There is an unfortunate truth with making a lot of money: Earning a high salary won’t necessarily get you rich. And, it very often requires spending the majority of what you make.

It’s natural to believe that earning a huge salary means that you’re rich. After all, bringing down $200,000 a year is incredibly good money.

It immediately puts you into the upper tax bracket.

But, here’s the remarkable thing: When we spend the majority of what we make, we’re limiting the effect that a high income has on our lives.

High incomes don’t mean we’re rich.

They just mean that we make good money.

Pseudo-affluence means our incomes are deceptive

The pseudo-affluent is a group of people that loves our material world by buying things that convey success.

Author Dr. Thomas Stanley calls these items “prestige products”. And, the majority of these people want us to know just how much stuff they have by displaying their success (apparently, that’s like half the fun!).

In The Millionaire Next Door, Dr. Stanley lays out a remarkable reality: Those of us who appear the richest generally fall into one of two categories: They are filthy richwith a net worth north of $10 million, or they earn a high income but have very little wealth to show for it because they spend the majority of what they earn.

The high-cost automobiles, big houses, and assorted collection of high-end clothing present a chosen facade, one that supposedly portrays wealth and success. Maybe even “intelligence”.

The pseudo-affluent believe that those of us who don’t wear the latest fashions or choose to drive around in “consumer” cars, live in normal neighborhoods and shop at regular grocery stores, are not rich.

We are not rich because we don’t act rich. 

The more we do this, the further into debt we fall. Yes, even though of us who earn high incomes fall into debt.

It’s a wicked cycle: A high salary enables high spending. And as our lifestyles continue to inflate, our standards do the same.

And, we suddenly find ourselves in the position where we NEED to earn more and more money just to fund our lifestyle.

We aren’t saving. We aren’t investing. We’re spending. And, the cycle almost never stops until something dramatic happens.

The high-salary struggle to save

Throughout my career, I never struggled with income.

In fact, my starting salary out of college in 2005 was in the mid-50s a year. By the end of my career some 14-years later, I was pulling down around $130,000 including bonuses. 

Earning that type of money was interesting. Naturally, most people thought I was rich. That I had it all. They assumed I never worried about money and could buy virtually whatever I wanted. 

I fell right into the trap that envelopes so many high-salary earners.

Like doctors.

The medical field is an excellent example of high-income careers. But, not all doctors enjoy a lifetime of financial security. 

Doctors are saddled with debt. Most of that debt results from the high cost of medical school, but that’s only just the beginning. 

“When I started out with a net worth of negative $208,000 at the end of training,” a doctor who blogs at The Physician Philosopher told me, “one of the most helpful things was realizing that the panhandler on the street or the toddler with a few dollars in their piggy bank (and no debt to their name) is wealthier than I was.”

“The time spent getting all of that training does make physicians feel like they “deserve” to spend a lot of money on nice things,” he continued.

To high-income earners who spent many years in school, the tendency to amass debt and expensive lifestyles because they worked so hard (and long) in school is common. 

Business managers suffer the same fate.

Like doctors, business managers swim within a culture that’s driven by high salaries. Promotions and additional levels of responsibility in business bring with it an expectation of success. 

And more specifically, looking like we are successful

I chatted with one executive who writes about financial independence in a high-income career at Stop Ironing Shirts. The expectation that high level executives “act the part” is a very real part of the job. 

“When I got into the realm of making $200k+year, that job carried a “President” title and many of my peers feel the need to drive fancy cars, buy expensive watches, and join high-priced country clubs.”

His boss maintains several different homes, a couple purely for entertainment purposes. They drive expensive cars, wear costly suits and live in ritzy markets where their customers are

“Think about jobs like large law firms, accounting firms, investment banks, commercial banking,” he told me. “They all sell/offer a near commodity service then it becomes about “Deal flow”. How many deals can you look at? This requires these employees to run in circles of people that are much wealthier than they are.”

High-salary jobs often come with it an expectation of looking the part, and that’s the problem

As high-salary earners, we feel a need to look like we’re rich. After all, rich people don’t drive around in expensive Nissans and Hondas, do they? 

Actually, they do

But, it takes a tremendous amount of discipline to curb our spending when the money is right there. Wearing expensive suits and driving nice cars make us appear smart and effective. 

And, sometimes we buy these over-priced cars simply to paint a carefully-manicured picture of what we want society to believe. Believe about us. For many, looking successful is an implied requirement for being successful

What if we drive up to a client meeting in a beat-up, 1995 Camry? Will our clients think less of us? Do we appear less successful, less intelligent or less influential if we drive a normal car rather than an expensive import?

Are you affluent, or pseudo-affluent?

You might be affluent, rather than pseudo-affluent, if:

You pay yourself first

Paying yourself first means we fully fund our retirement accounts before paying anyone anything…yes, even the government. And best of all, there is nothing illegal about it. It’s called a 401k (or a 403(b), or SEP IRA) plan.

Read more about paying yourself first.

You live in a reasonably-sized house

The median size new home is now 2,687 square feet, an increase of nearly 1,000 square feet in the last four decades. Perhaps more interesting is the average household size – meaning, the number of people living in the home – has actually decreased from 3.01 persons per household 40 years ago to 2.54 today. Fewer people for bigger homes?

Read more about a remarkable home-size study.

You understand good debt vs. bad debt

I do not believe “good debt” exists. I do accept that some debts – like student loans for the right degree, can improve our financial position over the long run. But, we Americans also need to be keenly aware of exactly what we’re doing and understand the gravity of our choices before debts can turn into a positive.

Read more about good debt vs. bad debt.

You live a sensible lifestyle that’s within your means

The truth is you can live well – in fact, in the lap of luxury, and still set yourself up to achieve financial independence and retire super early. The key is living a more sensible lifestyle by making smart decisions with your money. Think about your happiness, first and foremost. Forget adequacy. That’s boring.

Read more about how a “sensible” lifestyle is superior to minimalism.

You are humble, yet confident

Being humble means that we understand the world that surrounds us. I acknowledge that there’s a lot in my life that’s simply gone right – and, I had very little control over that. Then again, there’s also a lot that’s gone right…that I DID (and DO) have control over.

Read more about how I mix these two traits together.

Honestly, are you pseudo-affluent? Check out my Kill It! article series for more on removing the “pseudo” part of that statement from your life!