Why Even High-Income Earners Still Feel Broke

0:00Brian Preston:This episode is brought to you by Accenture. When your advertising operations fall out of sync, everything else follows. Spotify and Accenture are working together to reinvent the rhythm of ad sales, using automation, analytics, and smarter workflows to simplify campaign delivery and access better data across the business. The result? Less time spent on operations, more time connecting brands with the moments and fandoms that matter most. Learn more at Accenture.com slash Spotify. This episode is brought to you by Google Chrome. You think you know a browser, but Gemini and Chrome, that's new. It can help you with practically anything on the web, like restoring a vintage motorcycle from a 50-page restoration block, or finally break down that long article you've had open for weeks.

0:45Brian Preston:Gemini and Chrome is here for it. Ready to make anything online make sense? There's no place like Chrome. Check responses set up required, compatibility and availability varies 18+. You will not believe how many high earners are terrible with money, but we're going to reveal that today.

1:08Brian Preston:Brian, I am so excited because we know that while your income can be your greatest wealth building tool, it's not everything. In fact, the disconnect between high earning and financial well-being is one of the most widespread yet misunderstood phenomena in all of personal finance today. So today, we're going to reveal why high earners still struggle to build wealth, what they can do better, and what you can take away. Regardless of your income, let's jump right in. Yeah, people like to say that money can't buy happiness, but how many of us actually believe that mindset? And more importantly, is it really true?

1:45Brian Preston:Because we know that 71 % of Americans, this is according to Empower, say that having more money would solve most of their problems. Well, I mean, that's rich folk talk. I mean, because I've also heard people say, I've been poor, I've been rich. It's better to not be poor. So, I mean, that's the thing. But I do think this leads to the point of since people think money will be the solution, can we dive deeper into that? Yeah, it's not only that people want more money, they want quite a bit more. Would you believe that 26 % of Americans said that they need$150 ,000 or greater in income just to feel comfortable?

2:28Brian Preston:And another 63 % said that if they wanted to be able to attain financial freedom, financial independence, that they would need at least$150 ,000 income even to be able to achieve that goal. So let's bring that back into reality of what that actually equates to with the median U.S. household. If we know that the U.S. median income is around$80 ,610, to get to$150 ,000 is actually approximately two times. So that's the top 10 % of U.S. households. That's actually a pretty high number because that means 90 % of the people are just not reaching that mark. And so we know that it's been shown time and time and time again that more money does not always result in more happiness and financial security, or at least it doesn't happen in the way that we think it will.

3:16Brian Preston:Because if we look at the reality of high earners, it is kind of a stark reality. We know, and this is according to USA Today, 20 % of households with over$150 ,000 incomes would say that they're actually living paycheck to paycheck. They need next month's pay to hit in order for them to be able to make ends meet. Well, also, I think it's 29 % of those earning over$150 ,000 can come up with$1 ,000. 6 % have absolutely nothing saved at all. And then, Bo, the closing point is 25 % of those earning$175 ,000 or more say they feel very poor, poor, or that things are tight. This, to me, shows this is the math of it.

4:00Everybody has$150 ,000. This isn't a math problem. That's right. This is more of a behavioral, more of a what are you missing that people will make them better with money or a better user of money as a tool.

4:14Brian Preston:Yeah, I think what's wild is we already said that the median household income is like$80 ,000. And here we are at people making double that amount. And yet it's still not leading to more happiness. It's still not leading to financial security. So there must be problems at play, but the problems, and you just said it so perfectly, likely are not mathematical. So we want to walk you through what the problems are that we see with high earners that don't actually achieve the level of financial success or happiness that they desire, and what the solution can be for you, whether you are a high earner or just someone who one day wants to be a high earner, or maybe just someone who wants to make sure they're stewarding their resources well.

4:57So let's get into these problems. Problem number one, a high income doesn't feel how they expect it. And I love, we pulled up a quote on this. Morgan Housel says it best. He want to be a millionaire, what they might actually mean is I'd like to spend a million dollars. And that is literally the opposite of being a millionaire.

5:18Brian Preston:Yeah. Most people, they think about it through a consumption mindset. But when it comes to actually building wealth and allowing your money to empower you to do the things that you want to do, it's more about what you keep and less about what you make. And what ended up happening is as high income earners see their income go up, they don't actually keep as much as they think they will. They find that that money starts spending and going and moving away from them. So they don't have the same excess that they thought they were going to have as their income begins to increase. Well, we say this, that all wealth is, is it's an amplifier of who you were before you even had the money.

