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Why a high income doesn’t guarantee financial freedom

Why a high income doesn't guarantee financial freedom

January 10, 2018

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An inflationary lifestyle often gets in the way of financial freedom


Does a higher income almost guarantee financial freedom?

In today's day and age, I'd argue not as much as you think.

People often believe that wealth is based on your income. The more money you bring home, the richer you are.  Sure, a higher paycheck can help you get further ahead financially, but it certainly doesn't guarantee it. Especially with all the temptations lurking around us...

Bigger houses.  Lavish vacations.  And the latest iPhone model (because last years' won't do). 

With more money, it can be tempting to adapt and spend more on things we usually wouldn't buy.   Our pursuit of “more” needs to be realistic to our situation, but many of us ignore that. Instead, we take on an inflationary lifestyle where we spend as much (or more) than what we make.

It's because of this I believe a higher income does not always equal financial freedom. 

It's with this that I'd like to encourage everyone to keep more of their hard-earned money in their pocket.  Try some of the things below to get further ahead financially...

Don't be blind to what's going out

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Often, people look at the money coming in and willfully avoid looking at the money going out. This is a careless way of handling your hard earned dollars!

When you get that paycheck in your account, be thoughtful of how you will spend it, save it and invest it. Just because you have money in your account does not mean that you should spend every penny!

Don’t let a higher paycheck define or control you! Just because you make a “decent” income, do not succumb to an inflationary lifestyle, where you spend more as you make more.

We have all seen those people who drive luxury vehicles and go on lavish vacations. This is great…. for them!

Don’t compare yourself to them!

If you can afford that vacation, bon voyage! But please be realistic. Don’t set yourself up for financial failure because you want to keep up with someone else’s lifestyle! After all, as I show you below, looks can be deceiving...

Related post:  How not to overspend and save money

Don't compare yourself to others

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Avoid comparing yourself to others.  After all, you or I don’t know their financial situation. For all you know, their "luxuries" could be on credit!  They could have mounds of debt that you don’t know about because they are keeping up appearances.

My wife told me a story of a lady at her work who appeared to have it all together.  She always bought designer labels (like Louboutins –which I found out are apparently really nice and expensive shoes), went on lavish vacations, drove a fancy vehicle and had many surgical enhancements done to her body. I later found out from my wife that this lady had racked up over $80,000 on her line of credit for all of it!

That's right, $80,000!

I say this to drive home my point. It may look like someone is “rich,” but there may be something to the story you don't know about.

If you have a lower-earning job but are taking steps to save your money, you are in a better position than my wife’s colleague.

By saving money and spending it wisely, I’d argue that you are wealthier than you think. And to take it one step further, if you aren’t concerned about keeping up with the “Jones’,” then I think you are well on your way to being financially independent.

Don’t buy things because they are “status symbols.” Buy things that you need or that are meaningful to you.

Keep your expenses in check

So how can you avoid an inflationary lifestyle?  Below are three things that can drastically help.  Don't be turned off by some of them... getting the basics right is essential to financial independence.

1. Stick to a budget (regardless of how much you make)

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Create a budget that works for YOU. Don’t look to your neighbor or friends with envy. Based on your income, decide how you will spend your money in the most effective and efficient way possible. 

And be sure you allow for savings and investments in there! If you want that lavish vacation, then save for it! Don’t put it on your credit card because you feel that you deserve it now. You will enjoy it more knowing that it is already paid for!

The same thing goes for that designer suit, dress, watch, or whatever item you want. By creating a budget, you are not restricting yourself; you are setting yourself up to get more of what you want, guilt-free!

Related posts: 

2. Do annual money checkups

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Once a year (I do this in January), create a list of your yearly spending goals and check it regularly. If you are going to need new winter tires this year, plan for it and start saving right away. Check all of your savings and investments and see where you can add more money.

Did you get a raise? Put it directly towards a savings account and live as if you never got a raise. This is a great way to save money and live within your means.

3. Avoid impulse spending

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We have all had that one thing that we love and MUST have. I challenge you to really think about this and be patient with your spending.

Is this item a need? Or is it a fad?

If you know what your weaknesses are regarding spending, avoid them or go with someone else.  For some, that might mean avoiding the mall, car dealership, or travel site.

I also give myself 24 hours before buying something.  I have often found that the urge to spend passes eventually.  If it doesn’t, then I carefully plan and put it in my budget as a future purchase when I have the funds.

Think it through

  • Do you feel your lifestyle has crept up as you earned more? If so, what's the culprit?
  • Are there any spending areas you struggle with?
  • What can you do to keep your own expenses in check?

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4 Comments on "Why a high income doesn’t guarantee financial freedom"

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Mrs. Farmhouse Finance
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Great post! I’m reminded of the tale of the two doctors in The Millionaire Next Door, each earning $700k a year. One doctor spent every cent of it each year, and had nothing to show for it! High income does not equate to high net worth.

GYM
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Yes, there’s a lot of high income people wanting to ‘look the part’. I think this is especially prevalent if you live in a city that has a lot of people wanting to keep up with the Joneses.

Haha, Louboutins! My friend had a pair, they are like $1000 and look very uncomfortable.

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