7 Mistakes High Earners Make

Michael Hollis, CFP®

Oct 30

6 min read

Quick Summary

• A strong income gives you margin, and with that margin some lose any sense of urgency.

• Smart insurance dishes off the least likely but most severe risks.

• You want just the right amount of cash.

• A dual-income household at 50 can put about $186,000 a year into tax-advantaged accounts.

• High-income earners struggle with credit cards too.

• One of the best luxuries in the world is delegating tasks to others.

• Memories over stuff.

• A bigger house costs more money and more time.

It's a wonderful feeling when your income is strong, and you don’t have to watch as carefully how much you spend or on what. You have margin.

You may have started out making $50k a year, and after working hard, being promoted, getting married, and now being a dual-income household, day-to-day finances aren’t a stressor like they used to be.

With this increased margin, some lose any sense of urgency.

In the back of your mind you might still be asking, “Am I doing all the right things?” or “Am I missing something?”

My name is Michael Hollis, and I help families in Aurora, IL, Chicagoland, and virtually across the US feel confident that they aren’t missing anything and are doing all the right stuff with their money.

What follows is general in nature and not specific investment or tax advice.

What are 7 mistakes high earners make?

Do you carry enough insurance?

Two ideas here keep high earners underinsured. Either insurance is a scam or the risk doesn’t seem real.

Insurance can feel like a scam when you keep paying premiums but never get a benefit.

Remember, that insurance is a transfer of risk from you to an insurance company. In exchange you pay a premium. Smart insurance dishes off the least likely but most severe risks to an insurance company. For example:

• The house burns down

• We hit someone with our car

• Long-term injury or illness that keeps us from working

• Tragic early death

Seriously consider whether you have enough coverage in each of these:

• Liability, for when you mess up. Typically, enough to cover your net worth.

• Disability, for when you can’t work. More likely than death before retirement age.

• Life insurance, for when you leave a family behind. Enough to replace your lifetime earnings.

This is where I’ll plug term life insurance over whole or universal life, generally speaking. Term offers the same death benefit at a much lower cost.

Two related mistakes inside this one. People haggle over coverage to save a couple hundred dollars a year. Or they take the bare minimum their state or mortgage lender allows, just to save on premium.

Do you have too much or too little cash?

When you make good money and tend to be a saver rather than a spender, the cash you have might be sitting there doing nothing.

On the flip side, when you make good money and tend to be a free spender, you are not planning for what can be foreseen.

Think of Goldilocks and the three bears.

You want just the right amount of cash for:

• The unexpected, necessary, and urgent (a.k.a. an emergency fund of 3-6mo of expenses)

• The things you can foresee (taxes, car replacement, the roof, annual insurance)

• Other short-term goals (tuition next semester, summer vacation, Christmas)

Beyond that, what’s stopping you from investing the rest?

Usually, it’s analysis paralysis, trying to time the market, or a mindset that sees investing as gambling.

How much can high earners put in tax-advantaged accounts?

One thing that happens when you’re a high earner is you spend what’s left.

And if your income is high now, your lifestyle is more expensive now, and you’re going to need more than the average bear later after your income stops if you want to continue living the same lifestyle.

The math isn’t going to work out well if you’re just saving enough to get your employer match and consuming the rest.

You’re going to need to bump that up significantly.

Here is what the 2026 contribution limits look like if you max out tax-advantaged accounts:

• Workplace retirement plan deferrals: $24,500 per person

• Catch-up contributions at 50+: $8,000, or $11,250 between ages 60 and 63

• Health Savings Account: $8,750 for families ($9,750 at 55+), saved and invested for later, not spent now

• After-tax contributions to your workplace plan: Stuff $72k total each, including your deferrals, the employer match, and this after-tax money

• “Mega Backdoor Roth”, which converts those after-tax contributions to Roth if your plan allows it

• “Backdoor Roth” IRA: $7,500, or $8,600 at 50+

A dual income household, both age 50, can get about $186k/yr into tax-advantaged accounts if they are intentional about where they direct their income.

Some scoff at that obscene savings rate, but there are folks out there doing it.

The goal is to set aside the right amount for when you stop working, enjoy some now, and reduce your lifetime tax bill. You do that by deferring income today while your income and tax rate are high and realizing that same dollar when you stop working, have less income, and a lower tax rate.

Can high earners get into credit card trouble?

I’ve said it more than once, high-income earners struggle with credit cards too.

I’ve crossed paths with several high-income earners who found themselves in tens of thousands of dollars of credit card debt. In one case, they genuinely couldn’t explain how it happened.

It’s easy to get sucked in by cash back and travel points. A high credit score can be a real source of pride. I know it was for me.

Credit cards and debt in general are among the most heavily marketed products we see. Debt is a product these companies are selling us, and every advertisement is filled with images of a wonderful life.

My recent “favorite” commercial is one with a couple sitting at a table in a restaurant deciding, “Let’s just get one of everything” because they’re getting 3% cash back. Then my favorite Pulp Fiction actor tells the viewer and all the sous chefs how great a decision that is.

This is all geared to get us to spend more because that’s how these financial institutions make money. A study from the MIT Sloan School of Management found that credit cards act to “step on the gas” to increase your spending.

These companies know this!

I advocate for avoiding credit cards altogether and using only the money in your bank account. In every case where a high earner has gotten themselves into trouble, it’s because they spent well ahead of their earnings.

The mindset to adopt is saying “Not yet” rather than “No.”

Whether you use credit cards or not, be honest with yourself about your situation.

Are you delegating enough?

One of the benefits of increasing margin is the ability to afford more luxuries. One of the best luxuries in the world is delegating tasks to others:

• Mowing the yard

• Filing your taxes

• Operating parts of your business

• Cleaning out the gutters

• Hunting & gathering at the grocery store

By delegating, you free up time for family, friends, and giving back.

If your financial situation changes, be mentally prepared to take back those responsibilities when you can’t afford to offload them anymore.

Is it better to spend on more stuff or experiences?

I think our culture is shifting around this for the better, which I love.

Memories over stuff.

But boy is it tough when our eye catches something, or our heart gets attached to that thing we think is a must have. We are dragged and enticed by our desire for things, and we’re great at justifying why we deserve it.

How do we define enough? Don’t we already have enough stuff?

Let’s be honest, how many of us at almost any income level can pull both cars into the garage?

What I find is that there’s usually a story behind that itch to buy. If we can uncover what’s really going on, we can find greater satisfaction by scratching that than from buying the thing we thought we wanted.

How much house is too much house?

With a rising income comes the desire to upgrade. This is really a more specific instance of the “spend on stuff vs. experiences” question.

We say things like “Everyone is on top of each other, we don’t have any privacy,” or “Let’s find our forever home.”

You run the numbers and on paper it works with your current income. What if something changes?

• One of you wants to stay home with kids

• Your job is a prison, and you need out

• The economy tanks and layoffs come

• The season of life arrives where you’re caring for aging parents

I’m not saying don’t upgrade your house. I’m saying we can put ourselves in a real bind by buying too much house.

A bigger house costs more money and more time, and you need margin in both. More property tax, more maintenance, a higher mortgage payment. More rooms to clean, more yard to care for, more things that break.

And a bigger house might lead to exactly what you didn’t want, which is a family more spread out and isolated from each other.

Is that really what you want?

Food for thought

These are seven of the most common mistakes I see high-income earners make.

Which ones do you identify with?