12 Biggest Mistakes High Income Earners Make

Transcript:

On this episode of the personal finance podcast, the 12 biggest mistakes, high income earners make.

What's up everybody. And welcome to the personal finance podcast. I'm your host, Andrew founder of master money. co. And today on the personal finance podcast, we're going to be talking about the 12 biggest mistakes that high income. Earners make. If you guys have any questions, make sure you join the master money newsletter by going to master money.

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Can not thank you guys enough for leaving those five star ratings and reviews. Now, today we're going to be talking about the 12 biggest mistakes that high income earners make. And for a lot of high income earners, you've worked really, really hard to climb the income ladder. And now that you're making great money, sometimes it doesn't feel like enough.

And I've talked to a lot of different high income earners who Are still living paycheck to paycheck. And nowadays, even six figures can be something where you feel like you're middle class because you are living paycheck to paycheck. Now, if you're making a really high income, but you still feel like you're not building wealth, then you're probably making at least one of these mistakes that we're going to be talking about today.

And I've seen firsthand from people. They have a very, very high income, but it's not about how much you make. It's about how much of that income that you keep. Now you have completed the very first and most important step, which is increasing your income over time because income is the catapult that allows you to accelerate your path to wealth.

I believe it is the number one most important factor for most people is understanding how to increase their income and then keep it. A majority or a huge portion of that income. So as your income increases, what that means is that you can accelerate your path to financial independence. You could buy more of your freedom back again.

And this is why when we talk to high income earners, there are just some tactics that they need to understand to make sure that they keep more of that income for most of you, you know, how hard you've worked, you've leveled up your money game. And so today we're going to be talking about he's how to keep more of that income through a bunch of different strategies.

So if that's something you're into, let's get into it. Now, mistake number one is a massive one for high income earners. And it is that they avoid tax planning. Now, one of the most important people that you can have in your corner as a high income earner is a CPA having an accountant in your corner, specifically one that is a tax strategist is going to save you tens of thousands, if not hundreds of thousands of dollars.

Every single year, if you have the right person in your corner, that depends on how much money you make, but you need to have that right person in your corner that is looking at your tax situation and saying, Hey, you need to do this, this, this, and you could save, you know, X amount of dollars in taxes because the number one thing we need to do as high income earners is we need to keep more dollars away from Uncle Taylor.

Sam. So number one, the easiest one and anybody listening to this podcast can do this is to take advantage of tax advantaged accounts. Now, as your income starts to increase and you're starting to see yourself hit that 30 percent tax bracket, that is where you're going to start to want to consider 401k contributions above something like a Roth IRA and or even an HSA.

Why? Because the 401k contributions are going to allow you to get a tax deduction this Year, and so a lot of times you may want to get that tax deduction This year because you are in your high income earning years And so it's very important for some folks to be able to get tax deductions every which way they can if you're a w 2 employee Maybe you're just a really high performer Then getting that tax deduction is going to be very, very important.

And so first as a high income earner, I want you to look and you can ask your CPA. This question, should I be taking advantage of the 401k before the Roth and, or before the HSA in my specific scenario, you've got to make sure that you're leveraging tax advantage accounts. Now, one big mistake, a lot of.

Folks make who are in high income tax brackets is they think they can't contribute to a Roth IRA. And you absolutely can contribute to a Roth IRA if you make a high income, but you have to do what is called the back door Roth IRA. And here's how this works is the first thing I do every single year. Is you open up a traditional IRA at whatever brokerage you are going to hold the Roth IRA.

Okay. And so once you have that traditional IRA open and you have your Roth IRA open, then what you do is you contribute money to the traditional IRA. And you leave it in there for a couple of days. Then you convert those dollars to the Roth IRA. And this is the backdoor method to get your money in a Roth IRA.

Now, why would you want to put your dollars in a Roth IRA and go through this extra step? The reason is the Roth IRA grows tax free. And if you're making a good amount of money and you have extra dollars to put away, that tax free growth is really, really valuable. Because as you start to withdraw money down the line and you get to retirement age, you can start to take Money out without having to pay taxes on those dollars.

So the Roth IRA, even for really high income earners, is a very powerful account because of that tax free growth. Now, another thing that a lot of high income earners do when they're avoiding tax planning is they're not leveraging deductions. So there are two things that you could think about here. If you own a business.

Then you need to understand deductions left and right, or you need to make sure you have a CPA who understands deductions because this is going to be a very, very powerful thing that you can take advantage of. Or if you don't own a business, then you need to have a comparison done. Should I take the standard deduction?

And or do I have enough deductions like business expenses, mortgage interest, charitable donations that are going to allow me to take on and leverage those deductions. You need to look at the differences between the two as a high income earner so you can reduce your. Tax bill. Another one is failing to use something like tax loss harvesting.

So if you have a taxable brokerage account and you are getting really big gains on that taxable brokerage account, maybe you're putting away tens of thousands of dollars every single year. Maybe you're putting away six figures or a million dollars every single year. If you're a high earner, you could be putting away huge dollars away into a taxable brokerage account.

You need to make sure that if you have some losses there, you can look at tax loss harvesting and have someone help you through that process. Now, robo advisors are great at tax loss harvesting as well, having a financial planner in your corner to help you with that tax loss harvesting can also be something that is very, very another thing that people do is they ignore those Roth conversions and making sure that they understand how those work.

You want to do that and have somebody who understands how they work so you don't get hit with a huge tax bill. Now, one thing that you can do is if you are a high income earner. Another big piece of tax planning is to start invest into real estate. Real estate is a great tax advantage investment, but you got to make sure that it is part of your plan and you're willing to kind of handle that situation.

So I love rental property. Single family houses, small multifamily houses are great options for a lot of. Folks, and those are what I like to invest in. But if you're someone who does not want to deal with tenants or toilets, there are other ways to start to invest in real estate and still get some of the tax advantages.

