There are many schools of thought around the most important, or most effective, financial principles that successful people should adopt.

For many, the aim is simply to earn as much money as possible. It is understandable that many assume wealth equals success – but in fact, earning a high sum might not guarantee that you reach your goals.

Indeed, Arthur Brooks, bestselling author and Harvard University professor, argues that learning and practising good financial habits is actually more important than earning a high sum.

While you might disagree with this claim at first, it could be wise to look more closely at Brooks’ argument and understand how your financial habits may shape your lifestyle more than the amount you actually earn.

Keep reading to find out more about the balance between your income and your habits.

Brooks argues that “lifestyle creep” could be a long-term financial stressor for wealthy people

According to Business Insider, one of Brooks’ main arguments about the importance of financial habits over high income, is that “lifestyle creep” can decimate the finances of even very wealthy people.

Lifestyle creep is a phenomenon in which a person keeps increasing their spending every time their remuneration increases.

While it is important to enjoy the money you have earned, giving in to lifestyle creep could mean that you never feel financially secure, even if you have a high income.

Putting yourself in these “golden handcuffs” could look like:

• Moving into a much bigger home and taking on a larger mortgage
• Increasing your “small spending”, like subscriptions and meals out
• Offering to financially support loved ones indefinitely
• Financing a more expensive car.

You might be able to recall instances of ultra-rich celebrities succumbing to lifestyle creep and, as a result, entering financial difficulty.

For instance, legendary boxer Mike Tyson was worth around $400 million during the height of his career, Yahoo reports. But after stepping away from professional boxing, even this level of wealth couldn’t keep up with Tyson’s undisciplined lifestyle, leading to the boxer declaring bankruptcy in 2003.

In another example, iconic film director, Francis Ford Coppola, amassed millions after his Hollywood success. But after funding a “flop” film with his own money in 1982, Ford Coppola was unable to recoup what he lost. He declared bankruptcy shortly afterwards – in fact, Ford Coppola has gone bankrupt no fewer than three times.

These are just two (albeit extreme) examples of how overconfidence in a high income can get the better of anyone, sometimes leading to financial insecurity later on.

So, instilling concrete financial habits in your day-to-day life could be a more effective long-term move than simply taking a high income without the discipline required to manage it.

3 core financial habits that could prove effective in managing your wealth over the long term

As financial planners, we’re equipped to help you form rock solid financial habits that could serve you for life.

Here are three to consider.

1. Make saving and investing an automatic habit

Despite the well-known importance of saving and investing, many wealthy people treat these actions as an afterthought.

As a business owner, you may wrongly treat your business like a pension, not bothering to save for the future because you’re relying on a sale to fund your life after stopping work. We’ve previously written about why making personal savings and investments is crucial, even for business owners or shareholders who expect a future windfall.

Of course, saving for a rainy day and investing to grow your wealth isn’t as immediately satisfying as booking a holiday or buying a car. But balancing enjoyment and long-term stability is a crucial habit to adopt.

To make saving and investing an automatic habit, it could be helpful to:

• Set up automated savings using your mobile banking apps
• Plan how much you’ll invest at the start of every financial year, then follow through on this schedule no matter what happens.

Instilling these rituals into your routine could prevent you from succumbing to lifestyle creep.

2. Ask yourself: can I afford this over the long term?

An increase in pay is a very exciting event, and may prompt you to splash out on something special.

While there is nothing wrong with doing so, if the costs are likely to be ongoing, it is important to ask yourself if you can afford it over the long term.

For example, if you decide to upgrade your car and borrow money to afford it, ensure you are confident that if your situation changes, you can still comfortably make the repayments.

This could help prevent lifestyle creep from damaging your financial stability if your income were to decrease again.

3. Regularly check in with an experienced financial planner

Forming a relationship with a financial planner means that you can routinely check in with a professional who understands your situation in all its complexity.

Rather than believing reactionary headlines or becoming wrapped up in day-to-day spending, habitually discussing your finances with one of our planners could:

• Give you the confidence to enjoy your hard-earned money without giving in to lifestyle creep
• Enable you to plan for your family’s long-term future.

To find out more, email us at clients@iqf.ie, or call 353 71 915 5560.

Please note

This article is for information only. It does not constitute advice.

It describes financial planning services that iQ Financial can offer to you. Financial planning services are not regulated by the Central Bank of Ireland.

iQ Financial is not a tax adviser and tax advisory services are not regulated by the Central Bank of Ireland.