Many people think financial priorities stay constant as income rises. They’re wrong, according to Andrew Lokenauth from Fluent in Finance, who closely follows policy changes that impact household budgets.
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He told GOBankingRates that the framework that gets someone from $40,000 to $75,000 will “sabotage” wealth-building at $150,000 and higher. Here’s a look at why you need to shift your financial priorities as income grows.
From Defense to Offense
“When I worked with high earners at Goldman, I noticed a pattern,” Lokenauth said. “People who doubled their income kept the same financial habits. They upgraded their lifestyle proportionally but never upgraded their strategy.”
He said they went from renting a $1,500 apartment to buying a $4,000 mortgage but didn’t increase their 401(k) contribution from 6% to 15%. That gap costs them roughly $800,000 over 30 years in retirement savings, Lokenauth explained.
“Here’s the mental shift that matters,” he advised. “At lower income levels, your priority is stability. But as income grows, your priorities must flip from defensive to offensive. You’re no longer playing not to lose. You’re playing to win. That means maximizing tax-advantaged accounts, building taxable investment accounts and creating multiple income streams.”
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Tax Shifts
Marcus Sturdivant Sr., managing member of The ABC Squared, added that taxes also become more of a concern as you increase earnings.
He suggested asking yourself a couple of key questions:
- Did this increase push you into a new tax bracket?
- Can you still make simple Roth contributions, or has income pushed you into different avenues to save, like a backdoor Roth conversion?
Estate Planning
Brandon Gregg, CFP, advisor with BBK Wealth Management, said another area to consider as your income grows is estate planning.
“The more income you have, the higher legacy you may end up building as assets grow,” he said. “Plan accordingly to do estate planning to protect your assets and legacy for now and in the future.”
“With increased income also comes an increased need for protection for your assets. Consider setting up a will or trust to outline your wishes if something were to happen to you,” said Annie Cole, Ed.D., money coach and founder of Money Essentials for Women.
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This article originally appeared on GOBankingRates.com: Why You Need To Shift Your Financial Priorities as Your Income Grows