But those tax advantages are going to help you longterm when it comes to building wealth because real estate has very, very real tax advantages. Now, some of the big ones for real estate are you get to take advantage of the depreciation of that asset and another one, though, is that something like the 10 31 exchange where the 10 31 exchange is going to allow you say, for example, you have a rental property and you've owned that rental property over the course of 20 years, and it's appreciated a lot over the course of that 20 years where if you sold that rental property, you would have a huge tax bill.

But what you can do is you can actually Upgrade that property and utilize what is called the 1031 exchange. The 1031 exchange is going to allow you to sell that first property and then take those dollars and buy another like kind property. And not have to pay taxes on that money. You just deferred the taxes to the next property.

And so this is something where if you don't want a huge tax bill this year, because you're making a really, really high income, you can do something like a 1031 exchange with real estate. Real estate has all sorts of great tax advantages, just like those two examples. Now, if you have this lack of professional guidance, another mistake in tax planning that a lot of high income earners make is that they overpay in taxes due to poor planning.

Now, what I want you to do. is I want you to start interviewing CPAs in your area. Look for the top rated CPAs, ask your friends who are in business or ask your high income earner friends, do they have a CPA that they recommend? Then, you're going to take all those recommendations and I want you to interview those CPAs and ask for the ways that they can help you.

Sure, this is going to be a sales pitch for some of them, but you want to find the CPAs that have tax strategy in their background. That is really, really important. And then if you own a business, you absolutely need to have a CPA in your corner because there are so many other things like structuring your income properly that you need to understand.

Are you incorporated properly? That's another big one that you need to understand. Are you taking the proper deductions for your business or are you missing out on some deductions? Because if you understand how some of these deductions work, it can be thousands and thousands of dollars off of your tax bill every single year.

Having the right people in your corner to help you with tax, unless you want to master tax. On your own, which is a very, very difficult thing. It is a full time job to have to master tax, making sure that you have someone in your corner who is going to help you with your taxes as a high income earner is so important because as your tax bracket starts to go up, you need to make sure that someone is helping you through this process.

I cannot stress this enough. So number one is avoiding that tax planning. Number two is as high income earners. Income begins to rise. They also allow. They're spending to rise with that income. Now, let's talk about this for a second because number two is lifestyle creep. Now, lifestyle creep is something that as your income increases, you are going to see your spending increase at the same exact pace.

Why is this problematic? Why this is problematic is because you're going to still be in the same exact situation if you're spending increases at the same rate as your income increases. So let's give an example here. Let's say that you start your career out and you're making 40, 000 per year. Now you would do a bunch of different things to build up skills and you start to meet a bunch of people and network and you start to see your income increasing.

You're getting promotions. You're doing everything you need to be doing at your job. You're really good at negotiating your salary. You get another promotion. Now you're at 80, 000 per year. Then you start to really, really help out on the bottom line. You get really good at sales and you get another promotion.

Now you're making 150, 000 per year. And then you start to get even bigger promotions. You get bonuses and you're making 250, 000 a year and your income continues to rise year over year. Well, as your income starts to rise, if you get that first promotion and ooh, you buy a really nice used car, it's just a used car, but it's really nice.

Then the next promotion, you get a much bigger house. And then in the next promotion, you start to spend way more on a really fancy car and both you and your spouse now have two leased vehicles where you're spending 2, 000 per month on those leased vehicles and your income starts to rise and your spending just starts to rise with it.

This is problematic because if you can't take any extra dollars and put them towards wealth building, you were in the same exact spot that you were in before. So all of that income that is coming in, you were just throwing it out the window. You were just spending all of those dollars where instead I recommend doing something like the 50 50 rule.

What is the 50 50 rule? This means every single time you get a raise or every single time your income increases, you take 50 percent of that and you put it towards future you. You are buying back your time. You are buying back your ability to build wealth, meaning that every single time you get that race, 50 percent goes towards your emergency fund and or 50 percent goes towards your investments.

That's for future you. And then the other 50%, guess what you get to do with that. You get to raise your lifestyle. I think some lifestyle creep is healthy. If we all just lived at the same level. That we did at college, and then we were making all this money. What's the point of making all that money? If you can't spend it, I want you to spend it a little bit.

I want you to live a little bit. I want you to buy the car that you want to buy. If you can afford it, I want you to make sure that you can do the things that you want to do. Take those vacations. Those are incredibly valuable memories that you're going to have, but you need to be able to do both. But if you increase your income and your spending is increasing at the same pace that my friends is where you are staying in the, at the same level as when you were making 40, 000 per year.

So we need to make sure as high income earners that we are taking more dollars and shoveling it into things like retirement accounts, the HSA, the Roth IRA, the 401k, also taking extra dollars, investing in real estate, investing in other asset classes, and we'll talk more about those here later on in this episode, but this is going to be some of the stuff that we need to make sure that we're doing.

So how do we think about this? Well, first, let's think about our big ticket items first. Okay. Is your house increasing dramatically, your cars, your vacations, are those things increasing dramatically every single time you get a raise where you get a raise and you spend it all on those things. If you understand some of the big ticket items, you can note that, hey, you can gradually increase these over time.

So housing needs to stay below 30 percent of your income. Transportation needs to stay below 12 percent of your income. Vacations that can fall into play depending on how much you make, but you got to figure out what you value and spending more on those things that you value is great. But spending less than the things that you don't value is also part of the plan.

My friend Paula Pants says you can afford anything. You just can't afford everything. And I think that's really, really important. Secondly, is I don't want you to feel pressure to try to keep up. So a lot of folks who are high income earners, maybe they have other friends in their circle who are also high income earners, and they feel pressure to To keep up with the same status.

And so that's why their lifestyle creeps up. I don't want you to feel that there are certain areas in the country, for example, that that pressure may be more so than other areas in the country, the Midwest, you're going to be less likely to have to try to keep up with the Joneses, even though people still do it.

But if you live in, you know, South Florida, or you live in LA, or you live in some of these other areas where everybody is flashy and everybody's got fancy cars and everybody's doing all these different things, and it's more of a normalcy. Then you feel like you have to keep up. I don't want you to have to feel that pressure of having to keep three is if you are neglecting to increase your savings rate every single time you get a raise, it is much harder to cut back later on.

