Making a considerable salary is a great achievement, but often the question at the back of most high earners’ minds is if they are taking advantage of their income. When you reach a certain level of income and wealth, there are mistakes you want to avoid and opportunities to take hold of quickly. We compiled a list of the biggest financial mistakes made by top earners so you can avoid them. Read more for financial advice for high earners.
Mistake #1- No Financial “Playbook” or Financial Plan
This may seem minimal, but as Abraham Lincoln said “Give me six hours to chop down a tree and I will spend the first four sharpening the ax.” Having a plan makes all the difference in knowing where to invest your hard-earned dollars. Your plan also enables you and your loved ones to take advantage of opportunities such as tax credits or delaying taxable events, finding and saving to make specialized investments, purchasing large assets and more.
Solution– Start with a few goals and wishes you and your loved ones have. Perhaps you want to retire at age 50, or even more simply want to pay off your home for the security. You can go big and dream of owning 10,000 acres of farmland and a second vacation home in the mountains. No matter your dream, developing a plan or financial playbook is the best way to get there.
An experienced wealth manager can help you outline your dreams and goals as well as aid in a plan on how to get there. They work with you along the way, making adjustments and pivots as your life or needs change. Avoid this top mistake and take this key piece of advice for high income earners: make your financial plan now to achieve your dreams later.
Mistake #2- Missing out on retirement accounts or other investment opportunities
Contributing to a retirement account is a great first step, but as your income increases so does your ability to invest. This is where things can get complicated and many high-income earners make mistakes. Investing and maxing out retirement accounts can be missed in lieu of contributing to a taxable account or something more modern like Crypto or lending clubs (see more below).
Solution– Make sure you are maximizing your investment opportunities, starting with your retirement accounts. Maximizing your retirement options is important because of the potential tax benefits. For example, does your employer offer a Roth option for your retirement investments? If so, you may be missing out on tax free growth.
Another mistake high income earners make is not investing in different types of retirement accounts like a traditional account and a Roth account. If your income is over $218,000 for a married couple then you make too much to directly contribute to a Roth IRA. However, you can contribute to a Back Door Roth IRA. You will want to work with a financial advisor, like our team at The Retirement Planning Group, to take advantage of this investment!
Mistake #3- Taxes, Taxes, Taxes
Whether it’s your income tax, personal property tax, or even an eventual estate tax, being prepared for the government’s cut is important as your wealth increases. One key piece of financial advice for high income earners is creating a plan for tax time. Paying your fair share, and legal obligations, is the goal but to do that you want to make a plan. For example, are you taking advantage of tax loss harvesting in your non-retirement investment accounts?
Being a high earner means you will potentially have a substantial estate to leave behind. Do you know the size of your potential estate, and if it is over the estate tax exemption, which is $12.92 million per person in 2023 or $25.84 million per couple, how are you preparing your heirs for taxes?
Solution– Part of your financial playbook should include tax considerations. Having a qualified tax advisor, specifically knowledgeable about high earners and the tax considerations as your wealth increases is key. Part of taking advantage of tax regulations and laws is planning and starting early in the year. If you are receiving financial advice or have an accountant, you may want to have an end of year meeting to prepare for moves you can make for the next tax year.
Having a wealth manager and accountant that work together to align your entire portfolio and investments to work cohesively is the best way to grow your wealth and avoid paying Uncle Sam anything more than you need!
Mistake #4- Spreading your wealth too thin and investing in fads and trends
Not maximizing your retirement accounts is a top financial mistake high-income earners make, but beyond that is getting caught up in fads and trends in investments. Purchasing single stocks, trying to time the market, or having a friend sell you the idea of the latest investment can be a huge gamble with your money. Choosing to gamble your money on the “next big thing” is a risk, and one that should not be taken lightly.
Solution– We are not saying to NOT invest in these trends, but to do so wisely. Use extra dollars you set aside and treat this money as if it could be lost completely, because it can. Also, if it sounds too good to be true, it often is. Just ask anyone who has been featured on “American Greed”. Choosing to invest in a fad trend or high return opportunity can pay off big time, but can also cost you dearly. Make a wise choice on not just if to invest but how much based on if you can lose that money and still be financially sound and secure. Work with a financial advisor to help make these important decisions.
Mistake #5- Not hiring a professional wealth manager – Top Financial Mistake
Some things just require more knowledge and education to do well. When you have achieved a high income and start to build wealth, you want to protect the hard work you have done and make it work for you (as hard as you worked for it!).
Solution– Find a professional wealth manager to help with all these top financial mistakes that people can make. We recommend finding someone who is a fiduciary, who has to act in your best interest, to help you create your financial plan. You will need an investment advisor for high income earners, and want someone experienced by your side to aid in your decision making.
Our team is composed of not only CFP®s, but tax professionals, estate planning professionals, investment advisors and more. We aim to be the easiest firm to work with on planet Earth, and we can prove it.
Financial Advice For High Earners – Avoid These Mistakes
Maximizing your hard-earned wealth can be intimidating and overwhelming. Let us help you with these decisions, creating your plan, and breathing a sigh of relief. Schedule your free 10-minute consultation with one of our wealth managers to see if there is a fit for you and your family. See the difference it makes to work with our trusted financial advisors. More than 1,500 families across the United States trust us with their wealth management.