April 2, 2017

The High Income Trap

Desire is a contract that you make with yourself to be unhappy until you get what you want. -- Naval Ravikant
When I was finishing my undergrad (in 2001), I remember thinking a $40,000 salary was a ton of money.

While in school, I made minimal income yet somehow went out on a regular basis. I wasn't suffering. In fact, that was a great period of time in my life. Still, I imagined the things I could do with a massive $40,000 income.

Soon after graduation, I was earning $42,000. I was rich! Or was I?

Fast forward to today. I couldn't even imagine how I'd survive on a $42,000 salary. I earn quite a bit more and I fight a constant battle to ensure my finances don't slide into a black hole.

What do I mean?

Money has a way of vanishing. The more you earn, the more things you think you need. Expectations rise and you can easily find yourself inadvertently living paycheck to paycheck.

Here's how people rationalize their increased spending:

"I make good money now so..."
  • "...why not turn the heat up a little higher."
  • "...why not move to a bigger house."
  • "...why not buy that leather jacket."
  • "...why not spend an extra $50 a month on a better car."
Soon enough, all the extra money generated by a higher salary is eaten up by a new set of automatic monthly bills and discretionary expenditures. Some refer to this as 'lifestyle inflation'.

This is precisely why many high earners are actually quite broke. In fact, many high earners live precariously close to the edge of bankruptcy because they are so dependent on their paychecks to cover their massive monthly fixed costs.

The true cost of graduating from a Ford to a Lexus, pleather to leather, campgrounds to Paris, a condo to a 3 bedroom detached is economic security and financial freedom. Financial freedom is only available to those who have assets tucked away in savings accounts, investments and real estate.

By spending your surplus you are trapping yourself in a cycle of financial dependency. You are locked into a job you might hate because you need it to make your monthly mortgage payments. This is the 'high income trap'.

It's easy to get stuck in this trap. Marketers and advertisers exploit your primal instincts to desire more. Your boss wants you to be up to your eyeballs in debt - that means he owns you. Your friends want you to live paycheck to paycheck because they lack self control and feel better knowing everyone else is just as irresponsible.

Stop. No matter what your income, I suggest you take a moment to look at all your expenses.

Are you spending to fulfill some unnecessary desire? Do the things you spend money on bring you happiness that lasts beyond a couple days?

The trappings of a consumerist society don't lead to happiness. Keeping up with the Joneses doesn't lead to happiness. Owning a bunch of stuff doesn't lead to happiness.

It's time to cut the crap from your life and start building some financial security so you can actually do what makes you happy.

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