So you do not want to neglect increasing your savings every time you get a raise or a promotion because going backwards is very, very difficult. But if you have never increased your lifestyle, when you get that race or that increase, And then you only do it at 50%, then you're not going to ever have to go backwards.

You're going to take those extra chunks. You could protect yourself with an emergency fund, and then you could take those extra dollars and put them towards wealth building. So this is something really, really powerful that you could also be doing now. You got to be careful in a couple of different areas.

First, we talked about those baseline expenses, your transportation, your housing, your food. You can increase those over time. And if you increase them too much, it will take you way out of the normalcy of where you need to be. But also, you know, expanding on some of your expenses that are maybe your fun money or your blow money.

If you expand on those too far, uh, luxury memberships, oversized mortgages, all of those can really, really lead to a downfall for people. Now, here's another one. Is if you rely on bonuses to live your lifestyle, this is a big one for a lot of high income earners because they get bigger bonuses usually, and if you're in sales or something like that, if you are relying on big bonuses to maintain your lifestyle, you are playing a very dangerous game.

I have seen people who have put in orders for vehicles, for example, where they want to get the brand new car that is coming out, and so they'll put in an order for that car, that car comes up, they've already signed a contract, they're just waiting on their bonus and their bonus doesn't come in as big as they thought it would.

That, my friends, is a dangerous game to play. If that is you, then you have hit a lifestyle creep level that you should not be playing it. Instead, we need to make sure that bonuses are just extras on top, their gravy on top, unless you're in sales, obviously commission based, those types of things are going to be somewhat needed to maintain your lifestyle.

But if you're someone who works a nine to five, you have a base salary of 150, 000 per year, and your bonus every year is anywhere from 50 to 100, 000. And you're relying on that bonus to just maintain your lifestyle. You need to stop doing that because bonuses can be taken away very quickly. The reason why they're separate from your base salary is because when times get tough, they're going to take that away.

And so you got to make sure that that is not part of your financial plan is having that bonus in place. Look at the base salary. The bonus is great. It is fantastic that you have that available. It is not guaranteed. So you got to make sure that you were looking into that more. So those are the first two.

Let's get into number three next. All right, number three is neglecting estate planning. So when it comes to estate planning, a lot of high income earners who maybe have increased their income pretty quickly have just never been taught or understand how to set up an estate plan. So every single person listening to this podcast, if you're a high income earner, or you're not a high income earner, you need to have a will in place.

Everybody needs to have a will in place. They're really cheap to put into place, but it just makes sure that your assets or anything in life that you own, even if you just own a toaster and a cat, if that's what you own, that can go to the person that you want it to go to. If anything were to ever happen to you, this can be a one page document.

It can be very simple and it is something that you definitely want to make sure that you are doing. And we'll talk about tools in a second, but everybody needs to have a will. Especially if you have people in your life who depend on you. So if you have a spouse, if you have kids, if you don't have a will, you are absolutely playing with fire.

You need to make sure you have a will. Secondly, though, is high income earners. If you have assets worth over a million dollars, then you need to probably consider something like a trust. Now, you can talk to an attorney to figure out if you need a trust. I would absolutely recommend doing that. This is not legal advice or anything like that.

I am the furthest thing from a lawyer. But at the same time, you probably want to consider at least thinking through The option of having a trust because there are a lot of things that you want to make sure you are taking care of as a high income earner. Now, one place to do this is trust and will. So trust and will is where I did my will and my trust will link them up down below in the show notes that you could check them out.

Really easy process and a lot easier than some other options that I've gone through in the past, but you can utilize trust and will is a great place to start. If you just want a simple will, you want to get that done really, really quickly. Go to trust and will, and then you can have a trust as well later on.

If you decide that you need that, you can also go to an attorney who will also help you through this process and trust and will has an attorney's. But if you want to look for a local attorney, you can do that. If you want to meet with them, ask them questions. That's another great option. So that's the first step is looking.

Do you need a trust? Do you need a will? Also failing to name beneficiaries. So in your brokerage accounts, in your 401ks, in your IRAs, there's always going to be a section where you can name beneficiaries. That is how you estate plan for your investments. You literally go in there. And you name your beneficiaries.

So if you want your spouse to get all your money, if you pass away, you need to log into each of those accounts and go find beneficiaries, click that button, and then name who you want this money to go to. Maybe you and your spouse are in a plane, you get into a plane crash. What's the next person down the line that you want to have as a beneficiary?

Those are all the things that you need to be thinking about. I know this is a morbid conversation. It is a, maybe it brings you anxiety or stress, but you got to do it. It's something you have to do because if something happens to you. The courts are going to have no idea where to send that money and it's going to get really, really messy.

Third, if you're a really high income earner and you're starting to see your assets build up during estate planning here, another thing that you need to do is tax efficient wealth transfers. What do I mean by that? There needs to be a system put into place where when you are ready to start transferring your wealth, then you need to be able to have a plan set.

Your CPA should be involved in this conversation. If you have an advisor, they should be involved in this conversation, but you should have the people in your corner looking at ways to give you tax efficient wealth transfer. So there's a couple of different ways. 529 accounts are great for some kids.

Let's say you're a grandparent. Uh, 529s are a great place that you can start doing that. If you want to give it to your grandkids. Another great place is Tax exclusion, where there's a certain amount every single year that keeps going up that you can give away to family members and not have pay tax on that money.

But then you also need to think about for your tax or brokerage account and some of these other accounts. How can you transfer that money in a tax efficient way? That is going to be really important to plan out as well. Because what we don't want to do is we don't want to leave these assets vulnerable to probate.

We're going to try to avoid probate as much as possible. And so doing this is very, very important. Also, you need to make sure that you're communicating your wishes to family members, depending on what's going on there. So one thing we've talked about a lot in the past. is having a binder put into place where people call it the dead binder.

