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Why Your High Salary Isn’t Making You Richer

Woman looking at an empty purse

"38% of Britons earning over £70,000 say they are merely coping"

Are you often sitting mid-month looking at your bank balance and wondering where your money went? You're not alone. 38% of Britons earning over £70,000 say they are merely coping.

YouGov study into high earners financial situation

Having a high salary often comes with the expectation of increased financial security and growing wealth. However, many high earners find themselves puzzled by their relatively low savings and lack of financial progress. Understanding the disconnect between a high salary and actual wealth accumulation is crucial in addressing this issue and taking steps to maximise your financial wellbeing.

A recent study by the Office for National Statistics found that 54% of UK adults reported that their household expenses have increased over the past month, outpacing their income growth. Aside from inflation and higher costs, this article aims to explore why a seemingly high income doesn't always translate to high savings and provides practical strategies to address these challenges.

Common Financial Drains

Lifestyle Creep:

As income increases, so does spending. This phenomenon, known as lifestyle creep, can slowly erode your savings as you upgrade your lifestyle in response to higher earnings.

It is common for increased income to slowly move you towards buying more and paying more. New gadgets, dining out more frequently and purchasing luxury items can all contribute to this silent drain on your finances.

If you need help identifying financial gaps and drains, take our Financial Fitness Quiz and receive a tailored report with suggestions on how to increase your net income.

Spending on Family and Lending Money:

Helping family members financially or lending money to friends can be a significant drain on your finances. Whether you are caught in a cycle of financial enabling or helping out someone struggling temporarily, the impact can be severe. While it’s important to support loved ones, it’s equally important to set boundaries and ensure you’re not jeopardising your own financial stability.

Social Pressure to Spend:

The pressure to keep up with friends, family or colleagues can lead to unnecessary spending on things like holidays, dining out or buying the latest gadgets. The innate desire to fit in, stay connected and be accepted can see you getting lost shelling out more than you had planned. This social pressure can significantly impact your savings.

Addressing the Gap

To address the gap between high income and slow wealth building, consider the following tips:

Set Financial Boundaries With Family and Friends:

It's essential to support your loved ones, but not at the expense of your own financial health. Have honest conversations about your financial limits and create a policy for lending money.

Consider establishing a small separate fund specifically for helping family and friends so that your main savings remain untouched. This helps by creating a clear line between your financial plans and the needs of your family, helping you to stay in control and reduce the likelihood of resentment.

Create a Dedicated "Fun Fund" for Social Activities:

Instead of succumbing to social pressure, allocate a specific amount each month to a “fun fund” for social activities and discretionary spending. This way, you can enjoy socialising without overspending. Apps like Monzo can help you manage and track group expenses, ensuring you stick to your budget. Managing a budget does not have to be a strict and unpleasant part of your life; intentionally incorporate the things you want into your day-to-day.

Build a Robust Emergency Fund:

Ensure you have an emergency fund that covers at least three to six months' worth of living expenses. This buffer will protect you from financial shocks such as medical emergencies, car repairs or sudden job loss. Building this fund can provide peace of mind and financial security, helping you manage unexpected expenses without derailing your financial goals.

Make Changes

High income is not synonymous with high savings. By understanding the common financial drains and taking proactive steps to address them, you can significantly improve your wealth.

Set financial boundaries with family and friends, create a dedicated fund for social activities and build a robust emergency fund to protect against financial shocks. These nuanced strategies will help you bridge the gap between your income and your financial goals, ultimately leading to a more secure and prosperous financial future.

As Warren Buffett wisely said, "Do not save what is left after spending; instead spend what is left after saving." What are your thoughts on this? How do you define true wealth?


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