Mo’ Money Mo’ Problems: Why a Bigger Paycheque Can Increase Financial Hardships

Jul 4, 2023 | Finance

In every career or vocation, it’s commonplace in our society to daydream of – and sometimes even aspire to – success and super-stardom.

Living large in a big house with five cars is no longer a fantasy or lifestyle reserved for the select few or the famous; it’s become a sign of social status for many, showing that you’re coming up in the world and in charge.

However, when planning for a secure financial future, there is a jarring contrast between looking rich – with the big house and five cars – and being wealthy.

Wealth is strategic allocation of capital that your neighbours might not see, but that you and your family benefit from the most. Wealth is the combined ability to live without financial worry while choosing to spend one’s time however you – the wise investor – see fit. Wealth is personal and familial economic freedom.

Let’s look at an example of how these two terms are easily conflated. Jim is a doctor and his wife Jane is a senior executive at a bank. They make large incomes. Upon receiving promotions in their early-50s, they finally decide to buy that cottage of their dreams, splurge on that extra European vacation, and – you guessed it – add that fifth car.

The catch is that Jim and Jane might look rich, but their financial statements show them deeper in debt than ever before. Purchasing larger items, many of which require upkeep and expensive repairs, keeps their income flowing away from their savings accounts and away from reducing their debts. 

Suddenly, at the age of 58, Jim and Jane realize they have little money to retire, because what they earn is immediately eaten away by debt. They’re on a financial treadmill, where the more they make, the faster they spend. They look rich, but they lack wealth.

As a great philosopher once said: Mo money, mo problems.

Once we have something, it’s very hard to give it up. As soon as our perks become a habit – be they extra tennis lessons, season tickets for your favourite team, theatre performances, or memberships to expensive golf and social clubs – it feels like there’s no going back, and there’s no way we’re giving these perks up. We’re back on the financial treadmill, spending as fast as we’re earning and moving faster to stay in the same place.

Is this the lifestyle and savings pattern we want, or is there a better way to prepare our future selves for retirement and financial security?

Developing sound financial plans to thoughtfully manage increased income is essential to building wealth rather than simply feeling or looking rich. Come chat with us today to figure out how best to allocate your income to hit all of your savings, spending, and retirement goals. It’s never too late to start building your wealth.