Why So Many High Earners Are Broke

I began my career making £335,000 working at a top tier Investment Bank in London I didn't save a single penny that year I lived paycheck to paycheck month on month and I remember thinking at the time life would be so different if I was making six figures I'd be able to buy so much more I'd have enough left over to save and I won't feel like I'm broke but why is it that 26% of people in the UK making 100,000 plus said that they had no money left at the end of the month and over

half of Americans earning more than 100,000 are living paycheck to paycheck and why after making my first 100,000 was it so different to what I expected now I know where I went wrong and in this video I wanted to share with you three reasons why so many high earners still feel like they're broke and how you can in fact feel rich at any income level point one the income versus living cost dilemma there is a quote in the book The 4-Hour Work week that reads people don't want to be millionaires they just want to experience

what they believe only Millions can can buy a big part of feeling rich is driven by how far the money you earn can stretch you how much it can buy you essentially what is the value of every pound or dollar that you make in relation to where you live for instance someone making a 100,000 in a high cost of living area where their basic living costs alone make up 80% of their take-home pay is going to feel a lot less Rich than someone who is making the same amount but their basic living costs only make

up 30% of their take-home pay the second person has over three times more left over to spend every month on the things that they love now some of that is purely our own fault I mean no sympathy here for anyone who is living paycheck to paycheck on a sixf figure salary because their basic living costs include a penthouse and a G wagon that's another story but I'm talking about the bit that it's harder to control especially when a lot of these high-income jobs are based around high cost of living areas if you're trying to break

into the entertainment industry then you might be thinking to relocate to LA or if you want to work in Tech then San Fran or Silicon Valley are places you might be considering for the best options or if you want to work in a well-paid job in finance then you might be considering London or New York but the issue with living in these areas is that it takes a lot more money to live a decent lifestyle than it would in other parts of the country in fact if we only look at incomes London households make about

15% more than the rest of the country but almost all of that premium is completely wiped out by housing costs London is becoming less affordable for firsttime buyers and it's taking up a bigger percentage of net household income and according to a statement in the Ft when you take that into account a household in London is no better off than the national average the difference between income and the living cost in these cities show that having a high salary does not automatically translate into feeling Rich maybe the answer to considering a job in a high

living cost area is living outside of that Hub it might come at the cost of a longer commute but if it means a Countryside home with a bigger garden and a golden retriever rather than a two-bedroom flat with a cat it might well be worth it or if your job isn't location dependent then working remotely either working at home for a few days of the week it saves you on the commute cost and all the other cost that come with being in the office or shifting to a new lowcost country altogether if you can work

entirely remotely Point number two the Doro effect the Doro effect is a phenomenon that happens when you buy something new and that new item leads to a chain reaction of you buying more and more new things to either go with the first thing that you bought or to keep up with it for instance your living room looks perfectly fine but you decide to upgrade your sofa on the wiim you want to buy a new one now when that comes you're rug in comparison looks a bit old it looks a bit dated so you also buy

a new one and then your lamp as well and then your curtains and you might as well buy a new house Al together essentially the D effect is one of the reasons why some people might become rich but never be wealthy they're trapped into the cycle of earning upgrading earning more upgrading and it's especially apparent when you buy something that might change your social group for example you move to a new house in a more expensive neighborhood with Rich neighbors who have nice cars in that case you might feel the need to upgrade yours so

it doesn't look like a complete Banger in comparison although it's virtually impossible to not want or feel the need to upgrade your life if you're making more money you don't want those upgrades to completely erode the entire rise or the increase that you're getting because as rewarding as it might be at the time it removes any potential for extra savings and then you're just trapped in a cycle where you're living paycheck to paycheck and not really Building Wealth and worse there are some things that once you upgrade it's very hard to go back business class

fights a bigger home sending your kids to extra classes or activities and once you're used to it it can mess with your long-term savings and financial stability so now you know that this is a thing and that's the first step being aware that you're doing it the second thing you can do is save in terms of percentages of take-home pay so instead of putting say $500 equivalent into your savings account every month take a percentage of your income out of your paycheck so when you make more you will automatically save more because that extra percentage

that you're saving and investing every time you get a pay rise is what's going to help you build long-term wealth and feel rich in a way that a high salary alone won't be able to point three the inevitable but the legally avoidable many high-paying jobs require some sort of higher education or degree in the first place which comes with a cost the cost is having to spend years paying off that student loan when I went to University the tuition fee for an undergraduate degree in the UK was £3,000 per year using the inflation calcul data

index that £3,000 is equivalent to £4,200 today but tution fees are actually around £9,250 a year so if you're doing a 5-year degree you're looking at graduating with a debt of £50,000 minimum before even starting your career and these deductions in your paycheck doesn't just end with education so when I was making £120,000 a year which is a lot of money I don't discount that whatsoever 47,000 of that went straight to tax and National Insurance when you couple for that were the fact that a I chose to live in London and B I got sucked

into Point 2 and upgraded my car with my very first paycheck and was paying that off for a while the six figures definitely didn't make me feel rich in a way that I thought it would have before I achieved it when you earn a salary it's hard to avoid this the deductions are always going to happen but there are a few ways you can keep more of what you make in your own pocket firstly optimize your contributions to your workplace pension most employers offer a match contribution which means for every pound or dollar that you

put in they will also match that for every pound or dollar and that gets put away into your pension before the tax man gets hold of it and make sure you are claiming your additional tax relief if you are a higher rate taxpayer other things you can do at any income level is firstly make sure your tax code is correct and that your deductions are correct because these cost you money if they're wrong and secondly make use of all the tax incentives that the government is encouraging there are tax breaks when it comes to making

choices that are more green tax breaks for investing in taxfree investment accounts or operating under a company and deducting your expenses these are all tax breaks so you can keep more of what you make whilst also doing what the government is incentivizing you to do one of the tax-free investment accounts I use is Trading 212 they let you trade stocks index funds ETFs user made portfolios one of my favorite features is their pie aspect where you can publish your own portfolio or look at other people's most popular portfolio and copy what they are investing in

as well you can see the most popular portfolios depending on the categories that you're interested in so whether the focus is on ETF dividends growth stocks if you want to create your own portfolio you can search for the asset say bonds gold Global Equity Funds and you could put whatever percentage of allocation you want to contribute towards it say 70% 20% 10% and then you can see based on your savings what the value will be over time you can also earn 5% interest on your uninvested pounds and also earn interest on other currencies as well

if you want to check out you can also get a free share worth up to £1 by using the promo code Nischa and verifying your account and making a minimum deposit of 1. Ultimately feeling Rich isn't about making a lot of money it's about being smart with what you have and managing it in a way that lets you experience the things that you think earning a lot of money would buy you whilst Building Wealth alongside that even if you're not remotely close to six figures you're probably doing a lot better than you think and I

have a video right here on four signs that you're doing well financially even if it doesn't feel like it thanks for watching and see you there