Why High Earners Still Need a Financial Plan

IT’S NOT ABOUT EARNINGS

You’re a type A personality. You worked hard in college and entered a lucrative career. You have a great work ethic and even greater earnings potential.

So, there’s no need to make a financial plan, right?

Not exactly.

A bigger paycheck doesn’t guarantee success. No matter how many zeros are behind your salary, you can’t meet your long-term goals if you go on an Amazon binge every week.

Well, if it’s not earning more, it must be saving more. Right?

Again, not exactly.

Diligent saving doesn’t make you a financial superhero, immune to risks like fraud or disability. And it also doesn’t excuse you from the need to earn money.

The truth is that there isn’t just one factor in financial success. That’s why you need a plan. Good planning helps you pull all the right financial levers to meet your objectives.

It’s like driving a car. You use multiple controls to get where you need to go, not just the gas pedal or blinker.

New drivers are required to take driver’s ed before they’re handed the car keys. Sadly, young professionals are often handed their first paycheck without any training in the basics of finance.

And the more you earn, the greater potential you have to either go faster or crash harder.

FINANCIAL PLANNING FOR HIGH INCOME INDIVIDUALS STARTS WITH EARNINGS

Earnings aren’t the only key to financial success, but they are important. They provide fuel for your financial plan. 

Many financial education resources underemphasize the importance of income. You learn how to use the money you earn, but not how to earn the money you’ll use.

You have a lot more control over your earnings potential than you think. You can take initiative at your job and bring innovative ideas to the table. You can pursue further training and certifications. You can request a raise, switch to a new company, or even change to a more lucrative profession. 

If you’re already a high earner, you’re off to a great start. But it’s just that: a start.

If you don’t learn to make good decisions with the money you earn, you could end up in a worse position than someone with a modest income.

Why? High earners have a unique set of challenges, which are particularly dangerous because they’re hard to spot. 

Over the next few minutes, we’re going to walk through how to recognize and avoid these “traps” before they derail your plan.

#1 THE MASKING EFFECT

A while back, I visited a church in a low-income neighborhood. After the service, I spoke with the pastor. He made a particularly astute observation: 

“Everyone has problems. But when you’re poor, you can’t afford to hide them. Wealthier people are just better at pretending.”

This same principle applies to your financial plan. The danger for high earners is that strong cash flow can mask the need to plan for much longer.  

If you blow an extra $200 on a pair of jeans, no biggie. You don’t feel any impact.

Until you do.

You don’t want to work 40 years, only to realize you didn’t save enough and can’t retire for another 20. A good paycheck can buy you a lot of things, but retirement isn’t one of them. 

Don’t let your salary become an excuse for procrastination. 

#2 LIFESTYLE INFLATION

The second challenge high earners face is the tendency for lifestyle to grow with income. Kaile Judge captures it well in her article “The Psychology of Lifestyle Creep:”

“Over time, our definition of ‘enough’ quietly moves upward, and our urge to compare ourselves to others can deepen.” 

We see this phenomenon all the time with new technology. For instance, the first iPhone didn’t even exist 20 years ago. But now, smartphones are a necessity for daily life. A new “need” has been created.

By spending more, you create more “needs” for yourself and sentence yourself to a permanently increased standard of living. 

This creates a negative spiral by increasing the amount you should save, while decreasing the proportional amount you do save.

If you don’t want to be a prisoner to your own lifestyle, you need to decide how you’re going to use your dollars before you earn them.

#3 HOARDING TRAP

Maybe you’ve managed to avoid these first two traps. You set goals, keep a budget, and increase your 401(k) contribution by 1% every year.

You’re still not out of danger.

Like many savers, you run the risk of escaping lifestyle creep only to fall into meaningless accumulation.

Of all the traps for high earners, the hoarding trap is the most insidious because it’s often praised as a virtue. High net worth is seen as the ultimate marker of success.

But a financial plan isn’t about earning, saving, and investing more. It’s about earning, saving, and investing enough to meet your goals. 

We once met with a financially successful couple who had accumulated sizable wealth. After carefully evaluating their situation, we showed them that their plan could support a seven-figure gift.

They were already generous people but hadn’t realized the scale of the impact they could make. They made a game-changing gift and continued to delight in exceptional generosity every year.

You don’t want to get to the end of your life and realize you accumulated a whole lot of money for a whole lot of nothing.

You want to get to the finish line knowing you were a good and faithful steward who blessed those around you and lived life to the fullest.

START PLANNING NOW

Money is not a goal. It’s a tool to meet your goals.

If you’re a high earner, you just have more tools in your toolbelt. You have the power to make a greater financial impact or greater financial mistakes.

No matter where you are in your career, you can start being intentional with your money today.

You can reflect on your values and set your goals. You can increase your earnings and start allocating it to meet your priorities. You can protect against risks with appropriate insurance and diversified investing.

If you don’t know where to start, consider looking for good books on finances, like Master Your Money by Ron Blue or (even better) The Holy Bible, which has a treasure trove of ancient financial wisdom. You can also look for exemplary financial mentors or financial advisors that align with your values.

Planning can seem difficult at first. But not planning is a whole lot more difficult in the long run.