We Make Too Much Money to Be Broke

I came out of law school making six figures. I was a kindergarten pipeline kid and had been in school for 20 years at that point.

Mr. TMG was still in med school at the time, but our household income was more than either of us had ever seen.

Two people who grew up with nothing had a six-figure household income. You couldn’t tell us nothing.

We made it!

Date nights every week at nice restaurants? Check!

Expensive wedding and honeymoon? You bet!

Fancy European vacation to celebrate our first wedding anniversary? Sign us up!

We had a blast.

Doing money right

I had been reading personal finance blogs for a while at that point, so I understood some things about money.

We made all our payments on time. We maxed our 401(k)s, and we weren’t going into debt for our fun.

We were doing money right. Or so we thought.

The wake-up call came when we calculated our net worth. We were over $670,000 in debt, and our net worth was negative $350,000.

I had been making a six-figure income for two years, and Mr. TMG had graduated med school and started his residency the year before.

We made all of that money and had almost nothing to show for it.

We had a six-figure income, but we were broke.

We were normal

Our story is not uncommon. Many people who make high incomes fall into this same trap.

It’s normal for people to increase their expenses as they increase their income.

Slowly things that were once wants become needs. Base level expenses creep up.

People who make a lot of money also tend to want to appear “rich,” spending more and more on fancy houses, cars, clothes, trips, etc.

We end up in a race to the bottom.

How can we ever get ahead if we give all of our money to creditors each month or spend it all on things we don’t even want?

We have nothing left for ourselves and nothing to show for all of our hard work earning that money.

How to stop being broke

If you want to stop being broke, the best thing you can do is to live below your means.

I’ll admit it’s easier said than done once you’re already used to a certain lifestyle.

Living below your means doesn’t have to mean cutting out everything you enjoy, though.

I believe in a more moderate approach.

Rather than cutting out everything altogether, identify the things that matter most to you, and spend on those things. Let go of everything else.

Be honest with yourself here.

One way to do this is to track your spending to determine where your money is going. You might be shocked to learn what you’re spending on.

Analyze each expense to confirm whether each one is worth the money you’re paying. Make changes as necessary.

Once you’ve identified expenses you don’t care about, the next key is creating a budget so you can plan where your money goes.

It helps to include some “fun money” in the budget. This way, you can spend on things you want but still keep your spending under control.

Mr. TMG and I give ourselves a $400 allowance each month. We each can spend our $400 however we want.

It’s in the budget, so there’s no guilt in spending it.

Once your expenses are accounted for, budget the leftover money to make progress on your goals. This could be investing, paying off debt, saving, etc.

Mr. TMG and I have been using any money above our expenses to pay off debt.

Finally, tracking your net worth will help you see whether you’re making any progress.

Whether you’re paying down debt or increasing the amount you invest, your net worth should be growing.

If your net worth is staying the same or decreasing, you’ve got a problem.

Since we realized we’re broke, we’ve been tracking our net worth, and it motivates us to keep going. We enjoy seeing it rise each month. We’re still in the negative, but it’s much closer to zero than when we started.

To freedom!

People who make high incomes can build wealth in a relatively short period of time. The key is to stop spending all of your money on things you don’t care about and keep more of it for yourself.

When you live below your means, you give yourself options. You’re not stressed about money because you’re not stretching your dollars to their limit.

If you continue to grow your net worth, you may even reach a point where you’re financially independent and can retire early. You don’t necessarily have to retire, but being able to do what you want is true freedom.

Managing your money better will help you get there.

Giving all of your income away is for the birds. Let’s build real wealth instead.

Have you been broke making a high income before? How did you turn things around?