could easily absorb most of their income. If an unexpected event like a job loss or economic downturn were to happen, they’d find themselves in a precarious situation, with little financial buffer.
This is the danger of lifestyle inflation: it’s subtle and easy to justify, but it can undermine your ability to build real wealth.
High income ≠ Financial security
A high income can create the illusion of financial security. It’s easy to assume that as long as the money is rolling in, you’re set for life. But without the right safeguards, a high income can actually mask financial vulnerabilities.
Take Liam, for example.
Liam, a 34-year-old marketing executive in Sydney, earning $250,000 a year and living a pretty comfortable lifestyle. He assumed his high income meant he was financially secure. But when his job was made redundant, without an emergency fund or sufficient savings, Liam found himself in financial distress within months.
Liam’s story illustrates a key point: a high income is not a substitute for financial planning. If your finances aren’t structured to handle changes, even a hefty salary won’t protect you from financial uncertainty.
How to help future-proof your finances
Here are some strategies to help ensure you’re future proofing your finances, no matter how much you earn.
- Create a budget (spending plan) and stick to it
A budget or spending plan is just as important for high earners as it is for those with more modest incomes. Avoid the temptation to spend simply because you can. Instead, allocate funds towards savings, investments, and building an emergency fund.
- Build an emergency fund
Even high income earners need a safety net. A good place to start is having 3-6 months of living expenses in an emergency fund. This ensures that if something unexpected happens you’ll have the financial resources to cover your expenses without going into debt.
- Invest wisely
Don’t rely solely on your salary—make your money work for you by building a diversified investment portfolio. The earlier you start, the better, as even small investments can grow significantly over time thanks to compound growth. Don’t wait—time is your biggest asset when investing!
- Plan for the long term
Even if retirement seems far away, it’s never too early to start planning. Superannuation can be a tax-effective structure for building wealth and making contributions to super can be a tax-effective strategy for high-income earners!
- Don’t overlook insurance (your ability to earn may be your biggest asset)
Insurance might not be the most exciting part of financial planning, but it’s essential. Income protection, life insurance, and disability or trauma insurance are vital tools to safeguard your financial future.
Take control
While earning a high salary certainly opens doors to a more comfortable lifestyle, it also comes with the risk of complacency. The belief that you’re financially set simply because you’re earning more is dangerous. Lifestyle inflation, lack of an emergency plan, not having appropriate insurance in place and failure to invest wisely can all leave you vulnerable when life throws a curveball.
It’s not about depriving yourself of the things you enjoy—it’s about making conscious decisions to help ensure your financial future is secure, so you can continue enjoying life for years to come. Take proactive steps now to secure your financial future.
You’ve worked hard for that high income. Now it’s time for that income to work for you!
The information contained in this article is general information only. It is not intended to be a recommendation, offer, advice or invitation to purchase, sell or otherwise deal in securities or other investments. Before making any decision in respect to a financial product, you should seek advice from an appropriately qualified professional. We believe that the information contained in this document is accurate. However, we are not specifically licensed to provide tax or legal advice and any information that may relate to you should be confirmed with your tax or legal adviser.
