10 Truths of Financial Planning

Financial Truths for High-Income Professionals

We have worked in the tax and financial planning industry for over 23 years. Most of those years have been spent working with high-income professionals just like you. After serving hundreds of clients and executing thousands of plans, there are certain self-evident truths of financial and tax planning we found across the board.

One Size Does Not Fit All

The old “cookie cutter approach” of financial planning does not generally work for high-income professionals. Because of your high income, you most likely have different needs than others. Your tax planning must be more precise and complex to preserve more of what you make and what you own.

Your financial strategies need to consider liability protection since your rapidly growing net worth makes you a more likely target of a lawsuit.1 Your specialized professional abilities increase the likelihood that a loss of employment will result in a greater period of time without income between jobs. Therefore, your liquid reserves need to be more robust than most families’.

These are just a few reasons why your financial planning requires more attention. Financial planning, for you, needs to be more specific to your unique income and asset accumulation status.

It’s Not What You Make — It’s What You Keep

The top 5% of income earners in America pay 55% of all taxes!2 Many professionals have referred to the tax code levied against this group as “confiscatory” (i.e. to confiscate from you). As a high-income professional, you fall into this lucky group. Most likely, income taxes are a significant line item in your budget.

This is such an important area in your financial life that you should consider putting it at the forefront of your financial planning concerns. Each of the four other areas of your financial systems (investments, legal, debt, and insurance) should be supporting your tax planning strategies.


We have met some very decent financial advisors during our 23 years. I have also met some who were “less than impressive.” I maintain that if your financial advisor adds nothing more to your relationship than to hold you accountable to your own financial development, they are worth everything you pay to them!

Let’s face the facts: Left to our own devices, many of us would spend way beyond what we should and save way less than is financially prudent. If the financial professional you use measures your net worth each year and compares it to your financial past, that is a great start!

Know Where You’ve Been

When you visit a doctor, you may notice they are always recording your vital information into your medical file. They are charting this important information to make sure your health is moving in a positive direction (or at least not in a negative direction!). These vital signs are crucial to giving them a snapshot of how your health is progressing.

Similarly, a good financial advisor should be charting your financial progress. A positive trend in your financially vital areas is an important sign for how your overall financial health is doing.

Know the Difference Between Needs and Wants

A client of ours who is a psychologist said, “A strong mind is like a team of horses: It can accomplish significant things if used in the right manner. It can also cause serious damage if not kept under control!”

A high-income professional is in a very similar situation. You can accomplish significant financial goals if proper focus and strategies are put in place. You can, however, also cause significant damage without discipline and control.

Make sure you are always evaluating “needs” versus “wants” in your financial affairs. Reliable transportation is a need — owning the newest S-Class from Mercedes is definitely a want. That doesn’t mean you can’t indulge yourself from time to time. Just make sure you have your financial needs taken care of first.

Pay Yourself First

Paying yourself first is the other side of knowing “needs” versus “wants,” which is spending. We suggest that high-income professionals should systematically save one out of every five dollars they earn. If you aren’t doing this, or aren’t able to do this, go back to the “needs” versus “wants” evaluation. You may find significantly more “wants” in your spending than you might care to admit.

The “Pay Yourself First” plan should be considered to be put on autopilot whenever possible. Automatic deposits into both retirement and non-retirement accounts are usually a sound strategy for accumulating net worth methodically and predictably.

Debt Is Not a Four-Letter Word

One of the most common misconceptions about debt is that it is always bad. Debt, like any financial instrument, can be a powerful tool in accumulating net worth in an efficient and effective manner. In particular, debt used to acquire property that is likely to appreciate (i.e., homes, real estate, or stock) can be a very effective way of leveraging your net worth growth, keeping strong liquidity, and keeping taxes at a manageable level.

This is an aggressive financial philosophy, however. Make sure you seek professional guidance if you are employing this financial strategy. You need to understand the pros and cons of such maneuvers.

Time Is of the Essence

If we were to calculate your hourly earnings as a high-income professional, the amount would be impressive. Said another way, each hour you spend on what you do best (your profession) can yield more significant reward than trying to save money in other areas where you are not a specialist. Sure, there are legal planning software programs you can buy to prepare the legal documents your family needs. These programs likely cost less than $100 per month.3 However, by the time you add up the hours it will take to prepare them, the real cost of preparing these documents yourself could be 10 times that of paying a qualified attorney to do them. There can be similar hidden costs in tax return preparation, investing, debt management, and risk management.

Become a believer in your professional career. Spend your time making more money: hire professionals to handle the rest.

Your Advisor Needs to Specialize in Your Situation

Whether you are on the employer or employee side of the table, your status as a high-income professional will likely present you with some financial strategies that most Americans will not encounter. Employee stock purchase programs, incentive stock option plans, deferred comp arrangements, and “golden handcuff” programs are just a few of the financial strategies you will have to navigate that most people will likely not face.

Your financial professional needs to guide you through the advantages and disadvantages of these types of programs and help you determine if they fit your overall plan. Hiring a “general practitioner” (one not exposed to these financial tools on a regular basis) as your financial advisor could cost you a great deal when making these types of decisions. The tax implications of these programs alone could make thousands of dollars difference.

Check the background of your financial professional to make sure they encounter these specific strategies for their clients on a day-to-day basis. Find out more about our team.

Your Planning Must Be Holistic

Your net worth, as a high-income professional, is likely growing very rapidly. Many marketing organizations refer to the group you belong to as “the aspiring affluent” — tomorrow’s affluent individuals.

Because of your accelerating net worth growth, it’s important that all areas of your financial planning are working together to provide more significant increases and less significant decreases in your finances. Your planning must be solid in all five areas of financial planning: investments, insurance, taxes, legal planning, and debt. If one area is weak, it can hamper the other four areas.

As an example, having weak debt management can impact your ability to invest. Weak debt management can also affect the amount of tax you pay. Believe it or not, certain debt is forgiven at your death, while other types are left to be paid by your estate.4

Financial planning for you needs to holistically address your financial situation. Make sure you’re evaluating the strengths and weaknesses of each area in your financial plan. For high-income professionals, the entire plan is only as strong as the weakest link. If you or your financial professionals aren’t currently evaluating, monitoring, and managing all five areas, consider getting some help from a financial professional that will.

1: https://www.investopedia.com/articles/personal-finance/060515/asset-protection-high-net-worth-individuals.asp
2: https://www.foxbusiness.com/personal-finance/heres-how-much-wealthy-americans-pay-in-taxes
3: https://www.softwareadvice.com/legal/#buyers-guide
4: https://budgeting.thenest.com/types-debt-can-discharged-upon-death-22985.html

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