3 Financial Mistakes High Earners Make (Part 1)

You’ve worked hard to reach a high income—but are you making the same costly mistakes that derail others?

For many high earners, a steady paycheck creates a false sense of security. It’s easy to assume that more money equals more freedom, but the truth is often the opposite. Even with substantial earnings, just one or two decisions can delay your goals by years—or worse, force you to start over.

Earning more doesn’t guarantee wealth.

In reality, high-income individuals face unique challenges: lifestyle creep, overconfidence, and lack of planning can erode financial security faster than you’d expect. When income rises, so does the complexity—and ignoring it could leave you feeling stuck or stressed about the future.

That’s why I wrote this blog: to help you avoid some of the biggest financial mistakes I see high earners make—and how to sidestep them before it’s too late. These aren’t just generic warnings; they’re lessons from real situations I’ve seen firsthand. Avoiding them could save you years of frustration, ultimately allowing you to build lasting wealth.

Let’s dive in—no fluff, just actionable advice to help you stay ahead.

Mistake 1: Assuming Your High Income Will Always Be There

Picture this: you’ve just had an incredible year—bonuses flowing, accelerators soaring, and your income booming. Suddenly, that big purchase (luxury home, sleek new car, etc..) doesn’t feel like it’s possible but well deserved.

But then, next year hits, and your income isn’t as high. You built your life on last year’s income, and it just isn’t there, but the commitments remain. Now, scaling back feels not just difficult but nearly impossible. Maybe even embarrassing?

The Consequences of Overconfidence When you assume the good times will always roll, it’s easy to overcommit. A life of luxury is hard to walk away from. A sudden dip in your income could leave you locked in expenses that no longer fit your financial reality.

I’ve seen this play out many times. The scary part? This pressure doesn’t stop at finances. It can strain relationships, increase stress, and delay your long-term goals like saving for retirement or building a safety net.

How to Avoid This Pitfall The solution is simple but powerful: ground your financial decisions in reality, not optimism. Here’s how I would do it:

• Base Expenses on Your Two-Year Average Income: Instead of planning based on last year’s perfect storm, calculate your average income from the past two years. This gives you a more realistic benchmark for sustainable spending.

• Create a Buffer with Surplus Income: Treat every extra dollar as a shield against future uncertainty. Use surplus income to build financial stability—invest, save, and pay down debt before indulging in lifestyle upgrades.

Pro Tip: Ask the Right Question Before any major financial decision, pause and ask yourself: “If my income drops by half next year, will this purchase still make sense?”

Everything comes down to priorities: long-term stability over short-term indulgence. This way, you’ll create peace of mind and freedom to navigate life – which is always uncertain.

Mistake 2: Raising Your Lifestyle Too Quickly

It starts innocently enough: you upgrade your home and decide the new driveway needs a luxury car. Before long, you’re adding a housekeeper, a nanny, a country club membership, and planning extravagant vacations. Lifestyle creep is real and can snowball pretty quickly, doubling—or even tripling—your monthly expenses.

The Consequences of Lifestyle Inflation While it feels good in the moment, raising your lifestyle too quickly comes with serious consequences:

1. Savings and Investments Take a Backseat Ballooning expenses often crowd out savings and investments, leaving you vulnerable to income dips or emergencies.

2. Flexibility is Lost A high-cost lifestyle leaves little room for adaptability. Whether it’s scaling back work, starting a business, or having a spouse stay home with the kids, lifestyle creep robs you of choices.

3. Financial Stress Sets In Even with a high income, an inflated lifestyle can make you feel perpetually stretched thin. Instead of enjoying financial freedom, you’re stuck trying to keep your head above water, chasing your next paycheck just to keep up.

How to Avoid This Trap Lifestyle upgrades aren’t bad; I like nice things too. But they require intentionality and restraint. Here’s how to stay in control:

• Prioritize Investments Over indulgences: Before splurging on lifestyle upgrades, ask yourself: “Am I investing enough of my income?” A good rule of thumb is to invest at least 20% of your income before doing anything else. See our reverse budgeting blog for more info.

• Tie Upgrades to Financial Milestones: Lifestyle upgrades are not automatic entitlements. They are rewards for hitting measurable financial goals. For example, upgrade your car only after maxing out your retirement contributions for the year.

Pro Tip: Avoid the “Default Upgrade Mentality” Before any lifestyle change, pause and ask:

“Does this align with my long-term financial goals? Will it truly enhance my quality of life?”

By being intentional, you can enjoy the rewards of your hard work without jeopardizing your future.

Mistake 3: Ignoring Retirement Accounts—or Relying on Them Too Much

Retirement accounts are powerful financial tools—when used correctly. But too often, high earners fall into one of two traps: ignoring retirement accounts entirely or relying on them as their only savings vehicle.

The Risks of Ignoring or Over-Relying

1. Avoiding Retirement Accounts Some people avoid 401(k)s and IRAs because they plan to retire early and want access to their money without age restrictions. This means missing out on tax advantages, employer matches, and long-term growth.

2. Over-Relying on Retirement Accounts Others funnel all their savings into retirement accounts, leaving them with limited liquidity for non-retirement goals like buying a home or funding their children’s education.

The Consequences

• Missed Employer Matches: Skipping retirement contributions often means leaving free money on the table. For high earners, this can amount to tens of thousands of dollars over a career.

• Tax Inefficiencies: Failing to balance taxable, tax-deferred, and tax-free accounts can lead to higher taxes in retirement.

• Limited Flexibility: Overloading retirement accounts can leave you short on accessible funds for life events or early retirement.

How to Avoid These Pitfalls

• Maximize Employer-Sponsored Plans: Take full advantage of plans like 401(k)s, especially if there’s a match. Max out contributions and leverage catch-up contributions if you’re 50 or older.

• Balance with Taxable Accounts: Diversify your savings by contributing to brokerage accounts alongside retirement accounts. These accounts provide liquidity for early retirement or major life goals.

Pro Tip: Think Beyond Retirement Accounts Retirement accounts are a foundational part of the plan but shouldn’t be your entire strategy. Use them efficiently to limit your lifetime tax burden while maintaining flexibility with other savings vehicles.

Avoid These Common Pitfalls

Avoiding these three mistakes:

1. Assuming your income will always be there

2. Raising your lifestyle too quickly

3. Mismanaging retirement accounts

can help you build a more secure financial future.

Stay tuned for Part 2, where we’ll explore three more critical financial mistakes high earners make—and how you can avoid them. Until then, take the first step by reviewing your current habits and making intentional, informed decisions about your finances.

Your hard work deserves smart planning. Let’s make sure your financial future is as successful as your career.