5:56So if you think about it in terms of your, if you're not a good steward, when you have a lot of dollars, or very few dollars is a low income, you're probably not going to be a great steward or a manager or field general of your army of dollar bills just because you make more money.

6:10Brian Preston:So if the problem is that the high income won't feel necessarily the way that I think it's going to make me feel, what's the solution? How do I change? How do I improve that? And our view is that if you want to shift that, you need to shift your mind and your mindset around money. because we know, and we say this all the time on the show, money is nothing more than a tool. And it is simply a tool that allows us to be able to focus on the things in life that truly matter to us. It's not a goal in and of itself. It's a mechanism by which we're able to achieve our goals. Well, and this next point is something that I think social media in this modern world we live in has made worse, is that we chase the short-term gratification.

6:55We're chasing the dopamine hits all the time. Wherein the reality is, if you want to know where fulfillment is, not just short-term in this moment happiness, it's actually in the longer-term goals. It's deferred gratification and understanding the power that every now and then it's better to plan ahead to have the bigger fulfillment than it is to just feel good in this moment right now.

7:19Brian Preston:And the fact that high earners often don't recognize this value of deferred gratification and pushing off satisfaction to the future brings us to problem number two, that when it comes to the majority of high earners, they lack discipline. And again, if you've listened to our show for any period of time at all, you know that we believe there are three key ingredients to wealth building. It's discipline, it's money, and it's time. Well, the one that we have the most control over, the most impact over, the most ability to influence is the discipline. And yet most people miss that. If you never live on less than you make, you're not going to get out of the starting gates.

7:59This is the biggest thing that I tell people. I can almost predict your level of success if you can tell me what you make and then what you save. I can tell you very quickly, is discipline being acknowledged? Is it being respected? And I think unfortunately, and by the way, this doesn't have to be just high-income people. This is a little goes a long way. even if you're in your first year out of college or first year in your first career or trade, put something to work. Live on less than you make.

8:29Brian Preston:And so what's the solution here? Our goal for you is we want you to invest 25 % of your gross income. And while we recognize you might not be able to do that today or tomorrow, we want that to be the goal that you are working towards. We want that to be what you're aspiring to. So whether you make$100,$1 ,000,$1 million, or$10 million, we want you aiming at saving 25 % of that growth. Because a big shovel, a high income, doesn't do you very much good if you don't actually turn that high income, turn that shovel into true wealth. By the way, we just didn't make this number up. A lot of people, it's not arbitrary.

9:06We're like, hey, 25 % sounds good because that's different than the 15 % that we heard some other gurus say. No, we actually put some math to this because we want to be the intersection point of good behaviors plus the analytics and the math. And that's why if you look at, if you go to our website, moneyguy.com slash resources, how much did you save? You'll quickly realize that we understand the intersection point. Most people don't even start saving and investing until they're in their thirties. And you look at our chart and you'll see very quickly, that's why we say 25%. Now, two points that I need everybody to understand.

9:39If you're just starting out and you just don't have a lot of money, we do have an escape hatch here is that If you make under$100 ,000 as a single individual,$200 ,000 as a household, count the employer match. Count that profit sharing. Count that type of money. But for high-income people, we don't want you to count any of it because it's getting back to you're away from the social safety net. More and more of the responsibility falls on your shoulders.

10:02Brian Preston:Yeah, so these high-income earners, they tend to lack discipline. And they focus more on immediate satisfaction than deferred gratification, satisfaction in the future. And what happens is when we as consumers focus on immediate satisfaction, the natural consequence of that and what we see amongst high income earners is that problem number three is their lifestyle begins to creep up. And this is not unfounded or uncommon. I mean, how many times have you seen someone, they get their very first job, they get out of college and they're like, OK, now I've got my big boy job, my big girl job. I've got this big paycheck.

10:40Brian Preston:now I'm going to go buy the luxury car. I'm going to go get the new expensive clothes, or I'm going to go get the fancy apartment. I mean, even I, Brian, fell into this trap. When I got my very first job with you back almost two decades ago, very first thing I did is I went and bought a fancy car and it was so silly, but I think this is common and it's not just common for folks starting out in their career. I think it's common for high-incomeers as well. Well, I think this is something I would encourage everybody to mentally internalize is that the hedonic treadmill is real. When you buy that new car, it will make you feel good for a short period of time.

