Typically, society tends to associate “wealth” with large paychecks or high earnings. However, true wealth and financial independence are not generated by the amount of money you bring in, but by how you manage that money. Many high-earners have a much lower net worth than you might expect, largely because of a few common mistakes that high-income earners tend to make. To help high-earners avoid these mistakes, our team of financial advisors for doctors in Canyon County offer comprehensive wealth management services at affordable rates.
As a high-earner, you face unique financial situations that affect your overall wealth management and financial planning. As you manage your finances, be sure you do not fall prey to the most common financial mistakes that high-earners make.
Many high-earners have a late entry into the workforce due to extra education and training programs. Doctors, lawyers, and other high paying careers often require expensive and extensive schooling, causing students to accumulate hundreds of thousands of dollars in student loans. Thus, when these individuals do enter the workforce, they are typically behind on retirement savings and overwhelmed with a large debt hurdle.
Regardless of how large of an income your career generates, this burden can be overwhelming. In fact, many high-earners fall even further behind on savings as they struggle to pay off debt, balance their new career, and live the lifestyle they desire.
The reason delayed savings is such a problem is compound interest. If you double a dollar each year, for 30 years, you end up with over 500 million dollars. While this growth rate is unrealistic, the power of compound interest is inexorable. Even at a 10% growth rate, a $10,000 investment now would turn into $158,631.
So, put compound interest in your favor by beginning to save as soon as possible. If you are a young professional recently graduated from school or training, meet with a financial expert to discuss how you can start saving for retirement now. If you are an experienced professional, an expert can assist you in allocating money to make up for lost time, pay down debt, and catch up on your retirement savings.
Along with large paychecks comes the societal expectation to have a McMansion, a sports car, and the latest gadgets and gizmos. All too often, these expectations cause high-earners to overspend on the big things (house, cars, fancy toys) at the expense of building a secure nest egg. For high-earners it is important to recognize the effects of lifestyle inflation and develop a savings plan to combat over-spending.
It is important to remember that you can still live the lifestyle you desire while sticking to a budget and a savings plan. In your early career years, focus on living as modestly as possible as you catch up on retirement savings and pay off student debt. As your career progresses, your lifestyle expenses can usually get larger. As they do, consult with a trusted advisor to ensure you stay on track to reach your long-term goals.
The Do-it-Yourself Mentality
Just about everyone is prone to making financial mistakes associated with investing. However, because high-earners bring in more money, they have much more to lose when these mistakes happen.
When it comes to investing, high-earners tend to assume that being successful in their career means that they will also be successful personal investors. However, do-it-yourself investors tend to put in a lot of time and typically yield mediocre results. This isn’t because of a lack of intelligence, it is largely due to the adverse effects of emotion and bias in investing. Consider teaming up with a professional to create an investment plan that will save you valuable time and increase your overall returns. Additionally, you will benefit from having an un-biased, third-party voice to help you manage your investments and keep you on track during market swings.
As you manage your finances, do not assume that your large income will be enough to save you in the long-term. Creating and sticking to a financial plan is essential to building wealth and securing your financial future. At Idaho Medical Association Financial Services, we offer financial management for doctors In Canyon County and the surrounding areas. We are dedicated to creating a financial plan catered to your individual circumstances, so please feel free to reach out for a free consultation at any time.