‘I earn $150,000 – so why am I still broke?’

‘I earn $150,000 – so why am I still broke?’

Your salary is nothing to be sneezed yet, yet you find it hard to save.

BY Effie Zahos, 19 min READ

Your salary is nothing to be sneezed yet, yet you find it hard to save. Sound familiar? In an extract from her new book, money expert Effie Zahos explains why. Effie will also be hosting our next Masterclass Online, How to boost your money game (on any income) later this month, register for it here.

Let’s get real …I drive a 2009 Volkswagen Touareg. I bought it new. Now before you say that’s not the smartest money move (which is probably right), I do believe that just once in your life you should be able to enjoy that new-car smell. Plus I didn’t need to borrow any money for it and I intend to run it into the ground. But when I drive to school sports on Saturdays and park my car, I feel as though I’ve entered a luxury car dealership. There are some seriously wealthy people who go to my kids’ schools, hence the Maseratis, BMWs, Mercs, Teslas, Porsches and even the odd Ferrari. I’ll be honest and say that sometimes I feel a little poor –but am I?

As I was watching a game, one mother came up to me and said she had just purchased a book about saving and making money. I did question why she would need to read such a book: she is a lawyer and I believe her husband is high up in the finance industry, so I’m pretty sure they are flush with cash. Her response was simple: “We can’t save a cent!” As she drove out of the car park in the latest Porsche Cayenne, it got me thinking that earning a six-figure salary may still be a sign of status and success but it doesn’t mean you’re immune from financial woes. Whether you’re earning $150,000 or $60,000, there are some very simple reasons why you may be feeling broke, and money may have nothing to do with it.

If you’re not happy with your financial situation and you’re earning a decent income, it’s time to ask yourself some tough questions –and I’m not talking about where you are spending but why you are spending.

Money is intrinsically linked to our emotions. Most of us probably get this. We know that if we’re stressed we look for relief (Bellini, anyone?); if we’re not feeling that beautiful we look for things that make us feel good (shoes do it for me); and if we’re feeling a little blue we look for things that make us happy. Given the complexity of why we do what we do, I thought it best to get the help of a behavioural economist – even better, a behavioural economist who’s also a psychologist. Phil Slade is just that! He’s had more than 15 years’ experience in the industry and currently works for Suncorp across digital innovation, strategy, cognitive bias and human-centred design. His insights were invaluable and I thank him for that.


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The problem with earning a great income

When you’re earning six figures, there’s probably not as much pressure to track your spending, which may explain why you’re feeling broke. But Phil says the answer may be more about feeling exhausted. “Whether it is working in a stressful job or simply not getting enough sleep, when we are tired we are more likely to spend money to avoid doing ‘painful’ or effortful things like cleaning, property maintenance or food prep. We’re even more likely to spend more on modes of escapism like entertainment and alcohol. These relatively small expenses can have a huge impact on savings.”

This cycle –where we need to work longer hours to increase our income, which then leads us to spend more on products and services, in turn forcing us to earn even more money –is a vicious one that I’m sure plenty of us can relate to. So why do we trap ourselves in this cycle? Phil says it’s because our actions are now locked on autopilot.

“Scientifically, why we become mentally exhausted is explained as bounded rationality or limited cognitive capacity, which basically means that our brain has a finite amount of thinking energy before it needs to recharge, and once you’ve spent your thinking energy, if you don’t allow yourself to recharge, your decision-making gets set to autopilot.”

Why can somebody on $50k save as much as somebody on $100k?

I understand how somebody on $50k may be able to save as much as somebody on$100k. On $50k you’re probably young, starting out with no debt–at least not as much as a 40-year-old with two kids. And if you’re like most 20-somethings who are serious about saving, you’re quite happy to share accommodation, maybe even rent a couch and just live on two-minute noodles.

But assuming we are talking about two people of similar age, stage and circumstance, how is it possible for the lower income earner to be able to save more? When I asked Phil this question, he said that a “fascinating psychological phenomenon comes into play here –it is a problem of relativity, it is a struggle with loss aversion. Basically, if someone on $50,000 (at $961.54per week) considers spending $500, the pain of the loss relative to their income is much greater than the loss felt by the person on $100,000 (@ $1924.08per week) when considering the same $500 purchase. Therefore, because a large part of our spending consists of many smaller purchases, the person on $100,000 is likely to spend more because it doesn’t feel so painful when each ‘loss’ seems small relative to their overall income (rather than the immediate state of their bank account). This can have the effect of making money more fluid and harder to save. The person on $50,000 feels a greater pain for every small purchase, making money less fluid and therefore easier to track and save.”


A person on a smaller wage is far more likely to feel every bit of money “pain”.

Triggers and fixes

The good news is that it is possible to change your money behaviours. The trick is to see saving as a skill rather than an intellectual competency. This way you know that if you practise you will get better. “If you want to start running, you don’t just enter a marathon; you train and see yourself slowly improving. If you started with the marathon you would simply fail and then never try to run again, living with the belief that you can’t,” says Phil. Finances are the same; you can just say, “I’m no good when it comes to money.” Often there is a reason why you do what you do and this can come down to the triggers that trip you up. A trigger is simply something that encourages you to spend money needlessly. Emotions are the general culprits for setting off triggers but things like easy credit and a simple sale can be, too.