11:18It's back to my point. Don't chase those short-term dopamine hits. Have a bigger why, because a lot of times instead of you driving your wealth, trying to impress people who absolutely could care less what you drive or where you live, save some of that money for your future self because that's where that deferred gratification will do incredible things because Bo when we actually we actually created an illustration or a graph to show people what happens can you walk somebody through what happens with lifestyle creep because that's where people really get themselves in a lot of trouble yeah this is what's

11:53Brian Preston:so hard and I think it's especially troubling for high income earners is that as we move through our working careers, as we begin to have some success, we begin to see our income increase. So we make more money and we feel better about that. And we have some achievement. We have some financial success. But I think for all of us, it's not uncommon for us to also be looking at someone else. We're watching the Joneses around us. And no matter how successful we are, how happy we are with what we have going on, it always seems that there's someone out there who has more. And that person, the Joneses that have more always seem to be just one, two, three steps ahead of us.

12:32Brian Preston:Well, then our income increases. And so now we actually have the ability where we can buy more expensive cars and we can upgrade the house and we can take the nicer vacation. And what ends up happening is while even though in the beginning of our journey, we may have been living below our means, below our income, living inside of our means, what happens is as our income increases and now we have the capacity, we try even harder to keep up with the Joneses. And it's not uncommon for high income earners that their lifestyle begins to outpace their income. They don't live within their means anymore.

13:06Brian Preston:They actually live beyond their means. And that is a dangerous road to where you don't want to be. I'll give you something that seems much tamer, but still leads to the same devastating results in the long term. You discover us in your early 20s, maybe even read Millionaire Mission, you fully fund your Roth IRA. You get a bunch of pay raises. You're still only funding your Roth IRA every year. You can quickly see all that other money went towards lifestyle. That's right. You got a nicer car. You got a nicer house. You started sending your kids to the private school. You quickly, you never went back to expand what is actually going into your army of dollar bills.

13:46Don't get caught in that vicious lifestyle creep. cycle where you're avoiding or not doing what you need to to grow your army of dollar bills.

13:55Brian Preston:So how do you fight it? What's the solution? How do you combat this? Well, it seems so simple, but keep an eye on your lifestyle. Just like you said, Brian, when you're in your 20s and you're maxing out your Roth, but then you get the pay raise and your income increases, do you have little systems in place to protect yourself from yourself? One that we love is the 60-40 rule. If you get a pay raise or you get a bonus, let's let 60 % of that go towards increased savings, increased building, and let 40 % go towards lifestyle. And if we can do that over the long term, we're going to make sure that our savings stays where it should be, even if our lifestyle does increase.

14:34Brian Preston:Because there's nothing wrong with lifestyle increasing. What's wrong is when our lifestyle increases and our savings does not fall. Also, I don't want people getting busy doing nothing. And I see this all the time. People are excellent expense trackers, but they don't actually use that dashboard of information to actually be valuable to their financial life. When you budget, part of a budget is you are setting goals for what you'll spend on certain categories. Yes, you will track your expenses, but the tracking of the expenses is so you then can compare it to what you allocated to see. Are you overspending?

15:13Are you underspending? What adjustments can you make to manage your finances better? We see people all the time that want the gold star just because they're using the tracking tools to know where their money goes, but they never actually engage the gear that turns that into results on your net worth statement.

15:30Brian Preston:Another way that you can track what you're spending and you can kind of keep yourself in check is make sure you understand what it is that you truly value before you make a consumption decision or before you make a purchase, you should ask yourself, why am I doing this? Okay, I'm going to buy a new car. Why? Is it because I need a new car? Is it because it makes sense for the family? Is it because it has better gas mileage or is there more utility I'll get from it? Or am I just buying a nicer car because it seems like that's the next thing that I should do? Am I just doing the home renovation because the house two doors down renovated their house?

16:05Brian Preston:make sure that when you deploy your hard-earned dollars on a consumption behavior, you're doing it because it's something that you actually value, not to impress people around you that ultimately don't care about what you're doing at all. I want to talk about...

