Rachel Cruze Reveals the Money Mistakes High-Earners Are Making
Written by
Marc Guberti
Edited by
Zuri Anderson
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It’s become more common for high earners to live paycheck by paycheck, and while rising costs are a big factor, Ramsey Show co-host Rachel Cruze shared other reasons why that trend has grown.
Part of it comes down to poor money decisions that put high-earners into unnecessary financial holes. According to a recent video, these six money mistakes have nothing to do with inflation, government policies or any outside force.
Addressing these common wealth drainers can give you more control over your financial future.
Giving Into Lifestyle Creep
Lifestyle creep was at the top of Cruze’s list. If your spending increases as your income goes up, you’re not actually getting ahead. You can actually end up in a worse position if your increased purchases outpace your income growth.
Cruze recommended capitalizing on the margin between your rising income and flat expenses by paying off debt, saving money and giving funds to worthy causes. Lifestyle creep results in people getting more stuff, but living below your means can lead to financial freedom much sooner.
Taking Too Many Risks Too Quickly
Cruze is a fan of taking risks, but they have to be calculated and make sense. She warned that taking too many risks too quickly with your newfound income can wind up costing you money.
Cruze flagged crypto, family startups and real estate as risky ventures that you shouldn’t rush into. Some people make money with those investment opportunities, but rushing makes you more prone to mistakes.
The Ramsey Show co-host suggested putting money into things that are proven. Index funds are one of the simplest assets since they follow a widely recognized benchmark, and you can enter and exit these funds at any time.
Spending Money That You Don’t Have Yet
Some people spend tomorrow’s money on today’s expenses, and you can only do that for so long before you end up in a bad financial position. There are many uncertainties. You can lose your job tomorrow, costs can go up for your favorite subscription plans overnight, and the stock market can enter a correction.
Cruze also mentioned not relying on an end-of-the-year commission check to make big purchases. While she is okay with you using the commission check funds after receiving the payment, she is against buying things before the money has landed in your bank account. Making too many assumptions about your income and not giving yourself a financial buffer can result in unpleasant financial decisions and trade-offs.
Equating Income With Wealth
You aren’t financially free if you make more than the average person. In fact, some celebrities who earn millions of dollars each year aren’t financially free, either. It doesn’t matter how much money you make if you spend more than you earn, and your income can go away at any moment.
Cruze said that your net worth is what you own minus what you owe. If you have a $1 million home and a $300,000 mortgage, the property boosts your net worth by $700,000. Prioritizing net worth growth can get you closer to retirement. This metric involves keeping your expenses low while looking for ways to boost your income.
Not Prioritizing Saving Money
Saving money is one of the core pillars of building wealth. After setting up an emergency fund that can cover three to six months of living expenses, you can invest extra money in a stock portfolio or other assets. Those investments can compound over time and put you in a better financial position.
If you don’t prioritize saving money, then your income doesn’t matter. Some people who earn less than the average salary have more comfortable retirements than high earners because of their financial prudence. Cruze suggested setting savings goals so you can track your progress.
Forgetting That Cash Is King
Cruze wrapped up her list by saying that some high earners forget that cash is king. These individuals use debt to make big purchases and fund luxurious lifestyles. However, if you suddenly lose your job, the credit card debt and monthly loan payments don’t go away.
Depending on debt is too risky. It’s better to only spend money when you have it in your bank account instead of letting debt accumulate on your credit card.
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