As a high-earning professional, it can be easy to get absorbed in your career. You’ve spent years studying and building your business and now it’s time to enjoy the fruits of the labor. However, if they’re not careful, even people whose earnings place them in the top .01% can find themselves in trouble if they don’t properly manage their income.
This is made clear almost every year when news breaks announcing that a former-millionaire is now broke. To make sure that this never happens to you, we’ve put together a few of the most essential money management tips for dentists and other high earners.
Make sure you spend less than you earn
In the fitness world, many trainers will tell you that it’s impossible to burn as many calories as you can eat. The same is true in the finance world, where no matter how much you earn it’s always easier to spend it.
When you earn a high income, especially one that’s variable (if you own your practice), it can be easy to simply swipe your card whenever you need to. For most of your basic expenses, your income will be more than enough to cover the expense.
However, it’s essential to monitor your spending to make sure that it doesn’t outpace your income. This is especially true if you commonly use credit cards, which makes it very easy to rack up high-interest debt.
Since most people’s spending habits are consistent week to week, we’d recommend tracking your expenses diligently for about a month. This will give you enough time to get a good idea of what you are able to spend each week. As long as this number is under your income, then you’re in the clear.
Don’t fall into the lifestyle inflation trap
If we asked you to save 50% of your income, most people would laugh it off as impossible. Interestingly, the answer would probably be the same whether you earned $25,000, $75,000, or $100,000.
This is because most people get comfortable spending within what their income allows them to. Then, when their income increases or they get a bonus, most people will simply shift their spending habits up.
They start to eat out 2-3 times a week instead of once. Their lease might be up and they decide to move to a nicer part of town. Or their car breaks down and they spend money on a nicer one.
This phenomenon is called lifestyle inflation and it’s what keeps even the top earners living paycheck-to-paycheck. Despite earning a high wage, these people are still in a lot of trouble if their main source of income is cut off.
Regardless of how much you earn, you should make sure that you are putting some aside for the future or in case of emergency.
Open an IRA or investment account
So once you’ve squeezed some money out of your income, what should you do with your savings? Here are a few of our suggestions:
- Open an IRA –Individual Retirement Accounts (IRAs) are a great tool to help you save for the future.
- Open your own brokerage account – Investing money in an index fund that tracks the stock market will give you a good return on your money.
- Hire a professional – Just like people come to you instead of removing their own molars, consider finding a professional to invest your money for you.
All of these options are better than simply saving money since they will earn a higher return on your money. This will allow your savings to grow for you.
We hope that you have found this article valuable when it comes to understanding a few basic money management tips for dentists and other high earners. If you are interested in reading more, please subscribe below to get alerted to new articles as we write them!