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The Money Mistakes That Keep High Income Earners from Financial Freedom
The 9 biggest financial mistakes high income earners make, and how to avoid them
The ability to earn a significant income is a testament to years of dedication, skill development, and relentless effort. However, earning a high income is not the same as building enduring wealth. We routinely see high earners, the very people who should be setting themselves up for financial independence, stumble over surprisingly common pitfalls.
In fact, many of the biggest financial mistakes aren't about how much you earn, but rather how you manage the money once it hits your account. Here are the nine most costly financial errors we see high-income individuals make, and how you can avoid them.
1. Thinking You Can Easily Replace Your Job
When you’re just starting out in your career, it’s easy to move from job to job without too many concerns. But as you get more senior, replacing your job becomes a lot harder.
The highest incomes often come with the greatest time commitment and professional pressure. This environment breeds a dangerous sense of invincibility: the belief that earning power is a permanent, easily replaceable asset. This overconfidence leads to a lack of urgency in building a non-dependent source of passive income, other skills, or a robust emergency fund.
The reality is, even top jobs can vanish overnight due to corporate restructuring, burnout, technological change, industry disruption, or health issues. Sometimes this may be due to over-specialisation of the high-income earner.
A sudden loss of income is devastating when the monthly expenditure is tied to a six-figure salary. The financial confidence of high earners should be rooted not in their current salary, but in their financial resilience: the capacity to withstand a protracted period of zero income without panic.
If, for instance, you’re a well-paid executive or senior manager and you lose your job, you probably won’t want to jump at the first new opportunity which comes your way. Instead you’ll want to take your time and find a well-suited role which fits your current and future needs.
Therefore, your priority, regardless of your how fancy your job title is or how much you earn, should be to build a buffer of liquidity that allows you to make calm, rational career decisions, rather than anxious, reactionary ones. In some cases, for the highest income earners this might be a sum large enough to cover a full years’ worth of expenses. This shouldn’t be invested but should be liquid and ready to access. This can be in a high interest bank account or on an offset account, but you need to be able to access it without worrying about market timing.
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2. Getting Caught Up In Lifestyle Creep Too Quickly
Sometimes our team will come across high income earners with surprisingly little to their name.
In these cases, lifestyle creep, or lifestyle inflation, is usually the culprit. This occurs when your spending increases alongside your income, ensuring that despite earning more, you are never actually net richer. The promotion that brings an extra $50,000 a year often funds a new luxury car, a bigger house, a new wardrobe, your kids in expensive schools, more expensive holidays, and increased dining out. What were once considered luxuries rapidly become entrenched necessities.
Before long, that high salary is merely maintaining a gilded cage, offering no additional freedom or savings capacity. This trend is extensively documented in financial literature, and especially for younger readers, might be most prevalent on social media. Social media aside, for some high-earners, it might even be high-earning colleagues that are the problem!
The trap is: once your lifestyle is upgraded, it is psychologically very difficult to downgrade.
The key to building long-term financial freedom is to consciously separate your income growth from your expenditure growth. When you receive a raise, most of the increase should be automatically diverted to savings, investments, or debt reduction before you even feel the temptation to spend it.
Then, once your investments are earning money, then you can bring up your lifestyle spending without too many concerns knowing you can always fall back on your investments when you stop earning.
Not all lifestyle spending is bad, of course, it’s just the common trap many big earners fall into is an inflating lifestyle without an inflating nest egg to match!
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- Lifestyle creep, the complete guide
- Live within your means and enjoy life
- How the rich spend their money
- When to overspend on a house
3. Poor Risk Management
High-income earners have more to protect, making proper risk management critical, yet it is frequently overlooked. This error manifests in several ways, from neglecting essential legal documents to underinsuring against personal catastrophes. The wealthy often skip the basic, yet profound, protection offered by an up-to-date Will and Enduring Powers of Attorney (EPAs).
These documents ensure that your hard-earned wealth is distributed according to your wishes and, crucially, that your financial affairs can be managed seamlessly if you become incapacitated.
Beyond this foundation, professional high earners face unique liability exposures. Professions such as surgeons, high-level lawyers, consultants, and business directors are at a heightened risk legal action. For these individuals, proper wealth structuring is a non-negotiable step to ring-fence personal assets from professional liabilities. This could be through the use of vehicles like Family Trusts, holding companies, or specific corporate entities. Many high earners bypass this crucial structuring, believing their personal assets are implicitly safe, leaving their entire wealth vulnerable to lawsuits, tax inefficiencies, or even family and relationship disputes.
Finally, the role of personal insurances including income protection, trauma, and life cover, is inverted for the high earner. For a professional bringing in a six-figure income, the single greatest financial asset is usually their ability to earn. Insuring this income stream is a foundational act of financial responsibility. It ensures that if health prevents you from working, your lifestyle, and your wealth creation plan, does not collapse, protecting not only you but also your family obligations.
Related material:
- Have you protected your biggest asset? It’s not what you might think
- Self-insurance, defined
- ACC versus income protection insurance
- Why you need a will in New Zealand
4. All Eggs in One Basket (No Diversification)
Diversification is often called the only “free lunch” in finance because it allows you to potentially reduce risk without necessarily sacrificing returns. Despite this well-known principle, many high earners fall into the trap of over-concentration. They may have a single, highly concentrated position in their employer’s stock, or perhaps they’ve sunk all their capital into a friend’s private venture or their own small or mid-sized business. True diversification means spreading your wealth across different asset classes (equities, bonds, property, cash) and geographies.