I've heard people talk about this a number of different times where they have a binder with, you know, all their logins and passwords to maybe your life insurance to all those different types of things. But then in addition, it also just kind of gives your wishes. It has your will. It has your estate plan, all that stuff.

So that if your spouse needs to reference that information, if you're the primary person that handles the finances, the insurances, those types of things, then maybe your spouse needs that information. So you need to make sure that you give them that information. But in addition, maybe having some other family member know where it is, maybe it's parents or siblings or whoever else, um, so that they know what your last wishes are.

So this is a morbid conversation again, I know, but it needs to be handled for most people because you gotta have all those things. in place. If you want your assets to go to the right people, if anything were to ever happen to you. So many people neglect this step as high income earners. Really important that you don't.

All right. Number four is one that a lot of high income earners are going to fall into because you have a little bit of extra cash on hand that you can start to get into investing and it's investing in the wrong things. Number four. Now a lot of high income earners get stuck in chasing hot trends or taking on excessive risk that can lead to significant financial loss because a number one is you have some extra cash on hand and so you're seeing on social media people trying this maybe their day trading maybe their option trading maybe they're getting into all these different cryptocurrencies and you over leverage yourself into those situations because you have extra cash on hand a second reason though is that a lot of high income earners maybe you're a doctor.

Maybe you're an attorney. A lot of those high income earners will have a huge amount of people coming after them trying to get their business. What am I mean by that? I mean, there's going to be life insurance salesman knocking on your door saying, Hey, life insurance is an investment. Here's why. Hey, infinite banking is a great investment.

Here's why. Hey, cryptocurrency is a great investment. Here's why. Hey, option trading is a great investment. Here's why. Oh, here's all my real estate deals that you can get into. Do you want to invest in my real estate deals? Oh, here's a bunch of notes that you can invest in. Here's a bunch of companies you can invest in.

Maybe angel investing. The list goes on and on. And on. And if you're over leveraging into speculative assets, you are really increasing the likelihood that you're going to lose money. So this is stuff like crypto, maybe startups, maybe mean stocks. Those are all speculative assets. What do I mean by speculative?

They have zero financial statements backing them. I understand Bitcoin has gone to 100, 000. I think at the time recording this, it's back down to 95, but it'll probably be over 100, you know, today because it's so volatile and that crypto could have some sort of a future. There are a lot of cases to be made for crypto having a future.

But if you're investing into mean coins, if you're getting into Dogecoin, if you're getting into the hot to a girl's coin or whatever else it is, there's so many different mean coins out there. Those are assets that are absolutely garbage. I'll say it right now. Bitcoin fine. If you want to invest in Bitcoin, if you want to invest in Ethereum, there's a couple of them that are maybe safe.

The only two I invest in are Bitcoin and Ethereum. I bought a little bit of XRP recently, but outside of those three, there's not a lot I do in crypto crypto is a very, very small percentage of my portfolio. Why? Because it is still a speculative asset no matter what you say. Now, BlackRock's backing it.

Administrations are backing it. There's a lot of things that are happening there that you could lead for a case. But at the same time, it is still a speculative asset. Another thing is if you're chasing short term gains instead of focusing on long term wealth building, if the asset that you're buying is like, Oh, this is going to make me rich, way richer, way faster.

That is going to be a thought process that you probably should not have. Long term wealth building is the way to go. Also, not diversifying properly can be really, really problematic. Meaning, I've seen people, you know, only get into one type of asset class, where they start to invest in only one individual stock, or they start to invest in one specific thing.

If you are not diversified, it can also be something That is problematic. That's why I love index funds so much for me personally, is that index funds and ETFs are already diversified by nature. And so I invest in those because they're diversification. Another big one is if you have a high income and you ignore proven investment strategies, things like index funds, things like investing in retirement accounts, things like real estate, all of these different things are going to be Are proven long term strategies that have built millionaire after millionaire after millionaire.

If you ignore those strategies and think you're smarter and that you can do this on your own in a bunch of different ways, not the best thing. Also, if you're really good at business, what are you very good at? You need to ask yourself that question. What do you know a ton about? If you're really, really good at building businesses, maybe that's where you invest a lot of your dollars.

If you're really, really good at. You know, investing in real estate, maybe that's where the majority of your dollars go. If you just want to focus on your work day in and day out, and you want to sit back and make sure you have passive income that is growing over time, maybe indexed funds and ETFs are the way that you want to go.

But you got to make sure that you know what your strong point is over the course of the long run. Now, another big one for high income earners. Is investing in high fee funds, meaning that fees are can absolutely destroy your wealth. Just a 1 percent fee can erode the value of your portfolio by 25 percent over the course of a long term investor over the course of 30 years.

And so you got to make sure that you are checking in on fees and understanding how they work. If you buy a mutual fund with a 1. 5 percent fee, that is going to really, really hurt you. If you're going to pay anything in fees, it's going to be so that people are helping you save more or helping you invest.

But if you're going to pay a 1 percent fee, Or 1. 5 percent fee to a mutual fund, you can just go out and buy an index fund for a 0. 03 percent fee. You definitely do not want to be doing that. If you have advisors who are putting you in really high fee mutual funds, you need to start asking questions as to why they are doing that.

Because that is something where there are so many low cost investments out there now, you got to make sure that you are monitoring fees. And then one of the other things is not having a clear investment plan. So people who invest in the wrong things typically don't have a very clear investment plan.

And so when they don't have a very clear investment plan, anything that comes up that looks nice or shiny, it's a shiny object, they will start to invest in that and they will get nowhere. Because if you start to invest a little bit in crypto and then, Ooh, there's some real estate investments over here.

I'm going to start an invest in an, Ooh, these index funds and ETFs look great. And Ooh, and you keep moving money around without actually sticking to one strategy. All of those strategies are going to get you to, you know, as far as they can get you, but you're really not going to build a tremendous amount of wealth unless you're putting a lot of money into each one.

So this is where I'm going to say this is making sure you put together an investment plan can be very powerful. Now we have an entire episode. If you just search how to put together an investment plan, the personal finance podcast, we have an entire episode going through the steps on how. to do that. So really, really important stuff.

