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5 biggest mistakes 6-figure earners make

Writer's picture: Gregory DeerGregory Deer

Updated: Oct 31, 2024

You’re flying in your career and starting to earn some serious numbers, but are you using it well? Earning six figures is significant, but it also comes with its own set of challenges and potential pitfalls.


Here are the five biggest mistakes I see six-figure earners making, and guidance on how to avoid them.


1.    Ignoring Emergency Funds


An emergency fund held in cash is your financial safety net, yet many six-figure earners overlook its importance.


Life is unpredictable and having 3-6 months of living expenses saved can give you financial security for the unexpected.


The fund should be easily accessible, preferably in an instant access cash ISA where interest is tax free. It can be used to cover unforeseen expenses, give you flexibility to change jobs, or pay for one off costs.


2.    Lifestyle Creep


We’ve all been there - your pay increases but so does your spending. A casual Friday night Honest burger turns into a couple of cocktails, an overpriced food hotspot and Pret delivery breakfast.


Don’t get me wrong, you should enjoy your money (and there’s always a time and a place for an overpriced food hotspot), but many high earners fall into the trap of lifestyle creep, where spending increases in line with income.


The key is to keep your fixed expenses below 60% of net (after tax) income, save and invest a minimum of 20% gross (before tax) income, and spend 20% on the things you love. In my experience, these allocations provide balance but there will be stages of life when things are skewed.


3.    Neglecting Pensions


Stopping work might seem like a distant dream, but it’s never too early to start planning.

Many six-figure earners focus on their immediate financial goals and neglect long-term planning.


Don’t neglect pensions though. Use pension contributions to reduce income tax and make sure you’re maximising your employer contributions.


Pension saving in your 30s and 40s can lead to you reaching financial freedom sooner.

Remember that you cannot normally access pension until 55 (57 from April 2028).


4.    Too Much Debt


While leveraging mortgage debt on your home can be a powerful tool for wealth building, there is such thing as too much debt.


High earners can be tempted to take on a huge mortgage just because they can. There’s a fine balance between stretching yourself and overdoing it causing stress and losing flexibility.


Keep your debt levels manageable, remembering the target to keep fixed costs below 60% of your income. Debt can quickly become a burden without a plan for repayment.


p.s downsizing is rarely a suitable debt repayment strategy; you’ll love your home too much.


5. Overconfidence when investing


High earners know a lot about their work and share their knowledge daily. This can seep into other areas where perhaps their knowledge isn’t quite so deep.


Many high earners fall into the trap of investing heavily in their own industry or a single type of asset. As a high earner, they’re a target to be sold the new ‘hot investment prospect’ and as they invest a lot of time in their job, don’t have the time to properly research what’s best for them.


Spreading investments across different asset classes, sectors, and geographic regions to create a robust and resilient portfolio that will serve you best over the long term.


Your capital is at risk. The value of your investment (and any income from them) can go down as well as up and you may not get back the full amount you invested.


In conclusion, earning six figures is a great milestone, but maintaining and growing your wealth requires careful planning and discipline. Avoid these common mistakes, seek professional advice when needed, and stay focused on your long-term financial goals. Remember, it’s not just about how much you earn, but how much you keep and grow that counts.

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