Over-leveraging On Residential Property
A widespread form of concentration bias in New Zealand is the over-reliance on residential property. While property is a familiar, tangible asset, which is easy to leverage, it is often a poor diversifier against the domestic economy. Movements in the housing market are closely tied to local job security, immigration to New Zealand, and interest rates.
For a high-income earner who already relies on a New Zealand salary, taking on maximum debt to buy multiple investment properties, often concentrated in one city, is simply doubling down on the same national risks.
This can be an expensive form of psychological comfort. If you’re in this situation, ask yourself:
- If the local economy had a significant, sustained downturn (perhaps as the result of a natural disaster), would holding these investments suddenly look a little less bulletproof?
- Are you missing great investment opportunities elsewhere?
The most successful investors don't make this mistake. They ensure any investment properties are balanced by a globally diversified portfolio of growth assets that are completely uncorrelated with their primary source of income. True financial freedom is rarely robust if it’s dependant on one housing market.
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5. Failure To Consider Tax
Many high-income professionals pay the highest possible rate of tax on their investment income, simply through inertia. They make the common mistake of investing all assets in their personal name without considering how simple structuring could create tax efficiency. For a professional with a top-bracket income, holding assets in that same personal name means every dollar of investment return (interest, dividends, or rental income) is taxed at the highest marginal rate.
A significant missed opportunity is the failure to consider more tax-effective entities for holding assets, or simply not utilising a spouse or partner on a lower tax rate. While the rules surrounding asset entities and taxation are nuanced and require professional advice, ignoring the potential for income splitting or utilising specific low-tax structures for growth assets is a mistake that costs high-earners tens of thousands of dollars over a lifetime. This is not about complex tax avoidance; it’s about using the established financial rules to your legal advantage to ensure more of your hard-earned profit stays with you.
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6. Self-Managing Investments
Professionals succeed by backing themselves.
This is the foundation of their high-earning career.
But, in some instances this can lead to a classic mistake: the belief that professional success in one specialised field automatically transfers to financial proficiency in all others. A corporate lawyer may be brilliant at commercial law; this does not mean they are an expert in selecting investment opportunities, tax optimisation, global asset allocation, or portfolio rebalancing.
This results in the 'DIY' financial trap, where high earners try to manage their own increasingly complex affairs. While they may spend 10 hours reading about the latest tax law or investment theory, those 10 hours were effectively taken away from their core, high-value profession. The opportunity cost is astronomical.
7. Ignoring Cash Flow Discipline
Some high earners don’t track their spending because they operate under the dangerous assumption that “there’s always more coming in.” This mindset treats a high income like a permanent magic bullet, masking significant inefficiencies, leakages, and unnecessary debt accumulation.
Even top surgeons, lawyers, and executives can find themselves "cash-poor" due to excessive outgoings and lack of visibility on where their money goes. Without a disciplined cash flow system, be it a simple budget or a sophisticated tracking system, you cannot effectively invest, save, or plan for the future. The sheer volume of money passing through your hands means small inefficiencies, like high-interest consumer debt or unnecessary subscriptions, are magnified. Taking ownership of your cash flow is the fundamental step in gaining control over your financial life, allowing you to proactively direct your money toward your goals, rather than reactively paying the bills.
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8. Making High Risk Investments Before Establishing Lower-Risk Investments
Higher income earners tend to get access to investment opportunities that come up in their world. This might be a commercial development opportunity, or an angel investment in a start-up. Whilst these might be genuinely good opportunities, it’s vital to remember that these sorts of investments come with a lot of risks.
This is especially true in the world of wholesale investing. Because of your high income or net assets, you may qualify as a wholesale investor under the Financial Markets Conduct Act (FMCA). This status exempts the investment offeror from many compliance and disclosure requirements, and removes many crucial retail investor protections, such as access to free dispute resolution. The underlying assumption is that you are financially sophisticated enough to fend for yourself.
The problem? The financial threshold (which has not been updated in years) does not equate to sophistication. Someone who has sold a farm for millions, for instance, may have the net assets but zero experience evaluating a complex commercial property or venture capital deal.
The consequences of this mismatch have been stark, with cases like the highly publicised collapse of the Du Val Group leaving many wholesale investors facing the total loss of their capital with no regulatory safety net.
A more established approach is to get your financial house in order before leaning heavily into these higher-risk investments, if at all. If you wish, allocate a small portion of your portfolio to these high-risk, high-return investments, but avoid putting yourself in a position where you may lose everything.
9. Failure To Hire The Right Team
To be fair, most wealthy people know the value of professional assistance in a range of areas.
Often, that’s because they’re a well-established professional, and know how much they don’t know in their own field, let alone other fields including financial services!
Most well-off people know a professional will be able to save them time, access things they cannot, and do a far better job than they can in their respective field. This could include a lawyer providing important estate planning advice, an accountant completing tax returns and advising on the best structures to hold assets, and (of course!) a financial adviser like the team here at Become Wealth, assisting with investment selection and monitoring, or with other areas such as personal insurance cover and mortgage services.
The Bottom Line: Financial Mistakes of The Wealth, And How You Can Avoid Them
A high income provides the fuel for a powerful financial engine, but it is not a destination in itself. True financial freedom is a product of disciplined decision-making and enacting proper planning over a sustained period of time.
This includes a commitment to controlling the things you can, while ignoring the things you cannot. Every one of the mistakes listed above is controllable. They require nothing more than a commitment to self-reliance and the willingness to implement a professional, comprehensive approach. Your high income should buy you freedom, not a higher credit card limit.
To take the first step toward a more secure and prosperous future, and to find out how the team at Become Wealth can help you transition from being a high-income earner to a successful wealth builder, contact us today to book your initial, no-obligation conversation.
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