16:35Brian Preston:analytics and smarter workflows to simplify campaign delivery and access better data across the business. The result? Less time spent on operations, more time connecting brands with the moments and fandoms that matter most. Learn more at Accenture.com slash Spotify. This episode is brought to you by Google Chrome. You think you know a browser, but Gemini and Chrome, that's new. It can help you with practically anything on the web, like restoring a vintage motorcycle from a 50-page restoration block or finally break down that long article you've had open for weeks. Gemini and Chrome is here for it.

17:09Brian Preston:Ready to make anything online make sense? There's no place like Chrome. Check responses set up required compatibility and availability varies 18 plus. Problem number four. This is ignoring risk capacity. How often do we see you start having you start making more money and even if you're a financial mutant you start you know investing in index funds and other things like we tell you you start having traction you blow past your first hundred thousand dollars of investments but then you get to a point and i don't know what happens in the human psychology to say you know what even though i got somewhat somewhat wealthy and successful with these index funds i'm gonna i'm gonna go do i need to invest like a rich person does now i need to take on more risk so because that's what rich people do so you take on riskier investments and you ignore what even got you to the dance in the first place, we see this all the time.

18:05Complexity does not necessarily mean better.

18:08Brian Preston:That's right. And what's so funny is not only can we trick ourselves into this. Okay, well, now that I'm at this stage, I need to be more complex. I need to be more complicated. But there are entire industries and entire fields of other people trying to convince you of the same thing. It's why all of a sudden now, once you reach a certain level of wealth, you can get access to private equity investments, or you can get access to these illiquid opportunities and these things that maybe were not available to you before. And now, just because you think you can means, okay, well, now I should be doing this because this is what all of the other rich people are doing.

18:46Brian Preston:This is what all the other wealthy people are doing. You know what makes this worse, Bo, is that a lot of your protections actually go away the more money you make because now you're an accredited investor. They assume because your income is a certain level or your net worth is a certain level, you don't need the protections of the government anymore. And that's what makes this ripe for, and I hate saying it this way, but it's just, it is what it is. The dumb doctor deals and other things, because people, that's why I'm telling you, there's somebody trying to help you part with your money very easily with very complex situations.

19:18And here's the thing that people don't think about, is just because you go into this investments, look, some of them can turn out well, and we actually know people who do syndicates and other things, and it works out incredibly well. They're really gifted at finding the right people to attach to, and that's why all of these deals, there's a tinge of truth. It's just like permanent life insurance. There is definitely planning opportunities with permanent life insurance. There is a place of planning with syndicates and these people that you can go find people and leverage the money of many people to buy into bigger deals.

19:50but the thing is is that there's just a kernel of truth in some of these things that there's a lot of other people who have taken that kernel of truth to exploit this into something that helps you part with your money so i'm just i'm not saying these things are bad i'm just saying that a lot of the the stuff you have to cut through you might not be in the world-class investments that you think you are you might just be in that dumb doctor deal because you have a good income you don't have the protections of the government anymore, and somebody's going to fill their back pockets with this complicated project or deal.

20:24Brian Preston:And so what's the solution? How do you combat this? Well, keep it simple. I mean, it's so amazing that I think early on in our financial journeys, we feel like we have to go chase complexity. We have to go, I want to be more complicated, more advanced, more strategic, more in the weeds. And what's amazing, you'll recognize as your net worth increases and as you move along your financial journey, complexity naturally find you. You don't have to go out and seek it. And oftentimes when you go out and seek it, what you end up finding is not the kind of complexity that you wanted. It begins becoming a big distraction or even worse, a mistake that you wish you never would have made.

21:01Brian Preston:So don't try to be more complicated than your situation warrants. There's nothing bad. There's nothing wrong with continuing to execute the same behaviors that got you to where you are today. Well, I mean, I've talked about this many times is when I was a young CPA doing tax preparation, I used to look at complicated tax returns and just be like, whoa, I'm so impressed with these people. Look at all these schedule, like all the K-1s they have on their Schedule E. And then I quickly realized is that if I interviewed any one of those clients, their goal from this level of success is, man, I wish my life was simple.

21:36Just want to be simple. And so it's back to our point. Don't chase complexity. It's going to find you naturally through success. wealth building, and I would try to build as much simplicity into your planning structure as possible, just because like we just shared, the complexity is going to happen naturally from your success. Don't go and add to it when you don't need it. You can be incredibly simple and still be very effective with your wealth building journey.