Number five is that high income earners. One big mistake that some of them make is they ignore health and they start to burn out. So when you are a high income earner, sometimes you are expected to do more and expected to go above and beyond people who are executive at companies. Typically, they work.

Beyond the 40 hours per week, they're working weekends. They're answering emails in the evenings before bed. They are constantly working. And so you may feel that you have to keep working in order to stay on top or to keep climbing the ladder or to keep growing your business. Hey, I know what that's like.

I've been guilty of that in the past. I want to continue making sure that I'm working instead of prioritizing health. But if you do not prioritize health, I can guarantee. It is going to catch up to you. And in fact, when I took my fitness seriously and when I really started to make sure that I was eating properly and I was exercising properly, all of a sudden, I started to make a little more money and then more money over time.

There's a correlation between your health and your wealth that a lot of people do not understand, and it's because if you work out and you eat correctly. What's going to happen? You're going to have more energy, which means you're going to have higher performance, which means that you can spend less hours at your day job doing some specific task because you have more energy, you have higher performance.

Your brain is functioning at a higher level. Let me tell you, high income earners do not ignore health. Health is one of the most important things that you need to get after day in and day out, no matter what you're gonna be building up all of this wealth, you're gonna be increasing your income over time.

And all of this is gonna be for what? Because you get down the line. And if you start to ignore health, it is going to catch up to at a record pace once you get to a certain point in time, and you will regret every second that you did not spend. Prioritizing your health. So working excessive hours. Sure, we all have to do that.

Hey, I get it. I work excessive hours. Why? Because I like building. I like building stuff. And I like to build up my businesses. Some of the stuff I like, some of the stuff I don't like. But I have to catch myself sometimes because I'll work nights. I'll work weekends. And if I don't slow it down, then a lot of times I catch myself starting to burn out.

So you got to make sure that you are not working way beyond excessive hours. If you can help him not prioritizing sleep, exercise and nutrition. Those are the big three. If you're going to bed way, way late because you are trying to work into the night. Or if you're waking up super early in the morning and you're only getting four hours of sleep, cause you want to get some work done in the morning cause you see all these hustle influencers telling you to, those are two big problems.

You got to make sure you get your sleep for longterm. If you haven't read the book, why we sleep, it is one of the best cases I have ever read on why it is so important to prioritize sleep. One of the best books I've ever read. I think he's done interviews on podcast to Matthew Walker is the author's name.

I believe a really, really good book. Also trying to regulate your cortisol, your stress, Is going to be very, very important, and you will live a lot longer if you can figure out how to regulate that stuff. It's gonna help you think more clearly, which is really what we want as high performers. You want to make sure that you are thinking clearly.

It's very important to do that. A lot of people overlook the cost of burnout, and so they'll work a lot of hours, and they will be, you know, 80 hours a week, 90 hours per week, 100 hours per week. But if they really feel like they're burning out, if you overlook the cost of that in the long run, that will catch up to you, and it will cause health related issues.

Issues. Now, one big thing for high income earners to is if you ignore your health, you're gonna have health related expenses down the line. So all that extra money that you made is going to start to go to health care. The health care cost rate is rising at 7 percent per year. And so it's up to you to make sure you avoid that cost as much as you possibly can.

I don't think we understand how expensive health care is going to be over the course of the next 30 to 50 years. And so we got to make sure that we are prepared for that. And the best way to do that is taking care of your health. Your nutrition, your sleep and your exercise. Those are the big things I want you to be doing and thinking through.

So do not ignore health. Do not start to burn out as a high income earner. Hey, I know you got a lot of work to do. I know you got a lot of stuff going on. Just try to keep a balance in some way, shape or form. What I like to do too, is if I start to feel some sort of burnout during the week or something like that, I will kind of pause and maybe take an afternoon where I slow it down a little bit and then try to catch up maybe one or two days on the weekends.

And that makes me feel a lot better. Usually is. I actually think working on the weekends actually helps me reduce stress and anxiety. And so sometimes I'll work just a couple of hours on the weekends if I can get it in. Now, if I was single, I didn't have any kids. I probably work the entire weekend. I probably have a really unhealthy work schedule.

So it actually helps me to have a family. I think overall in the long run, just being honest. All right, the next one Number six is the golden handcuffs. So this is one I want a lot of high salary people to kind of really think through. You're going to ask yourself a couple of questions because the golden handcuffs mean you feel like you are stuck in a job that you absolutely hate because you want to make sure that you keep that salary and you maintain that lifestyle.

The amount of people that I know that are stuck in this situation who work a nine to five is absolutely. If you feel you are stuck in a job because you are financially comfortable, but you hate every single minute of every single day, you need to ask yourself a question. How do I fix this situation? And you need to start really gradually working your way to trying to create a life.

That you enjoy, and it's most likely not what you're doing right now. Now, this is going to be something where, hey, if you have kids, if you have a family, it could be financially irresponsible to just leave that job right away. I understand it. I get it. But we also need to craft a life that is going to allow us to enjoy our day more.

Maybe you're never going to love what you do, and that's completely fine. There are so many things that I do every single day that I hate. And it's little things in my business. I try to outsource as many of those as I possibly can, but sometimes you can't. Right now, at the time of recording this, it's tax season.

You know what I hate more than anything in the world is meeting with my CPA. I just gave you a whole spiel why you need to have a CPA, but I hate it. I don't like talking about some of these tax scenarios because I have to go. Into all of my business transactions. I got to look at it at a granular level.

It's like budgeting for your business, which has way more transactions than on the personal level. And so when you got to do that, it is not fun, but you got to do it. And so there's things I hate doing day in and day out. You're always going to hate stuff. Even if the job that you have is stuff that you love, but at the same time.

If you hate everything about your job, you feel sick every time you're driving to work in the morning, or you feel sick every time you have to log into a zoom conversation, then you need to make sure that you change where you're working or you figure out a way to change your lifestyle because a lot of people are trapped in careers they dislike.

