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5 Mistakes Even High Earners Make

Building long-term wealth means making smart decisions with your finances, regardless of how high your income is


1. Splurging on Luxury Items


Just because you may have enough in your checking account to spend on designer apparel, expensive watches, or luxury cars doesn't mean it's a good idea.


As many people start to earn a higher income, they start to ignore their budgets and fall prey to lifestyle inflation. As a result of life style inflation, people end up spending at the expense of saving or investing. Before you know it, you've diluted your wealth instead of growing it.


“Buying luxury items can be a significant drain on your finances,” said Ryan Cullen, co-founder and CEO of Cullen Cioffi Capital Management.


Instead, build your wealth by investing in assets, like stocks or real estate.


2. Gravitating toward Risky Investments


One of the biggest mistakes higher earners make is believing they’re better investors than everyone else. This overconfidence bias can lead to risky investment decisions that can sometimes lead to huge losses and even financial ruin.


For example, take the meme-stock boon or the cryptocurrency rush in 2021. Millions of investors created brokerage accounts to capitalize on a runup in prices. However, if they got in or sold at the wrong time, it could have cost them significantly.


3. Assuming a High Income is a Given


Many people with high incomes assume that they'll always earn one. However, in the U.S., income typically peak for people in their 40s and 50s--and even go down from there.


It doesn’t mean you’ll suddenly go from making a high income to a low one. But it does mean you need to take advantage of your peak earning years by managing their spending wisely and making smart investments. Too many high earners fail to do this.


Another risk is income loss due to layoffs or unemployment. Regardless of how much you earn, we're all susceptible to a sudden job loss. In fact, Americans earning six figures lose their employment at three times the rate of low-income workers, according to Bank of America.


4. Neglecting Tax Implications


Building wealth through a high income doesn’t do much good if you're not minimizing your tax liability through prudent tax planning and strategizing.


“Even the affluent can overlook the tax implications of their financial decisions,” Jake Claver, founder of the wealth management firm Digital Ascension Group, told GOBankingRates in an interview earlier this year. “From selling investments at the wrong time to not leveraging tax-advantaged accounts, these oversights can erode their wealth.”


5. Investing in Overpriced Financial Products


Financial products like annuities, whole life insurance or high-fee mutual funds may promise high returns, but they often come with significant fees.


If you want to grow your wealth, consider low-cost index funds or exchange-traded funds (ETFs) instead. Not only are the fees lower, but ETFs typically provide strong diversification, tax efficiency, and lower volatility.



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