7 Legit Reasons You Might Be Broke (Even if You’re a High Earner)

Being wealthy isn't about how much money you make — it's about how much you keep.

When we think of high earners, we may picture big homes, expensive vehicles, and lavish vacations. However, too many high earners are actually broke, spending way beyond their means and wasting money.

Here are seven surprising financial mistakes to avoid if you're a high earner and want to start building real wealth.

As a higher earner, you have access to expensive products and services that make life more comfortable and enjoyable. This is a great temptation.

Rather than struggling to decide whether to make each purchase, make a habit of paying yourself first. By putting your savings and investments on autopilot, you remove that dangerous temptation to spend more while risking your safe financial future — and you can consistently contribute to your financial goals.

An easy way to start is to automatically contribute the maximum to your 401(k) plan with each paycheck. This has the dual benefit of preparing yourself for retirement while reducing your tax bill.

Just because you're a high earner doesn't mean you don't need a budget. Going without one could mean you're spending more than you have available, which could lead to potential debt and financial insecurity.

While it may feel like you earn enough to spend whatever you want, even multi-billion-dollar corporations track their expenses to avoid going bankrupt. If you have trouble saving at least 5% of your monthly income, you consistently carry a credit card balance, or you're constantly stressed about being able to pay the bills, this could indicate that you're spending more than you're earning.

Try taking advantage of a budgeting app or a spreadsheet and importing your spending. You might be shocked at your expenses compared to your net income, even if it is high.

Falling into the trap of credit card debt can keep even high earners broke. Instead of rewarding yourself with cash flow from investments, you're forking over massive interest charges to credit card companies.

This pitfall is all too easy for high earners to fall victim to as credit card companies inundate you with seemingly generous offers. You may be extended very large lines of credit due to your high income, or earn welcome offers worth hundreds of dollars.

However, you'll need to stay disciplined and pay off the full amount due each month. Treat your credit card like a debit card, and don't spend more money than you can pay back by the due date.

Lifestyle inflation often doesn't happen all at once — and that's what makes it so likely to happen to high earners. As your income increases, so do your expenses and spending habits, often unconsciously. It's the "boiling frog" story.

If you were to drop a frog straight into boiling water, it would, of course, jump right out. But if you place the frog in slightly warm water and slowly heat it up over time, the frog won't notice the change.

Just because you can spend more on every aspect of your life doesn't mean you should. Review your spending each month. Decide which upgrades are still worthwhile and which you'll eliminate so you avoid going broke.

Do you have an emergency fund that can cover six to 12 months of regular expenses? Do you have cash on hand to cover a medical emergency or natural disaster that impacts your housing? In today's world, your employment or a high wage is rarely guaranteed.

Not everyone is in a position to prepare financially for a disaster, but you are. And without an emergency fund, even a small financial setback could impact you significantly. In the event of an emergency, you may be forced to resort to credit cards or loans to cover it.

Keeping emergency money in a high-yield savings account or similar financial instrument allows you to earn interest while being able to access your money in case of an unexpected emergency.

Living somewhere with a high cost of living can keep you broke, even if you earn a substantial salary.

For many, housing is our largest expense. In fact, the mean percentage of monthly income spent on housing costs in some cities like New York City, Los Angeles, San Francisco, and Dallas is over 50%.

Many experts recommend spending approximately 30% of your gross income on housing, and it's challenging to save and invest when half of your money is going to rent or mortgage payments. Depending on your circumstances, you could consider relocating to a more affordable area if this is significantly impacting your financial well-being.

Earning a high income is great, but without investing, your wealth stops there. You can only earn so much, and if, for some reason, you can no longer work, you could be saddled with high ongoing expenses.

Letting your money just sit means it's actually losing value over time. In addition, you're also missing out on the impacts of compound growth. To scale your income and diversify your income sources, consider automating investments and building multiple streams of income.

Certain assets could produce income right away, such as rental properties or dividend stocks. Other assets can appreciate in value over time, such as index funds or land.

Being a high earner doesn't relieve you of the obligation to budget and plan. In fact, these duties become more important as you have the ability to spend more and fall deeper into debt than most others.

The average annual salary in the U.S. is $63,795. And while you might be making much more than that, certain money moves, such as automating your savings and investing and avoiding lifestyle inflation, can help you build wealth to last a lifetime.