Now, one of the mistakes made is postponing those career changes. Maybe you just need to make a career change. You might have to take somewhat of a pay cut. But if it's not a drastic cut that is going to change your lifestyle dramatically, then maybe that's one option. Or maybe they value short term salary increases over long term fulfillment.

So let's say, for example, I've seen this happen a lot. Let's say, for example, that you are up for a promotion. You make 100. 20, 000 a year. Okay. And the next promotion is going to be 140, 000 per year. And you want that promotion. You want that title, but there's not really much more to go up after that. And you, so you go after that 140, 000 per year promotion, you get the promotion, but then all of a sudden your workload doubles, you have a massive amount of workload.

You have to manage a huge team. Whereas when you were in the 120, 000 per year position, you had way. Less stress. You need to think through those options when you do this in your career, because the 20, 000 difference, and a lot of it's going to get taken away from taxes is going to hit your bottom line.

And it's really not going to make that much of a difference in your lifestyle. Then you need to make sure that you are thinking through that option. Some people, especially if you're a high income earner, are just so ambitious, they want to get to the highest level possible. I get it. That's the way I am.

I am one who will, I just want to go, go, go, and want to keep getting after it. But, you also need to think strategically. So when you get promotion offers, and when you start to have some of these conversations, How much more are you making? That's the first question that you're going to ask, but you're going to do this after tax, and then I want you to break it down by each paycheck and then monthly.

How much more are you making monthly? Is it worth the extra 750 per month that you're actually going to be getting into your pocket? After tax to manage double the amount of people. That's the question you're going to be asking yourself because you can hear 20, 000 per year, but it's going to be less than what you actually think when you start to run the numbers.

And so even with promotions, we need to run the numbers. Every time we get offered a promotion, is it worth this extra amount of money? for the amount of stress, anxiety, and things that I have to deal with. We don't know yet. You gotta run those numbers. But that's one thing you definitely need to do. So don't value short term salary increases over long term fulfillment.

Letting bonuses and raises prevent major life shifts is another big one. And then ignoring things like entrepreneurial opportunities. So, I have a lot of friends who are really, really high up in the corporate world. They have, um, great W 2s and they've been doing it for a long time. And they have great business ideas.

But they will not take action because they are scared to leave that corporate job. Now, number one is I never, ever, ever recommend for anybody to just leave a job until their business is making more money than what they make at their day job now. And really, I think you need to make about one and a half times before you actually leave a job.

Okay? That's number one. So you need to have one foot in each boat until one of those boats gets weighed down with more cash than the other one. Okay, that means your business needs to be making a lot more money than your W 2 job before you leave. Why? That's just a risk issue. And so you want to make sure that you have the income coming in from your business first.

First of all, You need to make sure it's safe enough for so you can start a business, do it on the side, work nights and weekends, don't sacrifice health, but work nights and weekends to get that stuff done. Then secondly, once you start to see that business working, then you can leave your W two job. But if you're the type of person who will not start one because you are fearful of what could happen, then just keep one foot in each pond until it's time to go all in.

And then lastly, a lot of people with those golden handcuffs just do not realize that wealth can create freedom, not limited. So they need to make sure that their dollars are going towards the things that they actually value. And I think for a lot of people, they need to realize that they are buying their freedom back.

So that's number six. Let's get into number seven next. All right. So number seven is actually the opposite of what number two was. Number two was Lifestyle Create. But number seven is for the folks out there who started off as being very frugal. Now, there are a lot of people in the fire movement who are going to fit this description.

We have a lot of people from the fire movement who listen to this podcast. And if you are someone who started off very, very frugal. And you have not mastered the skill of spending, you may still be very, very frugal and have a joyless financial journey because you're making a lot more money, but you're not allowing yourself to spend.

And so if that is you, I'm talking to you right now, because a lot of people are holding on to a scarcity mindset. And they're incredibly frugal because they are worried. They're going to lose it all one day. And one day, all this money is going to disappear. Now I am talking to you specifically because I get it.

When I first started out and I started on my financial journey, I was a frugal weirdo. I was as frugal as I could possibly be. My wife absolutely hated it. And so eventually I started to understand more. So how to spend more money. Okay, and it took me a little bit of time. This is all based on psychology, but it took me a little time.

Why? Because when I first started, I was reading people like Mr. Money Mustache. I was reading people like Early Retirement Extreme, and I was reading these blogs, and these people were super frugal, and they were living on 30, 000 or less per year. And that is great for them. They absolutely are happy doing that.

And Jacob, I think, from early retirement extreme at the time, he was living on 7, 000 or 10, 000 per year back at that time. They enjoy that. They enjoy that lifestyle. I was doing it, but not enjoying my lifestyle at the same time. Now, sure, you can have a really great lifestyle with a frugal attitude. You keep your cost of living low.

If you have a high income, maybe you pay off your mortgage. And so you have zero debt going on whatsoever. And so your expenses can be really, really low. And you can have a great life living with really low expenses. But for me personally, your boy likes some nice stuff. And so I want to spend more on things that I like.

I have a lot of hobbies. I have a lot of things that I enjoy doing. Now, I don't do them a lot right now because I'm just super busy. But at the same time, I have a lot of things that I like to do. In fact, baked into my retirement plan, I have a big spending category to spend on things that I like. And so when I fully want to be retired, I want to have X amount of dollars so that I can fill my time with things that I absolutely love.

And so if you are someone who is really, really frugal and you have struggled to learn how to spend, I encourage you to try slowly over time. To shift that a little bit. Now, I think it is very financially responsible to keep a majority of your income as it comes in for safety. You could put it, you know, aside, put it towards wealth building, put it towards investments.

But I also think to enjoy life, you got to spend a little, you got to take the vacation with your kids and your family so that you have those memories and you got to spend a little extra so you can have a nice enough place where everybody's going to enjoy their time. You've got to be able to spend a little more on experiences of some of the things that you want.