While there is nothing wrong with acting on your emotions, they need to be acted on debt free. If it doesn’t fit within your budget, best you substitutes pending with something to help celebrate or make yourself feel better. “In the long run, giving into these things that trigger your spending will only make you struggle with your budget or lead you into a great deal of debt down the road. You must learn to control your emotions, disempower them; they are not your friends. If we can’t keep our emotions in check, then we’re unlikely to be able to keep our spending in check either,” says Phil. Here are two triggers to watch out for and Phil’s solutions to not tripping up.

Trigger 1: I had a shitty day.

Whether it’s because of work deadlines, the stress of getting the kids to school and then coming into work an hour late, a fight with your partner or just not feeling 100 per cent, stress can definitely trigger your spending. You are looking for a distraction to take away the pain. A similar thing happens if you have a great day. Sometimes you just want to celebrate feeling great. Maybe a pay rise got you in a good mood, you reached your sales target or you’ve managed to take your lunch into work every day this week. The attitude of “I deserve it!” often justifies a spending binge. So what do you do? Organise dinner with friends on Saturday night even though you can’t afford it. Hit the shops for a quick retail fix… whatever takes the stress away or heightens your feelings of joy.


Before hitting the stores, check that bank balance.

What Phil suggests you do:

Trick yourself with multiple accounts. He suggests splitting your bank account into multiple accounts and naming them for specific purposes. It limits spending to the account you have your card attached to, it highlights the consequences of robbing one account that’s earmarked for a particular expense and it means you are less likely to spend large amounts. This last impact is fascinating, because although it doesn’t make rational sense, if we have 10 accounts with $1000 in each, it feels as if we have less than if we had a single account with $10,000 in it.

Therefore, spending $500 out of an account with $1000 in it feels like more of a hit than spending $500 out of an account with $10,000 in it. In the first instance, you have lost 50% of your money and in the second you’ve only parted with 5%. This phenomenon is called mental accounting –we just seem to be wired to need to put things in “buckets”. While it may make financial sense to put all your money in one high-interest account, it doesn’t always make good human behaviour sense.

Trigger 2: I’m nowhere near my credit limit or I can buy it now and pay for it later.

Credit cards and “buy now and pay later” services give us an easy way out. You know you don’t have the money to buy it but somehow you justify it. “I’ve got some money owing to me so I can pay the card off then.” “I only need to put down a small deposit and I can pay it off slowly.” It’s all about instant gratification and because we’re not parting with cash we don’t feel the pain! And while “buy now and pay later” services aren’t credit cards, these digital disrupters are tempting us to shop more because it’s so much easier to buy something you think you have to have when you only need to pay $50 a fortnight rather than $200 upfront. I almost bought something this way and maybe it’s my age but I decided to wait and save. Funny thing is, when I had saved the cash I just couldn’t justify the spend. So what do you do? Spend without guilt but know that buyer’s remorse will kick in when your statements come.

What Phil suggests you do:

If you do want to buy something you can’t afford, resist the urge to go into a repayment scheme. The first thing to do is create what I call a self-made lay-by system. Figure out what the weekly repayments would be and put that amount each week into a separate account until you’ve saved up the purchase price (or at least a large portion of the purchase price if it’s an expensive item like a car). This will save you money on interest, test whether you can afford there payments, help you avoid credit traps, and give you time to think more rationally about the purchase. Another thing to do is to plan ahead for when you will be tempted by an “impulse” buy that will put you into debt by intentionally putting some “resistance” in the purchase process. For instance, set up a rule with your partner (so you can be held accountable) where any credit or debt purchase needs to be discussed with someone not emotionally involved in the purchase. It needs to be someone who won’t directly benefit or get personal gratification from the purchase. This conversation or “credit purchase check” is putting resistance in the purchase process and reduces the emotionally reactive desire for instant gratification.


  • Link your emotions to purchases. For one week keep a journal of what you buy. Write what you were feeling when you bought each item.
  • Learn what triggers your spending and where possible find a substitute to address those triggers rather than resort to spending.
  • If you can’t find a substitute, hold off at least 24 hours before you spend your money.
  • Share your money goals with you partner or friend(s) and set up what Phil Slade calls SMART goals (Specific, Measurable, Attainable, Relevant and Timely).
  • Accept your financial station in life and never apologise for what you can or can’t afford.
  • Stay away from negativity.

Effie Zahos is one of Australia’s leading personal finance commentators. As editor of Money, Australia’s longest-running personal finance magazine, she has a knack for making money matters simple. She is also a regular money expert on Channel 9’s Todayand on radio around Australia. This is an edited extract from her latest book, A Real Girl’s Guide to Money: From Converse to Louboutins, in stores 1 March ($24.99, Bauer Media Books Australia).

Read next: Why you should talk to your friends about money


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