The Hidden Downside of Making More Money

Earning more money is always a good thing. It's one of the best improvements you can make from a personal finance standpoint. You might also assume that it will take care of most of your money problems.

It's true that if you've dramatically increased your income, you're probably not struggling to save or make ends meet. But it doesn't mean everything is going to be smooth sailing. People usually run into new financial issues as they earn more. And there's one serious problem that often goes unnoticed.

You could get too careless with your spending

When you have plenty of disposable income, it's easy to say yes to everything. Going out for drinks multiple nights a week? Sure. A fancy vacation every three months? Absolutely. New shoes? You can afford it!

It's normal to relax about your spending as you earn more. You don't need to closely monitor every single expense any more to make sure you can pay all your bills. And there's nothing wrong with using some of your extra money to improve your life. After all, one of the reasons to make more is to live better.

But it's also possible to take this too far, to the point where you become careless about how much you spend. There are two typical ways this causes problems for high earners:

• They spend so much that it interferes with their financial goals. Some people start living lavish lifestyles that even their new incomes won't support. If you're saving the same amount you were when you earned half as much, or if you're not saving at all, then you're probably overspending.
• They're wasteful with money. For example, they frequently make impulsive purchases that they rarely end up using. Even if you're still able to save and manage your bills, it's never good to waste money. If you often regret past purchases, that's a sign you're not using your money wisely.

These issues can occur at any level of income. Case in point, a SecureSave survey last year found that 35% of people earning over $100,000 were living paycheck to paycheck. That group also had no savings to fall back on. While $100,000 doesn't necessarily make you rich, it is well above the median household income of $74,850.

How to manage your spending as you make more money

To be clear, it's fine for your spending habits to change as your income goes up. You don't need to live like you're making $30,000 a year if you're now making $120,000. Enjoy this -- you've earned it.

So, you can and should spend more. And you don't need to be too strict about everyday expenses. Once you reach a certain income, it's a waste of time and energy to worry about spending an extra $20 on groceries this week.

But it's still important to manage your spending well. At a high income, there are a couple of things to focus on here:

• Set monthly savings and investing goals. A popular guideline is to save 10% of your income and invest another 10%. But as you make more, you'll likely be able to bump up those numbers. If you're able to meet your goals every month, then you'll know you're not overspending.
• Find areas where you love to spend money. Don't waste your salary on impulse buys and expenses you end up second guessing. Think about where you can spend to get the most out of your money. Maybe you want to go on more vacations, buy back your time by hiring help with tasks around the house, or get your dream car.

If you've raised your income, you should feel proud of yourself. It's a sign that you're doing well at work, and it's great for your finances. But watch out for signs that you're getting too careless about your spending. Make sure at least some of that additional income gets set aside for savings and investments. Also, spend time figuring out how you can use your money to make your life better.