Maybe you have some bucket list items that you've always wanted to do. Just go try it out. Go do one and see what it's like, but just trying to hoard all of this cash and keep it all for yourself and not giving it out to anybody else or spending it on things that you want to do. That's a tough lifestyle to be happy in.

And so I have this one included for those people. If you fear financial ruin, if you forget that money is a tool to be utilized towards your financial freedom, but in addition, money is a tool to be utilized towards the things that you actually want to do day in and day out, you got to make sure that you understand how to spend money.

We just had Jen Smith on the podcast recently on an episode, and she has a great book on teaching you how to spend your money. and figuring out what your values are. I think that's really important. You need to make sure that you understand what your financial values are and spend more on those values and spend less on everything else.

For frugal people, they spend less on everything instead of just spending on their values. Now, I think you can do both and I think you can also still be frugal and be happy at the same time. So making sure that you know what your values are spending dollars. On those values is going to be really, really important.

I'm all about saving a buck still. But if you're hoarding cash and not spending money on experiences, you're going to regret that one day, I promise you that number eight is over reliance on one income stream. So if you have a really high paying job and you are a w two employee and you only have one income stream coming into the household, this means that only one spouse is working and or maybe you're single and you have one income stream coming into the household.

You are one person's decision away from having zero income streams. And so because of that, we need to make sure we are not over reliant on one income stream. Now, how do we do that? A is we diversify our assets into investments, things like index funds and ETFs, buying things like real estate, buying things like businesses are great ways to do that.

Also, you can start a small side business that starts to make you a little bit of money. But I like to have diversified income streams for a bunch of different reasons. I probably am over committed to having a diversified income streams. It seems like I start or buy a business every year now. And so for me, This is something I really, really think is important is having additional revenue streams.

If you only have that one revenue stream, you are vulnerable to your boss's decision or your boss's boss's decision. And that can be something that can be problematic, especially if you are not in a recession proof industry. So a lot of people need to think about this, specifically if you're not a recession proof industry.

So what's a recession proof industry? That'd be health care, for example, because health care is not going to get cut back. If there's a recession, we still need to have health care. It is a absolute necessity that every single person needs to have. That would be something like if you're in the grocery business, people are still gonna need groceries during the recession.

If you are a landlord or you have a rental property businesses, people are still gonna need housing. During recession, so there are things that are recession proof, but if you're not in a recession proof industry, if you're in something that get cut back really, really quick, if you're in like fashion or you're in recreational activities, or if you're in restaurant business, those types of industries can get cut back really, really quick in a recession.

Uh, so we need to make sure we're not over reliant on that one. income stream. So the best ways to do this are either having, you know, some sort of side business that creates an income, buying some sort of additional business that helps you recession proof your entire portfolio, or C is also making sure you're investing in income producing assets that help you just diversify those income streams over time.

You don't have to have seven income streams or whatever they say that every millionaire has. That is not, you know, that's just something that people throw out there for clickbait. But at the same time, you want to make sure that you have a couple of income streams. So you're not relying on one, especially, especially W two employees, making sure you have over one income stream is going to be important.

Number nine is waiting too long to invest. So high income earners who were not taught how to invest tend to wait too long to invest. So sometimes maybe you start off really early and you are making 40, 000 per year and you're living paycheck to paycheck. So you don't start investing. Then you get that raise.

And when you get that initial raise, you double your money to 80, 000 per year. And you still only make a little bit extra. So you take that little bit extra and increase your lifestyle. Then you double it again. You make 170, 000. 60, 000 per year, and now you have a lot of extra dollars, but you never learned how to invest and you don't really see the importance of investing.

So you don't get started. You got to get started investing today. If you are not already, if you're a high income earner, you have zero excuses whatsoever, because people who do not have a high income that are making 40, per year who are building wealth are doing so at those incomes. And if you can't do it at a higher income, 150, 000, 200, 000, 250, 000, 350, 000 per year, and way up above and beyond, then you need to make sure that you are investing your dollars, investing a high percentage of your income.

At a bare minimum, you need to be investing 25 percent of your income if you're a high income earner. 20 percent is our minimum number. I want you investing 25 percent of your income as a high income earner. Why? Because that is how you are going to be building wealth. Reduce your costs in other areas so that you can grow your wealth in the areas that matter.

Buy back your time, buy your freedom back. And that's what you do when you invest every single dollar. Now, if you don't know how to invest or you've never learned how to invest, I will link it up down below. We have a masterclass that teaches you exactly how to invest, uh, step by step. And I will link that up down below so that you have access to that because it's a free masterclass.

We'll link it up down below. Also, if you just want all the answers to everything investing, we have a course called index fund pro that will teach you step by step how to invest. You just go to master money. co slash courses or you can just Google index fund pro. Now, as we go through these other ones here, If you keep too much money in a savings account, if you've been someone who just hoard your money in cash, I know a lot of high income earners, they just keep all of their money in a savings account.

And I've seen people have six, seven, 800, 000 in cash, and they have no idea what to do with it. Learning to invest so that you can grow that cash is going to be really, really important. Compound interest is going to be your friend. If you have a large amount of money and every single year, you're going to see a major impact.

And eventually your portfolio is going to grow to a point where it's going to make more money every single year than you do. And so when that starts to happen, it is a beautiful thing. And it is so cool to watch people's eyes light up when that begins to happen. So do not wait too long to invest. You need to start today.

If you don't know how learning to invest is really, really important. My free masterclass takes about an hour. It'll teach you to invest. Step by step. Literally, it takes about an hour. I try to simplify it as much as possible. Number 10 could be a controversial one. And number 10 is going to be not giving any money away whatsoever.

So generosity creates fulfillment and it creates a greater life satisfaction. I know that because I give away 10 percent of my income every single year. And the reason why I do that is because of a couple of different reasons. One is my faith. And I truly believe in a bunch of different causes that I want to grow that impact.

I want to be a difference maker with the impact that these causes are making. And so because of that, I want to give more dollars to those causes. If you truly believe in something, I don't want to hear you barking on social media. I don't want to hear you trying to get in arguments with other people. If you don't back it with your dollars, you don't actually truly believe that thing.

