Money Misconceptions: How Earning a Six-Figure Income Can Still Leave You Feeling Financially Stressed

A common perception is that a high income = financial security and a comfortable lifestyle.

I work with individuals who earn six-figure incomes, still live pay-to-pay, have financial fears or don’t feel wealthy at all. This inconsistency between income and wealth stems from factors that extend beyond the dollar-signs on a pay slip.

Below are 3 reasons why high-income earners may still feel poor and I share strategies to overcome these challenges.

1. Lifestyle level-up

The more you earn, the more you burn. As income increases, so can the temptation to upgrade your lifestyle. The desire for a better home, car, expensive restaurants, and other indulgences can quickly eat up your earnings.

Levelling up your lifestyle can show up in both small choices, like a daily latte and our big ones, like where we live. They become a reflection of the life we want for ourselves and how much we're willing to financially sacrifice from our future self.

This is what lifestyle creep looks like: yes, you could keep driving your 2018 second-hand car, regardless of how much more money you make, you likely won’t.

Do you deserve that brand new luxury car? Absolutely, you’ve worked hard to get it.

Lifestyle levelling up is the little voice that justifies making little increases in spending. Before you know it, your wardrobe has more expensive clothes than you can ever wear, you’re eating gourmet food daily and you suddenly can’t live without your fortnightly facial. 

None of these luxuries are excessive on their own. The creep lies in deciding you must have all of them: the house, car, travel, the kitchen, garden and bathroom remodel, and the private schools.

Living within your means can seem straightforward when your means are small. You can tell yourself that, after your next raise or bonus, you'll simply save more money and keep everything else the same. But the temptation of a more ‘comfortable’ (read costly) lifestyle is hard to resist.

It’s important to realise that each time you inflate your spending, even when it happens together with pay rises and promotions, you’re depleting the surplus that could otherwise go into investing, saving, and an emergency fund. 

2. Raised with Less

Our childhood experiences deeply impact the way we think, feel, and behave with money. The most significant cause of feeling poor, despite a high income is generally a ‘poverty’ or ‘lack’ mindset. When an individual is raised with money being tight or restrictive it gets deeply imbedded into our mind.

These beliefs sit in our subconscious mind, outside of our awareness so we don’t even know this is the underlying cause of why we feel poor or sabotage our finances. 

A poverty mindset is often accompanied by a scarcity mentality, where individuals constantly feel a sense of lack or insufficiency. They may have a constant fear of not having enough money or resources, despite having an abundance, which can lead to a mindset of hoarding or excessively saving. This can prevent them from taking risks, investing in their education or skills, or making necessary financial decisions that could improve their long-term prospects.

If you grew up not having enough, or as much as your school friends, your undeveloped 8-year-old brain may have internalised the belief that you’re not enough.  When we don’t have enough, often we believe we aren’t enough.  This hardwired negative self-image often leads to overspending to compensate missing out when you were younger or using material things to increase your self-esteem. Alternatively, it can cause hoarding money or over-vigilant saving.

A lack money mindset also comes with a limited capacity for keeping, receiving or growing wealth. It’s like this invisible barrier that sabotages our ability to save and grow, or even our money. No matter how much we earn, it just goes, or in the reverse, we hoard it excessively and are too fearful to use it.

3. Lack of Money Management Skills

To effectively building wealth and create financial security we need strong financial knowledge and money management skills. Unfortunately, being intelligent and great at your job doesn’t automatically translate into financial literacy.

Without a foundation in the basics of money management, individuals may find themselves struggling to allocate their income effectively. Lack of budgeting, no goals, overspending, fear of investing or making a decision, and inadequate saving habits can undermine the benefits of a high income, perpetuating the feeling of not enough.

Most of us weren’t taught financial basics at school, so if your parents didn’t manage money well or teach you the concepts of saving and investing, where are you supposed to learn?

The Path to Financial Fulfilment

 1.Create a Saving & Spending Plan for your Income

The Saving Plan:

As your income increases, so should your savings. 

Ask yourself, what does Financial Success in 5 years look like to me? 

Now, how can I get there (how much do I need to save each year)?

Consider saving a set percentage ie.10%-20% of what you earn. This strategy is what is referred to as the Pay Yourself First model. Your savings are the first (and most important!) item to be deducted from your bank account each pay. You only spend what’s left over.

For example, after tax, you get paid $12,000 per month and you’ve set a saving goal of 15%, which is $1,800 per month. This gives you $21,600 a year allocated to your long-term goals and financial freedom.

