Nov 5, 2025
Earning a high salary seems like a silver bullet for resolving many financial problems. But the unfortunate reality is that many families continue to struggle even after they see a surge in their earning capacity.
Roughly 62% of households earning more than $300,000 a year struggle with credit card debt, according to a survey by BHG Financial. (1) Meanwhile, the delinquency rate for households earning more than $150,000 has doubled since 2023 across all loan products, according to VantageScore data cited by CBS News. (2)
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Put simply, you can’t outearn poor spending and investing habits. If you’re trying to avoid a similar high-income, high-debt trap, here are the top three financial mistakes you should avoid.
1. Lifestyle inflation
A sudden bump in income seems like the perfect opportunity for a lifestyle upgrade. But that’s exactly how many high earners find themselves trapped on a hedonic treadmill. Splurging on an exotic car, luxury homes or private schools for the kids all lock you into high monthly payments that are difficult to sustain.
The combination of elevated mortgages, car loans and tuition payments can push many six-figure earners into living paycheck-to-paycheck. According to a 2024 survey by YouGov, 43% of Americans earning more than $100,000 said they were either coping or struggling financially. (3)
Avoiding lifestyle creep and living below your means rather than above could be the key to financial freedom, regardless of your income.
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2. Exotic investments
A higher income often gives you access to premium products with better performance. So, it’s tempting to believe you can access exotic assets for better investment performance as well. This could be why ultra-high net worth family offices and family-run companies have 21% of their portfolio in private equity, 6% in hedge funds and 4% in private credit, as of 2025, according to Goldman Sachs. (4)
The Trump administration has recently opened the door to these so-called alternative assets in 401(k) plans as well.
However, these seemingly sophisticated investment products often fail to live up to expectations. Due to their opaque performance tracking tactics, high fees and inherent illiquidity, alternative asset funds have generally underperformed a simple passive index fund over the past 16 years, according to quant investor and money manager Richard Ennis. (5)
Similarly, Warren Buffett won his million-dollar bet against hedge funds in 2017 to prove that the asset class’ high fees made it systematically underperform. (6)
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Simply put, there’s no special investment advantage for wealthy investors. A simple low-cost index fund should suffice and save you a lot of money in management fees.
3. Peak income blindness
If you’re earning high-six or even seven figures, it’s likely because you have exceptional skills. Whether you’re an experienced surgeon or a high-profile corporate lawyer, it’s easy to assume that your skills will only get better as you age and gain more experience.
However, recent research from the University of Western Australia suggests that most people see their cognitive abilities peak between the ages of 55 and 60. (7) Couple that with the natural age-related health issues that most people face and you can see why your career might not be as long as you hoped.
The rise of artificial intelligence is another threat that many white-collar professionals should be aware of as they plan their careers and retirement, with redundancy warnings coming from AI leaders. (8)
Assuming that your current paycheck will grow over time could be a critical mistake. Instead, stress test your long-term plans so that you can survive even if you suddenly lose your job and experience an extended period of low or no income.
Even if you’re a millionaire, a robust emergency fund should give you and your family some much-needed peace of mind.
Article sources
We rely only on vetted sources and credible third-party reporting. For details, see our editorial ethics and guidelines.
BHG Financial (1); CBS News (2); YouGov (3); Goldman Sachs (4); CFA Institute (5); Yahoo Finance (6); ScienceDirect (7); Axios (8)
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Vishesh Raisinghani is a financial journalist covering personal finance, investing and the global economy. He's also the founder of Sharpe Ascension Inc., a content marketing agency focused on investment firms. His work has appeared in Moneywise, Yahoo Finance!, Motley Fool, Seeking Alpha, Mergers & Acquisitions Magazine and Piggybank.
