If you earn a higher-than-average income, you’re immune to financial problems and bankruptcy, right? And you’re definitely going to enjoy a comfortable retirement.
Not so fast! It is definitely possible to fall from an economically advantaged position to to much lower status, and it can happen much more easily than you might think. It’s also more common than you probably believe! Many middle- and high-income people have found themselves living in drastically altered circumstances, and it’s usually due to one or more of the following factors. Watch out for them, and you can prevent your own disasters.
Don’t try to compete. Your neighbors installed a swanky new outdoor kitchen, so now you want one too. Tim got his wife a pricey gift for their anniversary, and now you have to keep up with expectations. And so on… Somehow we get this idea that we all must “keep up with the Joneses” and that earning more money means you should spend more money. But it’s important to take a moment to ask yourself what you truly value, and make your purchasing decisions based off of those values.
Don’t fall into the debt trap. Lenders love to make lucrative offers to higher-income earners, particularly those with high credit ratings. And it’s tempting to take advantage of all that credit, especially if you’re unconsciously competing with your peers. But buying things you don’t need, with money you don’t really have, is often a one-way ticket to bankruptcy.
Remember to factor in inflation. We tend to assume that we will receive a raise each year, or at least every few years, but those boosts to your income are never guaranteed. Meanwhile, inflation will erode your purchasing power over time. You might not notice a rise in prices from one year to the next, but you will certainly notice it in a decade. Remember to prepare for the future, so that you have money stashed away just in case your income does not increase as you hope. Otherwise you could one day find yourself struggling to pay your mortgage and car payment.
Don’t be lulled into a false sense of security. Those who have never struggled to survive, or even those whose long-ago struggles have been mostly forgotten, often develop a sense of invincibility where income is concerned. If you’re living without a budget, do you truly understand how much you’re spending? Without that understanding, you could dig yourself into a deep hole.
Pay attention to your finances. After a grueling 60-hour work week, the last thing you feel like doing is reviewing your budget. But without careful attention to your finances, how do you know all of that hard work (and your paycheck) are put to use in the most beneficial ways?
Avoid unnecessary risks. Sometimes people approach investing in the same way that gambling addicts view a casino. Earning a large return can be almost addictive, making you crave more payoffs in the future, but putting all of your assets in those higher-risk investments could backfire in a major way. It’s important to remember that for most people, investing should be more about long-term gains that provide slow, steady growth. Schedule an appointment with us, and we will review your portfolio to ensure that your investment strategy closely reflects your needs and goals, while aiming to preserve a sufficient portion of your capital.
Investing involves risk including loss of principal. No strategy assures success or protects against loss.