The Income Illusion: Why High Earners Can Still Be Broke ( Case Study 1 )

Earning a high income is often seen as the key to financial freedom, yet a large paycheck doesn't always translate into significant savings for many people.

A surprising number of high-income earners live paycheck to paycheck, unable to build meaningful wealth or save for the future.

What are some common challenges high earners face?

High-income earners face these kinds of financial challenges, despite having significant earning potential. Here’s why:

1. Lifestyle Inflation is common, especially when income increases quickly. People who earn more tend to spend more on luxury items, leading to minimal savings.
2. High Cost of Living can drastically reduce disposable income, especially for those living in expensive urban areas, making it harder to save despite high earnings.
3. Lack of Financial Literacy is widespread. Many people understand how to make money but aren’t taught how to manage it properly. This leads to poor savings habits and missed investment opportunities.
4. Overconfidence in Future Earnings can cause people to delay saving, believing that higher income later will compensate for the lack of savings now. However, income fluctuations or unexpected life events can disrupt this plan.
5. Cultural and Social Pressures lead to overspending, as people need to maintain appearances or keep up with others in their social or professional circles.

This paradox raises a crucial question:

Financial story of my friend Bestii ( Real-life case study 1).

Bestii 1, is a high-earning individual with a family of four, working as a senior sales executive in a reputed firm. Started his career as a junior executive and reached the top officer level. His career journey was quite remarkable.

In a span of close to 25 years, he has been promoted several times and taken higher rankings many times with pay increments ( at least in the salary slip).

During this phase he passionately built 2-3 residential properties, bought some Fixed Deposits of 15-20 lac, insurance policies for pension, child education, health insurance, a small accident insurance plan & accumulated PF of course were among his savings.

What Real Life Challenges Bestii is facing in his late 40's & early 50's

• Fund higher education of children - Now the college admission time started for his daughter, so is the maturity time of his policy. He took a policy of 5 lac sum assured and as per policy, he will only get Rs 1 lac ( 20% of SA). Thus, he has to fund the rest amount.
• It has become an additional expense for him apart from other expenses such as travel costs, clothing, education materials etc. This additional cost will surely have an impact budget.
• Not Retirement Ready - His expenses have substantially increased over time. Looking at the pension amount ( that he will get at maturity), not satisfied. He has realised to save more.
• Both the situations are typical & contrary to each other. At this stage, his expenses have increased and other side, he needs to invest more money.
• Even if he withdraws from PF or FD, then his other requirements such as Emergency corpus and retirement will be impacted.

Although there are ifs & buts with every situation, many solutions can be evolved with a problem, such as taking an education loan, funding education from PF and CDs etc.

But, what is the mental impact of such a situation? It can increase the service period, a little more work, a little more tension and God knows...

With the Right planning in place, such situations can be avoided.

Bestii Singh 1 Other Challenges & Threats

There are some other challenges as well:

• Low Life Cover- He is the sole earner with three financial dependents on him. Despite buying 2-3 insurance policies, he is covered for only 10 lac. Therefore, his family's financial future is at risk ( in case of any eventuality with his life happens).
• Low Medical insurance- Even coverage of 10 lac health cover looks sufficient for today, but it may not be adequate soon ( due to increasing medical costs).
• High College fee to pay - The higher education cost increased @10%, while he chose to save at a rate of 5-6%, his savings are short by nearly 4-5%. Thus now at this stage, he has to pay money from his monthly savings. ( he could have chosen a higher return investment).
• Low Retirement Savings- With his accumulated PF and pension plan, his future expenses can't be fulfilled. Even if we take a rental income of approx 20-40K, won't be enough. ( since rental property maintenance expenses, rent agreement expenses, painting & repairing cost of building & other expenses such as brokerage etc. will also need to be compensated).
• Lack of Financial Literacy- The biggest challenge is Lack of Financial Literacy, which he could compensate for by reading & learning about financial investments, strategies & more.

Actionable Tips for Bestii 1 to Gear on his Financials

1. Use his Fixed Deposit for College Fee- A FD is good for contingency Funding. But too high an amount in FD and bank account is decreasing your net worth. Know how?
2. Invest aggressively for Retirement - He still has 10-15 years left to retire, an actionable aggressive investment plan will help him save more. With the Right Retirement Planning, he can still achieve a good retirement corps.
3. Use his property for Child education or wedding (if needed).
4. Buy Additional Health coverage at a low cost.
5. Focus on building liquid money that can provide him return, safety & assurance of a bright future.
6. Have a Comprehensive Financial Plan that caters his all future financial needs.

Actionable steps to improve the financial situation

If you’re earning a good salary but struggling to save, you’re not alone—and it’s never too late to start. Here are some actionable steps to improve your financial situation:

1. Automate Your Savings: Set up automatic transfers to your savings and investment accounts every month.
2. Increase automated payments every year or on increment-? This will substantially increase take-home profits. Read more: Step Up SIP Can Make You Millionaire- Know How?
3. Set Financial Goals: Create specific, measurable goals, such as saving for a down payment, building an emergency fund, or planning for retirement. How To Set Financial Goals SMARTLY
4. Stick to a Budget: Track your spending, and identify areas where you can cut back. You might be surprised at how much discretionary spending is holding you back. Top 10 Easy Financial Planning Rules For Beginners
5. Invest Wisely: Beyond savings accounts, invest in assets like mutual funds, bonds, or real estate to help grow your wealth over time.
6. Seek Professional Help: A financial advisor can help you develop a plan to maximize savings, minimize taxes, and prepare for retirement.

Conclusion

Earning a high income is just one part of the equation to financial success. Without a strong savings strategy, even high earners can find themselves financially vulnerable.

By avoiding lifestyle inflation, budgeting effectively, and investing for the future, you can ensure that your high income works for you—not against you.