High Earners, Are You Sabotaging Your Wealth? Here's How You Might Be

Friday, July 30, 2021 | Melissa Brock
High Earners, Are You Sabotaging Your Wealth? Heres How You Might Be

When you've amassed $1 million or more or earn a high income, you might get to a place where you feel… comfortable. You might even think, "I deserve X because I've worked hard." Or, worse: "The same money rules don't apply to me like they do for everyone else."

That can result in some dangerous thinking. You might be sabotaging your wealth without realizing it. The reality: Earning a lot of money or already amassing a lot of cash doesn't mean much if you don't take care of it. 

Ways You Could Sabotage Your Money without Realizing It

Let's take a look at the ways you could be robbing your future and how to fix it. 

Sabotage 1: You're not looking into tax breaks and loopholes.

Chances are, you've already got a tax advisor helping you weigh your options, but if you've been lax about examining every option, you're losing money. Take a look at a few ways you can save:

  • Making charitable donations: You can always get a deduction on your taxes by giving money to a nonprofit organization. Generally, you may deduct up to 50 percent of your adjusted gross income, but 20 percent and 30 percent limitations apply in some cases, according to the IRS.
  • Investing in equities: Not invested in stocks? This can be a mistake because when it comes time to sell, you'll usually pay lower taxes than you would with money you earn through a job. You'll pay long-term capital gains at the 0%, 15% or 20% thresholds. On 2the other hand, for income, you'll pay from 10% to 37%, depending on your total earnings. (Short-term capital gains taxes on stocks held for less than a year will tie into your federal tax bracket.)
  • Creating a business: You can save on taxes by creating a limited liability corporation (LLC) to manage portfolio assets, real estate or your business.
  • Giving gifts: For both 2020 and 2021, the annual gift-tax exclusion is $15,000 per donor, per recipient. A giver can give anyone else (even a stranger) up to $15,000 in assets a year without paying federal gift taxes.
  • Adding to a defined benefit plan: Business owners can contribute a substantial amount of money toward retirement by tapping into a defined benefit plan.
  • Deducting IRA contributions: A 401(k) that you fund with pretax dollars automatically reduces your taxable income. You can also get a tax break with an IRA. 
  • Selling a home or second home: You won't owe the IRS long-term capital gains taxes on the first $250,000 in profit (or $500,000 for a married couple filing jointly) on the sale of a home. 
  • Taking advantage of the carried interest loophole: Hedge fund managers, venture capitalists or partners in a private equity firm is a form of compensation received by a fund manager in exchange for investment management services. Carried interest entitles a fund manager to future profits of a partnership, also known as a “profits interest.” Under current law, they only pay tax when income is realized by the partnership, which could happen years later. 

Are there other tax breaks? Sure! Check with your tax advisor — or actually get a tax advisor you don't have one. Don't let Uncle Sam whisk away your money, as he's so apt to do. 

Sabotage 2: You waste money on extravagant toys.

Cars. Boats. ATVs. A new garage to hold all your toys. Toys are fun, but they get expensive. You might think that every wealthy person can pay cash for them, but many high earners finance these purchases. 

The average adult in the United States spends $1,497 a month on nonessential items, according to research conducted by OnePoll. Guess how much that totals? A whopping $18,000 a year. High earners may spend well beyond that amount due to their assumption that they can spend "more than everyone else."

Sabotage 3: You think your money will last forever.

Dangerous mindset alert: Thinking that you can do whatever you want with your money and it'll always be there for you. What happens when a recession hits? What happens if you lose your job? What happens if your home gets engulfed by a west coast wildfire? 

Nobody likes to think about these things, but they can happen, so treat your money with care.

Also, don't think that a backup emergency fund is for "everyone else." You need a full six months to a year of earnings stashed in a liquid account. (Higher earners need to save more than just the three-to-six-month amount you may have heard experts tout.)

Put together an automatic contribution to a money market fund or savings account so you have a backup when the unthinkable occurs.  

Sabotage 4: You don't chuck more into savings as your income grows.

Feeling pretty confident about your savings rate? Do a double-check, because you want to seriously consider saving even more as your earnings shoot up. Max out your retirement plan at work, set up an IRA. However you choose to do it, you need to save the same percentage of your income whether you make $1 million per year or $50,000. 

Sabotage 5: Thinking budgeting is "for other people."

Budgeting is for everyone, not just for Gen Z college graduates just scraping by. More than 1,000 Americans found that 80% of people actually do budget. The kicker: 88% of those budgeters said it got them out of debt or kept them out of debt completely.  

Why wouldn't you want to be a part of such an amazing transformation, particularly if you have debt alongside your high earnings? There's a budget app for every letter of the alphabet. Get one and get going!

Don't Sabotage Your Future

As a high earner, you may have heard the mantra. "When you make more, you spend more." To add to that, you also have more options to sabotage your own wealth. You may not even realize what's happening, particularly if you haven't been closely monitoring your situation. 

7 Tech Stocks That Are Heating Up as Anti-Trust Talk Cools Down

For the better part of the last year, Congress has had “big tech” in its crosshairs. But the reasons why largely depend on what side of the aisle a particular individual was on.

On the one hand, there are politicians who are concerned about the role that technology companies play in restricting the free flow of information. On the other hand, there are politicians that are concerned about these companies' stranglehold on competitors and innovation.

But big tech scored an important, albeit not final, victory in late June. At that time, a U.S. judge dismissed two separate complaints against Facebook (NASDAQ:FB). The question in front of the judge was whether Facebook held a monopoly on social media. Due to a surge in the company’s stock price after the ruling, Facebook became a member of the exclusive $1 trillion market cap club. While big tech companies will remain under the Congressional microscope, there’s no denying that investors are looking at the ruling as a signal to rotate back into tech stocks. And that’s the focus of this presentation. What tech stocks should you be buying as anti-trust pressure eases?

It would be easy to start and end the list with the FAANG stocks. After all, the motto “Keep it Simple Stupid” comes to mind. There are simply those companies that offer products that are changing our lives now and will continue to do so in the future. And furthermore, customers will continue to pay for their products.

And I do have a couple of these stocks on my list. But the bulk of the stocks on this list are less expensive alternatives to at least one of the FAANG stocks. It doesn’t mean they’re superior companies, but a rising tide tends to lift all boats. And that means these companies have a large upside and you can purchase the stocks for a lot less.

View the "7 Tech Stocks That Are Heating Up as Anti-Trust Talk Cools Down".

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