Reaching a high level of income is a fantastic milestone to accomplish, but it’s only the start of effectively planning for retirement and investing for your future. At ARQ Wealth, we have been working for decades to help provide not just advice about investments and finances, but also a comprehensive strategy that includes estate planning, tax planning, and much more. After working with high-income earning clients for decades, we have compiled a list of the most common mistakes that we’ve noticed.
Don’t fall victim to these mistakes, get started today by reaching out for a no-cost no-obligation financial planning session by clicking here.
Avoid These Costly Mistakes with a Knowledgeable Financial Planner Based in Scottsdale
1. Not Using Optimized Tax Strategies
A high income often means more complicated taxes. Some common tax items many have trouble with include:
- Passive income sources
- Rental properties
- Investment returns
These diverse assets can be challenging to claim correctly, and you might miss or overuse valuable deductions. In some cases, if you aren’t careful, you may trigger a penalty fine from the IRS that can be quite costly. A skilled financial advisor that looks at the comprehensive picture such as ARQ Wealth can help you identify more optimal tax strategies.
2. Allowing Lifestyle Inflation to Increase Your Spending
As your income increases, you might feel the temptation to increase your spending accordingly. However, this is something you should avoid. With a higher income, you can allocate a higher portion of revenue for savings or investments. Related to the next item, budgeting can be a great way to simplify how much of your income you can spend on various expenses, luxury purchases, and to put away for investments.
3. Forgetting to Follow a Budget
Budgets are a valuable part of income planning for everyone, no matter how high your income is. By working within a budget, you have the flexibility to increase your overall savings that can be used in various investments depending on your unique circumstances.
Not sure where to get started by building out a budget? There are great resources online or you could reach out to ARQ Wealth today to find out more about creating a plan that works for you and your family.
4. Failing to Plan Ahead for Retirement
The thought of retirement might be uncomfortable or intimidating, but that doesn’t mean you should avoid saving for that stage of life. You can reap substantial financial benefits by using a 401(k) or Roth IRA fund to maximize tax-free income growth for your later years. The best place to start here would be to contact your company’s internal teams to find out more about what retirement plans are offered to you.
5. Depending on a Credit Card
While credit cards can be handy for building credit, they are a prime example of unnecessary debt for high-income earners. By running up the card balance, you are increasing your debt with both the purchase and the nearly double-digit interest rate with each purchase.
If you have an outstanding balance on your card, it’s best to pay it off completely to reduce bad debt.
6. Ignoring the Value of an Emergency Fund
When you earn a high income, you might lose sight of the importance of maintaining a personal emergency fund. However, you never know when you might face unexpected circumstances that impact your financial well-being. Income and expense stability can always change without warning.
The most crucial guideline for building your emergency funds is to plan the fund according to your monthly expenses. Experienced financial advisors can guide you through the best methods to invest, save, and budget to set yourself up for unexpected expenses down the road.
7. Not Monitoring Your Credit Card Purchases and Spending Habits
Monthly subscriptions that automatically renew are notorious for building up and eventually adding up to be significant payments on your overall budget. It’s key to always review your credit card statements on a consistent basis to ensure that there are no suspicious payments, fraud purchases, or monthly subscriptions that you don’t use or need anymore.
We recommend reviewing these key items while doing your budgeting each month to get a better understanding of where you’re spending your money. It may seem trivial, but even high-income earners can get a lot out of this exercise as it helps promote financial discipline and good habits that will last a lifetime and lead to more savings on unnecessary purchases.
8. Purchasing Assets that Greatly Depreciate
Stories of professional athletes with multimillion dollar incomes going broke are too common in the United States over the last few decades, and one of the main causes for that is that you put too much of their income into assets that greatly depreciate or carry no value whatsoever after the purchase (luxury cars, expensive dinners, renting a private jet for one trip, etc.).
It can be tempting to purchase the expensive luxury car that you always dreamed about for example, but it’s important to know the economics behind that buying decision. Luxury cars are an example of an asset that depreciates greatly the second you drive it off the lot. Luxury purchases can be made when you have a high-earning income, but it needs to be compared to your budget to ensure you can truly afford that purchase.
Instead of purchasing that luxury good or service, you could put that money instead into investments that can help you work towards your retirement goals. Reach out to ARQ Wealth today to see what financial and retirement plan you can work towards to ensure you don’t overspend and exceed your budget.
9. Trying to Beat the Market and Day Trade Yourself
Some investors try to master the market by constantly watching the stock numbers and buying only when there’s a dip. This portfolio management strategy can lead to poor decisions that cost your hard-earned savings.
You’ll find more peace of mind in using an experienced wealth management firm that can leverage their decades of experience to put together a customized plan for your unique financial and retirement goals.
10. Not Hiring a Financial Advisor
You might feel like you can handle your finances on your own. The truth is, you have better ways to spend your time than learning everything there is to know about tax and estate planning and retirement plans. When you team up with a professional finance expert, you can focus on your own skills and interests while obtaining the peace of mind that you’re in good hands and can focus on your family and your career.
Reach Out to ARQ Today – Get Your Financial Planning and Retirement on Track
At ARQ Wealth, we know that every financial situation is unique. We will guide you through each step of the financial planning process to help you build a better path to reach your wealth goals and secure your retirement plans. You can get started now by calling (480) 214-9572 to book a free no-obligation financial review with ARQ Wealth in Scottsdale, AZ.