The 3 Steps To Pulling A Houdini & Escaping Golden Handcuffs

11/04/2018

For those that are unfamiliar with the phrase, "golden handcuffs" it refers to the idea that those who earn high incomes are "cuffed" to higher and higher spending as their income increases. By nature of "keeping up with the Jones's", and the Jones's are spending more and more as your career and salary take off. 

As is often the theme here, big salaries come with big responsibilities. The ultimate being to properly manage you finances both in terms of investing and budgeting. When you are a high income earner, the returns are important for sure, but cutting expenses is the easiest way to meaningfully impact your financial future. However, over time you might find yourself spending huge amounts of money when a mere fraction of your current budget kept you well fed and entertained in your college years. Here's some tips on how to escape the golden handcuffs.

1.   Be Your Own Jones's

This is probably the most important piece of advice (that's why it's #1!). If you feel pressure to keep up with home, car, country club, vacations, vacation homes, etc of your colleagues - or even worse, your boss - those golden handcuffs are going to be pretty tight. So don't. Don't feel that pressure. If you have to go out to lunch to show some face time, that's one thing. But you personal life is just that - PERSONAL. Spend your money and time doing things important to you. Which if you're here is likely time with family and friends, not material excesses that trap you into working an extra couple of decades. 

Instead, be your own Jones's. As a family or an individual, think for yourself. Leave your work life at work. Tell them whatever you're comfortable with. But know that you're making the financial decisions that are right for you and your family, and so instead of pressure to keep up, feel only pride as you pull up in your 2005 used Toyota Corolla next to those beamers. Because chances are you'll be pulling out of that parking lot for the last time long before your peers. Moral of the story? BE YOUR OWN JONES'S.

2. Spend time with those that matter

This is great advice generally, but I think it can really help high earning individuals curb their spending. Why? Because odds are you entire family isn't raking in $200k per person (and if they are then I doubt you're reading financial blogs). The people that matter most in your life probably have an enormous range of incomes, as opposed to your work peers. By spending more time with your family and lifelong friends, you'll be pulled toward their spending habits, which will be far more reasonable. I've always preferred a family bbq to michelin star restaurant anyway.

So make more of your free time family time. Don't be fooled into thinking you need to spend your valuable hours away from the office "networking" at some country club with your boss. The spending habits of these two groups varies greatly in my life, and I wouldn't be shocked if your life didn't have a similar dichotomy. Increasing your time allocation can also be a great improvement upon your spending habits as well. 

3. Cut the crap

If you've tackled steps one and two, this is the last thing that can stop you from emptying your wallet into anything other than sound investments. You've already stopped trying to match the spending and material possessions of your work peers, and you're spending more time with the people you love (who spend less) than the people you love to complain about work with during lunch (who probably drop $15/day on that lunch). 

This is the day to day focused spending. Golden handcuffs often means expensive lunches, coffees, work clothes, and more. It means everyone taking cabs instead of the subway, and the office happy hours being at rooftop lounges instead of pubs. Don't get trapped. Bring your own lunch & coffee (or get free from the office if possible). Don't buy expensive clothes you don't need (and that frankly, especially for the guys, no one will notice). Walk, bike, take public transit. Go mingle and network with colleagues, but don't have six $20 drinks. Suck it up for the cheapest $8 beer that ritzy place has and nurse it until you leave. 

Even at home - don't look at your colleagues' social media posts and decide to renovate a perfectly good room in your home or look into getting a boat, or consider sending your kids to private school. None of these things meaningfully improve your life. Certainly not to the degree quitting those 12 hour work days and extra 10 years ahead of schedule will. Picking any lock requires immense focus (probably?), and the ones on golden handcuffs are no different. Keep these tips in mind as your salary increases and your office gets bigger because it's a challenge to ensure your budget doesn't balloon up instead of your net worth.


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