Despite earning more than $100,000 in household income many people still feel that they are living month-to-month and that a loss of employment or medical emergency could easily move them from upper middle class to low income earners. This feeling of being on the “edge” of poverty, given the level of income, seems a bit ridiculous but it really comes down to bad financial habits, a lack of discipline and peer group pressures.

Many of these high income earners tend to be corporate or self-employed professionals and usually have a considerable advantage when it comes to making money. Thanks to managerial jobs, graduate level education backgrounds and stock portfolio’s, many command six figure incomes. In theory, these high incomes should make it easier to stay out of debt, save more, potentially take on some calculated risks in a fairly manageable way (if desired), and generally accumulate wealth more quickly. But is that what happens? No.

I know from past personal experience that I would have fallen into this group of poor-rich people, but thanks to improving my personal finance habits (this blog being evidence of that change) and having a long term savings/investment plan in place I was able to leverage my higher than average household income to actually create a much more stable future. But there are many reasons why those with ample earning power may feel on the edge of poverty.

- Keeping up with the Joneses. As a group high income workers are generally competing with each other. Both for career advancement and other materialistic items like the biggest house, best car or latest gadget. There is a perception in our society, correctly or incorrectly, that the more you earn the more you should spend. Look at those Wall Street workers as an example or the level of excess before the recent recession. Keeping up with the Joneses is an expensive proposition and unfortunately the cost of materialism eventually catches up.

- Easy Credit. Even in today's tough economy, for those with six figure incomes credit is easy to come by. Credit companies may have cut back offerings to those in lower income brackets thanks to the recently enacted credit card reforms, but there seems to be little or no impact to high income earners who are heavily courted by premium credit card companies like American Express and Discover. The availability to this "easy" credit gives a false sense of security that makes these people spend way more than their incomes can afford. That is why they rack up credit card debt faster than average and thinking it would be easy and quick to pay off. But due to high interest rates and compound interest this theory is quickly debunked as the amount of debt grows much faster than income.

- No real budget. Many higher income earners feel like they are making lots of money now, and they believe that they will continue to make lots of money going forward. This may reduce their feeling that they need to watch their money carefully now. Hand-in-hand with that, many in this group probably believe that they are making more money than they really are— or said another way, the money they make will go farther than it really does. Many young professionals who are earn good incomes don’t come from particularly privileged backgrounds; and their reference point may be that they are making twice as much (or more) than their parents were - so they spend like that as well. They don’t factor in the effect of inflation over many years which means that the cost of living is much higher than in our parent's generation. Further the more you earn the more you pay in taxes. Rather than focusing on after tax incomes, many high income earners only look at the top line figures. A $100,000 income after tax is only about $75,000 in real terms.

- Time Poor. Many professionals work long 60+ hour work weeks in stressful environments. The last thing they want to do is come home and deal with boring personal finance things such as budgeting, 401K plans, cutting coupons etc. I remember a few years ago my life was work-sleep-partying on the weekend and then back to work. This was exacerbated when kids came into the picture. Looking back this was a poor excuse to let my finances slip, but it happened as I am sure was the case for many other professionals.

- Speculating rather than investing : My portfolio had over 20 stocks that I bought without real purpose and truth to be told I think I lost much more money than I made investing (knowing what I know now, I called what I use to do speculating). I was just chasing the next stock rather then following some kind of investment strategy. Retirement was a far away thing and the thought of putting a away 10% of my pay check for 30 years seemed ridiculous. Sadly, after the tech boom I lost most of my investment portfolio and most of my savings with it.

How to get out of this rut to finally become financially stable?

In most cases it takes a certain adverse event or stark realization to turn one's financial life around. For me the catalyst was getting laid off from work and realizing that I only had about one month of savings - despite having earned a six figure income for more than 2 years. One of the lowest points in my life ended up being the best thing that happen to me.

After this it takes focus, the desire to learn/improve and discipline to have the paradigm shift that allows one to become "financially savvy". The road to financial freedom is not easy but the general steps to get out of debt and build a solid future are actually quite basic - save more than you spend and invest for the future. They key is having the right attitude and be willing to have the right habits (like being frugal is not being a cheapskate). I feel that I have come to terms with my personal finances and am much more in control of my financial destiny than I ever was. Sure the recession has knocked my investments off their intended target, but thanks to being well diversified, in time I’ll make back those losses and then some.

No matter how much earn, we can all fall for the same personal finance traps. The key for high income professionals is to ensure that they realize this, learn good personal finance habits and not waste the opportunity they have. After all if our parents and their generations could make it earning much less than $50,000 a year – why can’t we given all the resources we have.

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