Set up an automatic transfer of $1,800 to your savings account/s, that takes place on pay day so you don't have time to spend the money. The remaining $10,200 is left for your living expenses and discretionary spending.

Should you find yourself decreasing the automated amount of savings each month, or tapping into your savings account - that’s a clear sign that lifestyle creep might be afflicting your finances. 

Pre-Assign” Extra Funds  

Give your money a job—before you even get it. Its job is to accumulate for your future goals.

This is a great strategy when dealing with an unexpected influx of money, like a salary bonus, gift or a tax refund. 

If you receive extra cash, have a pre-designated place to put it. For example, say you received a $10,000 pay bonus. 

You might allocate it up like this: 

• 50% to Debt reduction: $5,000
• 25% to Savings: $2,500 
• 10% to next Holiday: $1,000
• 15% Fun Spending: $1,500

The Spending Plan:

Enjoy your extra money but be intentional about it and do so in moderation.

There is a fine balance between enjoying the life you’ve worked hard for and overspending — you just need to make sure your spending doesn’t outrun your earning. Thoughtfully treat yourself. 

What is a ‘safe’ amount each month to splurge on. Ideally, you set up an automatic transfer of the pre-determined amount to your ‘spending’ bank account, and when it’s gone, it’s gone, till next month.

Here's some other tips to help rein in spending or becoming more mindful of your spending patterns.

(i) Get clear on what matters.

Undertake a Values exercise and create a list of 5 of the most important to you. Then spend your money in these areas only.

(ii) Wait it out for 48 hours - think before spending:

-       How do I expect this purchase will make me feel?

-       What feelings am I trying to avoid by buying it?"

(iii) Create a Buy List (or Desire List) and give yourself 30 days on this list before you purchase it. When you feel the urge to shop, shop from your list.

The psychological theory, ‘hedonic treadmill’ –is the never-ending pursuit of one "thing" to bring us happiness after another. Although treating yourself will give you pleasure initially, research suggests after a short while, you return to how you felt before the treat— that is, until you settle on a new "thing" to make you feel happy and the cycle begins again. Deeply considering the answer to the question, "How much is enough?"

The pressure to keep up with colleagues, friends, or neighbours who may appear to live great lifestyles can lead to feelings of inadequacy. Recognize that everyone's financial situation is unique, and basing your self-worth on what you have, can result in a perpetual sense of dissatisfaction. Over. And over. Again.

2. Upgrade your Money Mindset

What you think and feel on the inside about wealth, significantly impacts your financial position.

Your money mindset, or what I refer to as your relationship with money (how you think, feel, and behave financially) was formed between the ages of 2 – 12. If money or finances were challenging for your family growing up or maybe you were financially comfortable but surrounded by guilt or fear, there is a strong possibility this has deeply impacted the way you approach money today.

This impact occurred in your subconscious mind (beneath your current awareness) but effectively drives all your financial decisions. Knowing clearly and deeply what your subconscious mind believes about money, wealth, yourself, and wealthy people is vital to upgrading or changing your money mindset.

Overcoming a poverty mindset, despite earning a good income often requires access to resources and support systems to uncover the origin of how it was formed. 

Money coaching offers a therapy-informed process to allow individuals develop a positive and empowered perspective of themselves and their financial future. 

If money were a person, how would you describe your relationship together over the past 10 years? Come on. Stop reading and reflect on my question.

Truth bomb: Our relationship with money is typically a mirror reflection of how we feel about ourselves. 

The more you work on your relationship with yourself, the more you're going to see your relationship across all other things in your life improve – including your money.

Practice self-care

Take care of yourself so that when you make financial decisions, you're in a clear state of mind and less easily influenced by outside factors. Good sleep, breathing deeply and spending time with people who appreciate you for you as well as undertaking healthy activities all contribute to being in a better place to make good money decisions.

Comparison and Social Pressure

In a society that equates success with material possessions, high-income earners may fall victim to the trap of constant comparison. The pressure to keep up with colleagues, friends, or neighbours who may appear to live lavish lifestyles can lead to feelings of inadequacy. Recognize that everyone's financial situation is unique, and your self-worth solely on material possessions can result in a perpetual sense of not-enoughness.

3. Financial Education

Invest time and effort in improving your financial literacy. Learn about budgeting, saving, investing, and wealth-building strategies. Understanding how to make your money work as hard as you do will help practically and psychologically alleviate the feeling of financial strain.

The key to wealth, like the key to happiness, is to not only look for new opportunities or things, but to make the most of the ones you already have.

Upgrading your money mindset and financial wellbeing can start today.