The six-figure salary has long been aspirational as a mark of a high income. While that’s still true, depending on where you live, a high income doesn’t always equal financial security.
In a recent video, money expert and YouTuber John Liang recently explained why some high earners end up “broke.”
Lifestyle Inflation Turns High Income Into a Wash
Liang’s first and primary reason high earners can end up broke is lifestyle inflation. “The minute that the money coming in is equal to the money going out, that hotshot lawyer is no better than a high school kid flipping burgers at McDonald’s,” he said.
It’s typical that as soon as people earn a little bit more money their tastes get a bit more expensive, from a new car to dining out more regularly. However, this sets even high earners up to live paycheck to paycheck. And even missing a single paycheck for someone earning top dollar can mean bills fall through the cracks. It also means you need to create an even bigger emergency buffer.
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The ‘Hedonic Treadmill’ Keeps High Earners Stuck
This problem is not just related to spending more, Liang insisted, it’s about constantly striving to “upgrade your life.” He called this “the hedonic treadmill of modern-day America.” It’s easy to get stuck in that cycle.
If you don’t acknowledge your previous baseline, you’re never going to be satisfied at best, and at worst, you’re actually setting yourself back financially, he said.
High Earners Don’t Define What ‘Enough’ Looks Like
High earners who wind up broke rarely stop and say “what is enough,” Liang said. Is it enough to send your kids to private school, to buy a bigger house, to drive a newer car, he said. Each earner has to ask themselves that question, but few broke high earners do.
“If those are the things you truly value, then make a list. And once you get there, take it off and leave it.”
Experiences Create Lasting Value, Not Things
He pointed out that adding more “stuff” doesn’t always equate to more happiness and it definitely can steal financial security. His advice: to value experiences over things. And those experiences don’t have to be trips to the French Alps either — they can be fun hangouts with friends and family.
He claimed this philosophy is not just anti-consumerism but a higher-return investment through what he calls a “memory dividend.”
“People get significantly more satisfaction and enjoyment from a shared experience.”
Debt Is a Major Reason High Earners Stay Broke
Another one of the biggest reasons high earners stay broke is debt, Liang warned. It’s a problem that can happen to anyone at any income level. He cited a recent study from BHG Financial that found that 62% of those earning over $300,000 a year still struggle with credit card debt.
While it might be hard to believe that someone making a lot more money than the median household income of the United States has credit card debt, he said, “Lifestyle inflation goes hand in hand with credit card debt.”
While credit card debt is the key cause of most household debt, too large of or second mortgages and even auto loan debt can contribute. He’s so anti-debt he even urged anyone who wants to go to college by taking out pricey student loans to reconsider.
His golden rule is: “If you do not have the cash, you do not have the credit. That’s it. You cannot purchase the item.”
Some High Earners Confuse Salary With Wealth
Another problem is a mental model that keeps people broke even at very high incomes, Liang said. Salary is what you earn, but if you’re not investing or saving that money, then you’re unlikely to build wealth. Additionally, since inflation takes a bite out of the value of money every year, if you’re not investing in ways that fight inflation, you could be losing on the money you save.
“You can’t outearn bad habits,” Liang pointed out.
He emphasized that people should focus on building their net worths, not just making a higher salary. “Don’t focus on the number on that paycheck because that needle is constantly moving.”
Building a higher net worth involves tracking, investing and purchasing assets that gain in value. “That is what’s going to give you future financial success and financial security,” he said.
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This article originally appeared on GOBankingRates.com: Why High-Income Earners Stay Broke, According to John Liang
