Earning 6 Figures But Can't Save? The Life Transition Trap

Your Next Dollar: Money Management for High Earners

The episode explores how high earners can maintain wealth-building momentum while navigating major life transitions such as marriage, parent

Key takeaways

• Establish a 'minimum savings floor' by treating savings like a mandatory monthly bill.
• Utilize automation, such as 401k contributions, to create boundaries that prevent lifestyle creep.
• Create a dedicated 'life transition fund' to provide cash on hand for upcoming major expenses.
• Adopt a 'first principles' approach to large expenditures like weddings or baby gear to avoid industry marketing pressure.
• Focus on one financial goal at a time—such as an emergency fund or debt repayment—rather than attempting to fund all goals simultaneously.

Main topics

• Life Transitions
• Wealth Management
• Automated Savings

Notable quotes

Life doesn't stop when you're trying to build wealth, and your financial life doesn't have to happen in a vacuum.

Conclusion

Successful wealth management during life changes requires proactive au

Transcript preview

Speaker 1 (0:00) Life doesn't stop when you're trying to build wealth, and your financial life doesn't have to happen in a vacuum. Today, NerdWallet Wealth Partners CEO Ryan Sterling and I walk through how to keep your financial momentum going, even when your priorities and expenses are consistently changing. And if you enjoy this episode, make sure you like this video and hit subscribe on your favorite podcast player, whether it's Apple Podcasts, Spotify, or YouTube. So if you're trying to build wealth at the same exact time as you are getting married, or you're having kids, or you're buying a house, or you're paying for childcare, we're going to talk about all these different life transitions today. So Ryan, I'm really excited to dive into this because I think a lot of our audience is probably dealing with life transitions. As you start to grow in your career and as you start to begin to build wealth, life is never going to stay the same. And so we have to figure out, hey, how do we navigate our finances? How do we make sure we stick to our plan while trying to navigate these life changes? Yeah, Speaker 2 (1:00) no question. I mean, life is dynamic. Life happens. We know that. So if this is you, if this is all resonating, you are in very good company because most people we work with are going through these life milestones. And again, like life throws you curveballs, but everything Speaker 1 (1:15) is figureoutable. You know, a lot of people out there try to wait for the perfect time to save. I have heard, you know, friends and family members say this, where they have said, hey, I'm just not saving and investing right now, or I'm not putting money in my emergency fund, or I'm not putting dollars towards my future, because it's just not the right time. I got a wedding coming up, or I've got, you know, a baby on the way, and I want to make sure I have enough, you know, funds and cash on hand to ensure I'm doing this. So what do you say to people who are waiting for the perfect time to start saving? Speaker 2 (1:43) Yeah, I mean, it's only going to get harder. So you have to start now, you know, especially if you're a couple of years away from this. I mean, what we see oftentimes is that especially for people who are partnered up and these things are kind of on the horizon, but maybe kind of in the in the, you know, short or intermediate term, let's just start getting really aggressive now, given the fact that we know that these life expenses are coming up. So if you're. going to be getting married, if you're going to be buying a home, if you're going to be having a kid all in a two to three year window, I'm here to tell you, like, it might be very hard to save in that two to three year window. So you have to start now. Even if it's small, you just have to start. And Speaker 1 (2:26) I think one of the objections I always get is, hey, I'm going to start saving. I'm going to start investing when things calm down, but they never really calm down. You're going to see that it's just going to get harder and harder as time goes on. And when it rains, it pours, it feels like. So when things get difficult, even more things begin to happen. And that's just life. And so I think one of the most important things that people need to think through is starting to establish a minimum savings floor. Now, this is something I did very early on in my 20s was to make sure, hey, at a minimum, I want to make sure I'm saving personally 20 % of my income. and I want to increase that over time. But I think for many people, this can be helpful is determining your minimum savings goal. Now, I like to treat this like a bill. I just pretend, hey, this is one of the bills that I have to pay. I pay myself first and then I spend what is left over. And many listeners have probably heard us talk about, you know, let's create these constraints. Let's create these restrictions around your money so that you can automatically continue saving going forward. That's right. And that's why 401ks work so well. Speaker 2 (3:22) 401ks work well because you set a percentage when you started a company. You kind of forget about it. That provides a great boundary, a great