Mindset Shifts of High Earners

There comes a point in time when you realize the strategy that got you here won’t be the strategy going forward. High earners aren’t living paycheck to paycheck in the same way that a lower income earner is. This isn’t to say that high earners don’t need to watch their spending, as they are just as likely to fail at saving an adequate amount for retirement as their peers.

As a financial planner to high earners, or those individuals with incomes north of $100,000, I have noticed a distinct difference in their mindset toward their financial lives. For most, this a very gradual process to get up to a high income. They enter the workforce at the entry level like everyone else, and gradually slide up the income scale as they receive raises and promotions.

Recognizing the progress you’ve made over a decade or more can be hard to appreciate. As a high earner you will now be focusing your finances in these three areas:

More Value > Less Cost

The high earner is no longer forced to clip coupons or seek out the best deal possible for every purchase. Does this mean you should no longer try and save money when it’s easy to do so? Of course not. This means that on a more routine basis, high earners are looking to spend their money in a way that adds value to their life, rather than just purchasing what is cheapest.

One small way this happens is when going out to eat at a restaurant. The high earner is more willing to pay for a memorable meal. This can add value to their life, as they will think back on how great of an experience it was for months to come.

Asset Protection

Earning a high income places more importance on protecting personal assets. These assets are both the dollars that are accumulating in investment accounts and also their human capital. The unique ability to earn a high income year after year becomes more valuable to the high earner.

Protecting personal assets from lawsuits now becomes an important topic. Simple strategies can be put in place to protect from creditors in most cases. Advanced estate planning may be needed, depending on the source of income and the amount at stake.

Tax Reduction

For incomes under $100,000, the tax rate is relatively low when taking advantage of basic tax reduction opportunities. These include fully funding tax-deductible retirement accounts, a Health Saving Account, and using the Standard Deduction.

High earners take a closer look at their personal situation to reduce taxes. After maxing out retirement accounts, investing in real estate or a taxable brokerage account becomes common. Done right, tax saving opportunities are there. Done wrong, the tax burden will be a shock.

For business owners earning a high income, a proper business structure and salary level become valuable areas to evaluate. Tax planning is important for the success of the business and the personal goals of the owner and their employees.