The Curse of Starting With a High Income

Imagine you’re a new college graduate interviewing for your first job. You go through the normal process of meeting with recruiters, overinflating (read: lying) your strengths and downplaying (read: lying) your weaknesses. After some time you get the worst question ever: What salary range are you looking for?

What does your twenty-two-year-old self say? Are you looking for the big bucks? Ready to start rolling in the dough to justify you’re hard work in college (Spoiler alert: College isn’t that hard).

Common Answer: “As much as possible,” usually worded in a more politically correct manner.

Wise Answer: “Not very much, please.”

Someone beginning their financial journey with a high income is actually starting with a disadvantage compared to the not-so-high income earners if their goal is to become wealthy.

The Curse of a High Income Too Early

Net 60 Income

What do I mean by “high income?” There are obviously many factors that make high verse low income entirely relative. But for the sake of this discussion I’m only looking at salaries that start at or above “Net 60 Income” for early twenty-year-olds.

So what is Net 60 Income? Well first, it’s something that I made up. But from a technical standpoint, if we take our gross income and subtract from it the student loan debt it took to acquire it, we get our “Net Income.” So a Net 60 Income means that if we take someone’s gross income and subtract their outstanding student loan balance, we get to $60,000 or more.

high income

The reason I like this Net Income approach is that it accounts for a wide range of degrees that may require student loans – undergraduate (shouldn’t require student loans, but you know), graduate, medical school, law school, engineering, etc. – but also allows us to compare across those degrees. For instance, a doctor might come out of residency with a starting salary of $150,000. But if the doctor has $100,000 or more in student loans, she isn’t much different than a sales rep making $50,000 with no student loans.

(Yes, the doctor will have a bigger shovel to clean up his mess with such a high gross income and should be able to build more wealth than someone without such an income in the future, but the point of this article is that is often not the case. Try telling someone with $150,000 income he can’t buy this car, that house and go on those vacations just yet. A false sense of security is just that – false.)

A Blessing or a Curse?

In an ideal world, everyone would benefit with more money. The higher the starting income the better, no ands, ifs or buts about it. But our worlds are less than ideal. It’s too simplistic to say “more is better” because more is not better. More is only better when we’ve earned more; when we’ve learned to do to more with less first.

I recently came to a revelation: A high income in your twenties is, for most people, a curse rather than a blessing.

How could this be? Going from $0 income in college to $60,000, $80,000, $100,000 or whatever it may be in just a few years can mask enormous flaws in money management and how someone views personal finance. The problem (behavior) gets a large band aide (money) that falsely reassures them that they’re doing okay.

This is an unorthodox way of looking at money management, but it’s good to have something that forces us to learn how to manage money. The best teacher is to not have an abundance of money too soon. The greatest gift when starting your financial journey is, ironically, not having very much money because it forces your to manage it wisely. You can’t waste it or use it without a plan.

The beauty is that as you start learning and becoming better at managing money wisely, you’ll also start making more money. As you’re wealth-building behavior increases, so does the money. And when you finally start making “high income” money, whenever that may be, you’ll already have a head start in building wealth.

What They Should Teach In School

First, for all of you who will go into the workforce making a modest amount of money, good! You’ve been given a great gift: A reason to start budgeting, paying off debt, NOT buying new cars, NOT buying new house and all the other things we can’t wait to spend money on. Wealth does not start with money, it starts with our behavior with money. You have a chance to master that first. Once that’s mastered, evidenced by your budgeting, saving and spending skills, the money will come.

Second, for all of you who will get high paying jobs right off the bat, you’re at a terrible disadvantage compared to those who are not as “fortunate.” The money will try its hardest to make you do stupid things – buy too much car or house than you’re ready for, ignore your debts, etc. If you don’t realize the extent of your uphill battle, you’ll easily fall into the traps associated with other broke high income earners. They’re all around us, and you don’t want to be one of them but it’s going to take a lot of effort.

The best scenario? High income AND wise money management. But considering how many people are making terrible financial decisions in their twenties and thirties because they start making more money, I think the best-case scenario of doing both is that of fiction. So, do you want to be wealthy when you grow up? Make sure you don’t start off with too high of an income. Because you have to get good with money before you get good things with money.

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    • Great point. That would be really interesting if someone has studied that type of data. I actually think the data would contradict my hypothesis that “people who start with lower salaries end up handling their money better on average?” Because what exactly does “handle it better” mean? For me, money management is relative. So if someone making $100K is at, say, 1 on a made up scale, and someone making $50K is at .7, then the person making $50K is managing money better (because they should be at .5 compared to the 1 at $100K) although they lose in terms of total score (.7 vs 1).

      The more I think about it the more complex it gets lol

  1. I can agree with you about the curse of high income in 20’s. I graduated making a salary of $51,000 (average salary for Poli Sci majors was $35k in 2008, so I thought this was a fortune) but I had $50,000 in student loans. So technically I only had a net income of $1,000. I was single & lived in a low cost of living part of the country & was able to get debt-free in 5 years.

    Although it stunk having a high amount in student loans, I do appreciate the fact that I was able to learn some money management skills that are paying benefits today & allowed me to leave that job. Several people w/o student loans I hired on with, bought fancy cars & houses. They increased their spending to complement their income & you lose the flexibility to leave that job if you want to because the hours or quality of life is no longer with the large paycheck.
    Josh recently posted…Do You Work To Live?My Profile

    • Thanks Josh – Illustrates my point exactly. In your case, you can make an argument that the “low income” (considering student loans) actually helped get your finances on track. Of course, I think we can both agree that we would never give the advice of “you should get student loans because it may hel you get your financial journey started sooner rather than later”, but there is definitely an interesting paradox going on for the wise.

      What happens most often though? Student loans AND the “screw it” attitude to top it off.

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