Even with a six-figure salary that supports a comfortable lifestyle, like owning a nice home and going on family vacations, you may still find yourself struggling financially. Earning more money doesn’t always translate to financial success. In fact, many high earners contribute significantly to Canada’s overall debt.
According to Statistics Canada, households with annual incomes of $100,000 or more make up 37% of all debt in the country. Households earning between $50,000 and $100,000 hold another 38% of the total debt. This shows that having a larger paycheck can lead to bigger debt problems if spending isn’t carefully managed.
Isaiah Chan, a program manager at the Credit Counselling Society, explains that as income increases, so does the ability to borrow more. Unfortunately, this often leads to more debt. “You’re earning more, but you can also create huge debt problems,” he says.
While budgeting advice applies to everyone, higher-income earners face specific challenges when it comes to managing their money.
1. Keep an Eye on Spending
The old saying “more money, more problems” holds true, says Pat White, the executive director of Credit Counselling Canada. Even if you’re earning more, it’s crucial to keep track of your spending. You should know how much you’re spending on household expenses, debt repayments, and discretionary purchases.
“You need to determine what’s a necessity and what’s a luxury,” White advises. While treating yourself occasionally is fine, you can’t say yes to every indulgence. She also notes that higher earners often feel a sense of entitlement, which can lead to overspending.
2. Credit is Still Risky
Chan points out that many high-income earners take on large loans, sometimes as much as another person’s salary. According to Statistics Canada, higher income is linked with a greater likelihood of carrying debt—and a higher debt load.
This can be dangerous. Even if you’re able to make large monthly payments, constantly carrying a balance means you’re still in debt. “You could end up owing three, four, or five times more than someone earning minimum wage because they’re not qualifying for as much credit,” Chan explains.
It’s easy to get caught up in this cycle, especially when you qualify for bigger loans or higher credit limits. However, it’s important to ask yourself if you really need that extra credit and if you’re comfortable managing the debt that comes with it.
The upside is that a high income gives you the ability to pay off debt faster. If you cut back on unnecessary expenses, you can focus on eliminating your debt. Chan suggests that any leftover money after covering living expenses should go toward paying off what you owe.
3. Don’t Neglect Savings
Just because you’re making a lot of money now doesn’t mean you’ll always be earning that much. “You’re not going to be working forever, and the good times won’t last forever,” Chan warns.
It’s essential to plan for the future by learning about savings vehicles like Tax-Free Savings Accounts (TFSAs) and Registered Retirement Savings Plans (RRSPs). These can help you prepare for long-term goals like retirement.
Additionally, having an emergency fund is critical, especially for high earners. If your income suddenly disappears, you might have more debt or higher living costs to manage. White suggests saving enough to cover at least six months of living expenses, but ideally, you should save as much as possible.
4. Seek Professional Help
Just like anyone else, high-income earners can benefit from professional financial advice. Credit counsellors, financial planners, and accountants can all help ensure you’re managing your money wisely.
If you’re concerned about overspending, a credit counsellor can help identify the issue and potentially guide you toward debt consolidation. A financial planner can assist in achieving your long-term financial goals, making sure your investments are working for you, and an accountant can ensure you’re taking advantage of available tax breaks.
In conclusion, having a high income doesn’t automatically mean financial freedom. Managing spending, debt, and savings are just as important for high earners as for anyone else. With the right approach, you can enjoy your income while still preparing for a secure financial future.
