The Rachel Cruze Show - 6 Financial Mistakes Made by High Income Earners

Starting point is 00:00:05 So for working Americans, the average annual salary is around $67,920. So why is it so tough for high earners to build wealth? Well, we're going to talk about some of the mistakes to avoid. So make sure to like, subscribe, and share this episode with a friend. All right, so the first mistake that high earners should avoid is giving in to lifestyle creep. So this is a really hard one because if you are making, let's just say, like, $60,000, And then you get a bump to like, I don't know, 65. And then you just kind of, over the years, you just kind of have that.

Starting point is 00:00:39 And then maybe you change jobs and you get like a $15,000 raise, right? And your salary and income goes up and up and up. Well, slowly but surely your lifestyle can just meet right with it. So that margin you think you're actually getting, you're not really getting because you end up spending that margin. And again, for good reason, like, right, if you are on an income that you're like, golly, I had to say no to a lot. And then when you make a little bit more, like, okay, great, now I get to. to say yes to this. So the yeses aren't always bad, but you want to make sure that your entire financial picture isn't just matching up with that raise and income because that margin you can

Starting point is 00:01:12 actually use for really great things like paying off debt or saving or giving. And so when you get a raise, budget, please budget, and stay with your current income. And then with that extra income, yes, a percentage, raise your lifestyle, a percentage go towards future financial goals, all of it. But don't let lifestyle creep just go up and up and up with your income. which ties to mistake number two, which is taking too many risks too quickly. So when you do have that margin for some people, they're like, ooh, I get to throw that at some fun, crazy things and try to make more money. So whether it's crypto or investing in a family member startup business, or maybe you think, oh, we can buy some real estate and put a down payment and get some rentals

Starting point is 00:01:55 going and all of it. Listen, too many risks too quickly actually can take away the money that you've earned, not help you make more money. Because when you go and you take on, especially debt, but you take on things that are not proven with that extra margin that you're making. And then what happens is that snowball effect can happen. And so you just want to make sure you're putting your money in things that have a long-term track record. That's why I think our investing advice, people say, is just boring. But it works. Like over time, you guys, it works. And so funding your 401k and your Roth IRA and good growth stock mutual funds, like these are things to put towards the future. And then if you get crazy income and margin and you want to kind of like test out some

Starting point is 00:02:36 things that if you lose that money, it's not the end of the world, then you get to choose to do that if you want. But especially when you're starting to earn more money, again, please put your money in things that are proven, not Uncle Harry's new whiskey business that he's deciding to start or something. All right. Number three, spending money that you don't have yet. I think we all can make this mistake or I can't at least. I'm like, oh my gosh, I'm going to get this commission. check next month and I already think of where it's going to go and what I'm going to do. But listen, if you don't have that income already set in your account, can I just tell you it is a risk because you never know what can change. Like you really can't. I mean, like,

Starting point is 00:03:17 it's crazy whether you're about to make a great, you know, commission check, but then what if you lose your job or something happens? So again, this idea of I'm going to get this big check and I already know where I'm going to spend it and use it. Number one, it's the money is not in your account yet. And then once it hits your account, then yes, we want to be wise with that extra money. And so you don't want to go deeper into debt, you know, go get a car, right? You go get a great commission check and then you go buy a brand new car that you can't afford. And then you have car payments. And then you're like, wait, what? So being wise with that margin, again, is so, so important. All right, before I share more, I do want to tell you about one of our

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Starting point is 00:04:27 So do it today. that's join deleteme.com slash rachel code rachel number four is equating income with wealth so remember your annual salary does not equal your net worth and in fact a good portion of it probably doesn't factor into your net worth at all because it's liquid cash that you're having to spend to live on so remember your net worth is what you own minus what you owe so if you own a house but you don't own all of it yet because you're still paying on the mortgage you're still paying on the mortgage you're then that factors in. Or if you have at $30,000 in savings, but $80,000 in debt, then you actually have a negative $50,000 net worth. So remember that. Number five, not prioritizing saving. So just because

Starting point is 00:05:14 you have a lot of cash coming in does not mean that you're being wise with it, because you can outspend yourself if you're not careful. And so you want to make sure that not only are you not deeply in debt and using that cash for things that have already happened in the past, but you're using it for the future. That's why sinking funds is great. When you have savings goals or areas of your life that you know you're going to spend money, create sinking funds, smaller funds that you have for like car repairs or car replacement or even medical bills. I mean, whatever it looks like for you knowing that these things are going to come up in life, actually put some money tucked away in those areas. So when those areas actually come about, right, and you have to replace a car or get it worked on,

Starting point is 00:05:55 you have money already saved. And I recommend keeping three to six months of expenses in a high-yield savings account for an emergency fund. So once you are completely debt-free, everything but your house, you want to build up that emergency fund and keep it then forever and ever and amen.

Starting point is 00:06:11 All right, number six, forgetting that cash is king. So it is easy to slip into the belief if I can afford the payment, then no big deal. And then you start taking on larger-scale debt because you can. And you can afford the payment, quote-unquote, right? boats and airstream, a timeshare, fancy cars, designer bags, all of it. But remember, that cash

Starting point is 00:06:31 that you're making should fund your entire life, not just fund debt. And that's what ends up happening because, man, we see this time and time again. Life happens. Things change. And if you depend on debt for all these things that we're talking about, then you are putting yourself at risk. Because if that income, for some reason, goes down or goes away, you're still stuck with the payment. So the best way to control this, you know, paycheck to paycheck living and getting out of debt is with every dollar. This is our budgeting app and now it's new and improved because it's looking over your entire financial picture. So make sure to check it out. I'll put a link down below. Okay, so now that you've learned what not to do from a high-income earners perspective,

Starting point is 00:07:11 now let's learn what to do from the overly frugal. So make sure to catch my episode, 10 Secrets of People Who Never Overspend. That is coming up right here. Or if you're listening on podcast, I'll put a link below. All right, you guys, remember to take control of your money and create a life you love.

The Rachel Cruze Show - 6 Financial Mistakes Made by High Income Earners

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