When you have a high-paying job as a doctor, lawyer or business owner, you might assume it offers you unlimited financial freedom. But when you look more closely at your money situation, you might be shocked to discover you aren’t in as good financial shape as you expected. For being supposedly the most prosperous nation on Earth, America sure has its problems. Case in point: 40% of Americans don’t have $400 to cover an unexpected expense. A full quarter has nothing in their retirement accounts. Another 25% avoid hospital visits because they can’t afford the bill. Finally, 20% won’t be able to pay off all their bills at the end of the month.
If you’re a high-income earner, most of the financial problems you face are of your own making. Hey, you’re only human. The temptation to spend that big, fat paycheck can be hard to resist. But the good news is since you created the problem, you have the power to change it. It might not be easy, but if you take a multi-pronged approach and utilize the 10 strategies below, you will never have to worry about living paycheck-to-paycheck ever again.
1. Admit that you have a spending problem
This advice isn’t limited to people who have substance abuse problems or gambling addiction, it also applies to folks who are spending beyond their means. Since you’ve gotten to the stage where you’re a highly-paid professional, you’re obviously an intelligent person. Apply your smarts to combat your spending problem. Think about what your short and long-term goals are. Are your retirement savings low? Are you fighting with your spouse/partner about spending decisions? Now is the time to find a solution. It won’t be easy, which is why you need to find motivation from within. But if you’re ready to start, your life will change for the better forever.
2. Cut those credit cards in half
If you’re living paycheck-to-paycheck, debt is often the culprit. Why do you rack up so much credit card debt and take out loans? In many cases it’s due to greed or a lack of patience. You want something but can’t afford it, so you go down to the bank, take out a loan, and decide it’s a problem you’ll deal with later. But with all the interest you’re paying, you’ll quickly find yourself drowning in debt, only capable of making the minimum monthly payment. It’s time to get rid of your credit cards and only buy things if you have the cash to do so.
3. It’s time to track your spending habits
Most people don’t bother to keep track of what they’re spending. As a result, they have no real idea where their money is going. So here’s your challenge: for the next 60 days, record every transaction you make. You might be shocked by what you discover. Getting a latte and breakfast sandwich before heading to work might only set you back $10. But if you’re doing it every weekday morning, the costs really start to add up. Over two months, that’s around $400 just for that one routine! Once you see that your spending patterns don’t align with your financial goals, it will serve as a wake up call to make a change.
4. Develop a new budget and stick to it
This is something nobody likes to do because it requires effort, discipline, and sacrifice. Do your financial decisions get in the way of your plans? Then take that into account as you create your new budget. Eliminate all of the bad choices that keep you from achieving your goals. It would be easy to convince yourself that since it’s your money, you should be able to spend it however you want without restrictions. But in reality, by being more mindful in the way you make purchasing decisions, you are opening yourself up to more freedom in the long run.
5. Be prepared to make dramatic changes in your lifestyle
Sorry, but the previous example of cutting back on lattes and breakfast sandwiches isn’t going to be enough. In fact, it’s only the first of a series of huge steps. That annual family vacation to the Bahamas? That beautiful Lexus parked in your driveway? The gigantic house with a $4,000/monthly mortgage? It’s time to downscale each and every one of those lifestyle expenses. You might not be happy at first, but when you realize just how much of the financial burden is lifted, you’ll have no regrets.
6. Aim for $1,000 in savings
When something unexpected happens, you need to be prepared for it. This is why you should make it a goal to build up at least $1,000 in savings. Every time you get paid, deposit some of it into your bank account. You’ll eventually reach $1,000 and it will provide you with a safety net when you need it. If it takes more than 1K for you to feel secure, increase it to your targeted amount.
7. Time to get rid of that debt
Picture what a debt-free life would look like. You’d no doubt feel less stress and it would allow you to focus on your financial goals. Start by chipping away at the balance of the credit card with the highest interest rate. Sell your car and use that money to immediately pay off your loan and buy a newer, more affordable automobile.
8. Lock some of that money away
One of the best ways to prevent yourself from spending money unnecessarily is to put it away in a retirement account or investments that will benefit you in the future. Of course, you should only do this once you’ve taken care of all your debt. But remember this: don’t tell yourself you’ll save whatever is left over. The truth is, there won’t be anything left over. Instead, you should save first and spend what is left over.
9. Think in terms of what you have, not what you make
Just because your annual income after taxes is $100,000, it doesn’t mean you are worth $100,000. Some high-income earners take things even a step further: they spend like they are millionaires even when their net worth is in the negative six-figures! This is what they call the HENRY — High Earner, Not Rich Yet — crowd. You should pay close attention to your net worth, checking up on it every quarter. You don’t want to see this money shrink or stay at the level, your goal is to see it grow. With enough time, you’ll have a nice nest egg that will last you through retirement.
10. Don’t let personal insecurities become financial ones
Just because your neighbors own flashy cars and walk around holding Gucci handbags it doesn’t mean you have to. In fact, there’s a very good chance they can’t even afford that Lambo and are swimming in debt themselves. Showing off just to make you feel better about yourself is a recipe for disaster. Instead, make wise spending decisions, get rid of your debt, and save up. If at some point you have enough money to splurge without making much of a dent on your net worth, go for it. But in the meantime, make 2022 the year you finally turn things around financially!