constraints. And I always tell people like the reason you see that grow over time is because you have that automatic saving mechanism in place. So let's try to do that then outside your 401k. You know, we've said this before on the show, uh, and I'm a huge proponent of this build constraints for yourself. I personally think budgets are very hard. Like I've always had a very hard time tracking my expenses, keeping a budget. I've tried it. It's worked periodically, but I just know myself, like it's really hard for me to do it. That said, the constraints, the boundaries, you can do it by percentage. I actually like to do it by dollars. So I kind of like would back into what's the dollar amount target that I need to hit. Forget about the percentage for a second. Like what's the dollar amount I need to hit Speaker 1 (4:12) and just automate it. Absolutely. I think that's the best way to think about this because when you're trying to establish that floor and you're trying to decide, hey, how much do I need to be saving to have on hand on this floor? I think the biggest thing to think through is, okay, what's your goal? What's your retirement number goal? And then work backwards from there. You can talk to your advisor, have a conversation, figure out what that savings floor needs to be so that you can ensure that you're on track for retirement. I think staying on track for retirement is the most important thing as you go through some of these life transitions. And once you have that number in place, you can start to automatically just send those dollars to things like your savings. That's exactly right when it comes to the 401k, where I've had so many people say, hey, I looked at my 401k five years later, I didn't even look at it because I was going through all these different transitions where I got married, I had kids, and I just wasn't even paying attention. And I had so much more in there than I ever thought I did. And this is because they were automatically contributing. And so automating your finances when life gets busy, so you can focus on the things that you actually care about can be very, very helpful. And there's also two, Speaker 2 (5:12) like depending on where you are in life and like everybody's circumstances are unique, but I'll just give you like one really quick case study. So some clients that I work with where they were dating, they knew that things were trending in the direction where they were Speaker 1 (5:24) going to be getting married, starting a family, buying a home, like everything I just mentioned. But Speaker 2 (5:29) they were a year or so away from it. And they're both, you know, high earners. kind of combine their living situation. And they were like, gosh, like the one bedroom, one bathroom is getting a little bit tight. Like we want to get a bigger place. And we ran the numbers. And basically we were able to say that, like, look, like if you're two years away from starting these big life milestones, like you have this two year window where you can save so much. And we ran the forecasted numbers. And like in two, three, four, five years, like. That capacity goes away pretty quickly when all of these life expenses kind of start to creep up. So it was like, hey, instead of like upgrading your life right now, why don't you stay status quo and use this window as like a hyper savings window? Speaker 1 (6:15) Here's the thing. Most people get overwhelmed. They get overwhelmed with this because they try to fund every single goal all at one time. And this is really why we created the Your Next Dollar Blueprint, because we want you to focus on one goal at a time, achieving that goal, and then going on to the next step. So if you're trying to save, you know, 20 % for retirement, plus trying to fully fund a six-month emergency fund, plus trying to save for a wedding or trying to save, you know, in a 529 plan for your kids, and trying to do all these different things, and you only have so much money coming in, make sure that you focus in, hone in, and look at what your next step is, because this is one of those things that can cause you to just feel so stressed out because you're running all over the place. But instead, if you focus on one goal at a time, whether it's paying off debt, whether it's saving in that emergency fund, then you can move on to the next step. Now, as high earners, we want you to try to move on to some of these steps and be able to fund some of these steps. But we know that if there's a lot of different things going on all at one time, you can't just go and do everything. So you got to understand that. You're going to have to take this step by step. Speaker 2 (7:16) Yeah, Speaker 1 (7:16) that's right. No question. And don't Speaker 2 (7:19) be overly hard on yourself, right? Like you don't need to do it all. And so you don't need to have it all figured out. Just focus on making Speaker 1 (7:27) progress. Exactly. Now, one big thing to also note for many people is they feel as though this is something they're going to be stuck in forever. And it's not. Many of you, let's say you're saving up for a wedding right now. If you're saving up for a wedding, this is a temporary expense. You're setting money aside every single month. You're going to have your wedding in a year or two. And so when you start