And so for people who are charitably inclined, if you really want to back up causes that you believe in, you got to make sure that you are having some sort of giving plan in place now. High income or should be doing this a because you get a tax deduction, so it actually helps you in your tax situation.

But B, you can also give and have an impact on the things you believe in. So here's a big one for me is child trafficking is big one for me. Where, you know, it breaks my heart a lot of times to see some of these kids that are, you know, human trafficked or child trafficked and I cannot even imagine. I have three kids of my own and I cannot even imagine what that is like.

And so that's one of the things I want to have a huge impact on is making sure that we fight back against that. And so causes like that that I truly believe in, if I truly believe that I need to be backing it with my dollars, maybe there's a cause that you believe in, you want to give more water to areas of the world that do not have access to water, you want to help people who are hungry, be able to have access to more food, you want to make sure that certain groups are never wronged again, I don't know what your causes that you believe in are, but if you truly believe in them, I really think you should be backing them, at least in some way, shape or form.

Happiness with your money also has partially giving in. In my opinion, if you have no desire to give to charity, then I don't think you should. So if you're someone saying, like, if you're just getting mad for me, even talking about this and having this conversation, then you're not someone who should be giving money away.

Because if you want to keep your cash, that's on you. I am not someone who's going to tell you what to do with your money. But if you're someone who's always thought about it. Or maybe you've given a little bit of money when you're like, man, that felt pretty good. Then I think it's an awesome way for you to kind of get back with some of your money.

So I gave a percentage of my income away and you don't have to give 10%. You can start with whatever amount you want. Maybe you just want to start with 100 bucks to people that you see out there who are just struggling. There's so many different ways to give money, but making sure you actually research charities.

If you're going to give it to a charity and understand their financials, those types of things are also very important. Number 11 is overworking and prioritizing money over life. Now, if you go and you look at people who really, really regret things that they did in life. A lot of them say that they overworked and they didn't spend time with their family.

And so for high income earners, they can fall into this trap because they have way more responsibilities with their work, with their job, and with what they have to do day in and day out. This is not to say that low income earners do not work really hard. They work very, very hard. But high income earners are just more susceptible to having to work longer hours during specific times.

If you are an executive at a company, Or if you own your own business, you know what this is like. You are grinding every single day just to get through the day. And if that is you, and you are working long hours at the expense of your family, you don't see your kids all day long, or maybe you see your kids for 10 minutes, you are going to regret that.

Or you don't take any vacations because you got to continue to work all the time. Even though you have all this extra money, what's it for? You're not going to take that vacation because you got to work. You're going to regret that. If you're chasing a way higher income where you're going to have to work even more hours, but you don't have a reason why you're doing that, you may regret that in the long run.

If you're neglecting relationships due to your work commitments, you're probably going to regret that one day. Friendships or relationships with your family members, your extended family, those types of things. If you're ignoring personal passions and hobbies because all you have to do is work, you may regret that one day.

And if you're delaying happiness for a financial milestone, that could be something you also regret. And then lastly, if you're letting money define your self worth, if you are someone who is prioritizing money over life, and you're letting money be your self worth, then we need to work on that. We need to change the way that our money psychology is currently, and it could be because of the way that you were brought up.

There could be a bunch of different things there, but we need to re evaluate that. And then the last one, number 12. Is along these same lines is letting money ruin relationships. So a lot of high income earners get there because they are intense. They are trying to get after it and because of that, sometimes they can let money get in the way and ruin relationships.

So forcing your financial expectations on people like your family members or your friends who do not have the same financial expectations can be something that can ruin. Relationships or judging others based on their financial choices rather than their values or their character can also cause problems for you.

Or if you go into debt for social obligations like weddings, vacations, or events just to fit in, then that is letting money have an impact on you. And it can also. Allow you to hold grudges in the long run. Your psychology really, really matters when it comes to this and can really be something that can strain your relationship if you're not careful and understand how this works.

Another big one here that can strain relationships is if you're lending money to a lot of friends. So if you make a lot of money, uh, you may start to see that people come out of the woodwork and they will start to ask you for money. And you may feel bad at the beginning and start to lend money to family members or friends and typically here's my recommendation for that.

If you're going to give somebody money, You do not give it to him as a loan. You give it to him as a gift. And the reason why I say that is because if you lend money to other people, it can ruin relationships. It can do it in one of two ways. First, it can ruin your relationship because if they do not pay you back, you are going to resent them for not paying you your money back.

You did them a solid, you gave them money in their time of need, and they did not pay you back. But secondly, they're actually also, even though this is unfair, They're going to resent you for asking for the money back when they cannot afford it. And you start to have a friction and a fight because they are in a situation where they can't pay you back, even though you gave them money.

What happens is with money psychology is people will start to resent you because you are now the debt collector to them. And so because you are trying to collect your debt, they see you as someone who they now resent. They don't want to talk to you anymore, and it's going to ruin your relationship. So if you're going to lend people money, and I've done it before where I lend people money, but I do not do it as a loan.

I give it to them. It's a gift. And so maybe you're giving that's how you give money away as you do it to family and friends who need it. Um, but it is something that has served me well long term is making sure I give it away as a gift. Now they'll say I paid a lot of times when I do this. They will say, I'll pay you back, and guess what?

Most of the time they never do. True friends probably will try to find a way to pay you back, but if you just say it's a gift up front, you don't have to have those issues come up if you really, really value the person. If you want that person to be in your life for a long time, it is not a loan. It is a gift.

And so give accordingly, give the amount accordingly based on that. So that's my last tip that I'll give you that has served me really well in life. But listen, I appreciate each and every single one of you being here and thank you so much for listening to the personal finance podcast. If you guys have any questions, please reach out to me via email by joining the master money newsletter and thank you so much again for investing in yourself because it's exactly what you're doing when you listen to this podcast as you are investing in.

Yourself. I can't wait to see you guys in the next episode. We will see you there.