A high annual income may mean you’re financially stable, but it doesn’t mean you’re financially wise.
A new group of high-income earners in Australia are finding themselves in a precarious financial situation. Known as HIFI (High Income, Financially Insecure), these people have incomes well above average but experience great financial stress and anxiety.
A recent survey by Finder revealed that a third (33%) of Australians earning more than $100,000 a year live payday to payday and have less than one month’s salary saved.
This is a lower percentage than the 57% who earn between $50,000 and $100,000.
But the fact that a third of high-income earners are in this situation is surprising. Worryingly, 8% of these people have no savings at all, leaving them vulnerable in the event of an emergency.
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This financial burden on higher-income earners can be attributed to several underlying factors, including lavish lifestyles and the rising cost of living.
Lifestyle changes, with discretionary spending increasing as income rises, may be particularly prevalent among younger Australians.
The pressure to maintain a certain lifestyle, brought about by TikTok and Instagram influencers and high experiential standards, will lead to increased spending on luxury goods and experiences.
The survey found that many Australians define wealth not just by their bank balance but also by their ability to compete with their peers.
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This mindset, combined with high debt loads such as student loans and skyrocketing credit card balances, has put many high-income earners in financial difficulty.
Despite these financial challenges, spending by high-income Australians remains strong.
A similar proportion of urban American millennials who earn more than $200,000 a year (36%) live payday to payday, yet still allocate 28% of their budget to entertainment, personal care and everyday expenses, according to a Pymnts report.
This suggests that despite growing economic pressures, the appetite for luxury and high-quality goods remains strong.
Retailers are adapting to this trend by offering more affordable luxury options.
Discount stores have also entered the market, with chains like Aldi introducing clones of premium products to attract more economically unstable upper-income earners.
Payment technologies such as buy now, pay later and credit cards are also contributing to increased spending.
Despite the number of credit cards currently in circulation being two million fewer than in 2019, Australians spent a record $35.6 billion on cards in March 2024.
These services make it easier for consumers to purchase big-ticket items without feeling the immediate financial impact, further accelerating lifestyle changes.
As the financial environment continues to change, managing your finances prudently is crucial for high-income Australians.
With tax season fast approaching, one way to get an edge could be to make the most of your tax refund to boost your savings or pay off debt.
Stage three tax cuts, due to come into effect on July 1, will provide extra disposable income to many Australians.
HIFI faces significant financial challenges, but we all have the opportunity to improve our financial situations through prudent spending and savings strategies.
As the cost of living crisis continues, it is more important than ever to plan carefully and make the most of your resources.
