John hit the six-figure mark in his day job at twenty-four years old. This was a huge milestone for us. It enables us to live off of only part of his income while using the rest of our earnings (including mine and side hustles) for our financial goals.
The six-figure salary comes with a lot of perks like being able to save quickly towards FIRE. However, it’s not easy to avoid lifestyle creep. You’ll find that many people fall into this trap and don’t know how to get out.
Most of the mistakes that six-figure earners make are easy to fix. Here’s how to use that high income to your advantage and build your net worth.
Mistake #1: Not Using A Budget
Just because you have a lot of money coming in every month doesn’t mean you shouldn’t keep track of where it’s going. This makes it easy to squander your paycheck without making any financial progress.
Creating a budget doesn’t have to be hard. Think of it as your spending plan. Make a list of all monthly expenses and use it to create your budget. Does your spending in each category align with your values? Can you cut back or cut out any expenses?
Certain expenses such as eating out or groceries can get out of hand if not kept in check. Cut back on these areas by cooking more at home and shopping smart. You can still have fun with no regrets when you know you’re sticking to your budget.
Review your accounts for subscriptions you are not using and cancel them. Look at your other expenses and think about ways you can cut back with little sacrifice. It may surprise you how spending can escalate when left unchecked.
Make sure to track your spending so you know where your money is going every month. Just because you can pay your bills every month doesn’t mean that it justifies your spending. Every dollar you invest instead of spending sets you up for a better financial future.
Mistake #2: No Long-term Financial Plan
It also means you know how to invest your future dollars so you can maximize returns. Make sure to involve your spouse in all future financial plans so you can get on the same page. Figure out what is important to both of you, such as paying for your kids’ education, saving for retirement, buying another property, and aligning your spending with your goals.
Mistake #3: Failing to Minimize Taxes
As a high-income earner, you’re likely paying a fair amount of taxes. While you may think there’s no way to minimize how much of your earnings you hand over to Uncle Sam, that’s not the case.
Mistake #4: Spending Too Much
Mistake #5: Doing Your Own Investing
If you don’t have the time (or don’t want) to do the research on how to optimize your investments, speak with a professional or look at an online investment platform. They can help you optimize the investments in your portfolio to align with your goals for the future and ensure you’re diversified.
Mistake #6: Not Saving Enough
Mistake #7: Not Updating Estate Plans
The Bottom Line for Six-Figure Earners
Making a high income can be a blessing if you make the right financial decisions along the way. If you end up spending all of your hard-earned money, you put yourself in a precarious financial position.
This article originally appeared on The Money Mix, and has been republished with permission.