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Do large incomes solve money problems? (greenaperture/Getty Images/iStockphoto)
Do large incomes solve money problems? (greenaperture/Getty Images/iStockphoto)

Carrick on money

They’re scraping by on $500,000 a year Add to ...

Large incomes do not solve money problems. As you make more, you spend more. The same budgeting challenges exist, but with bigger numbers. This was one of the points raised in a column I wrote recently about a financial adviser who warns that high earning baby boomers aren’t saving enough for retirement.

Now for an illustration of where the money goes in a household with a big income. It’s an article called Scraping By On $500,000 A Year, and it shows how easy it is to soak up a big income with fancy cars and multiple vacations every year. This is a U.S. example, but it serves quite well to demonstrate how people with huge incomes spend.

Do high earners need a financial literacy lesson? Here’s a start: Pare back your spending to consume fewer luxuries. One vacation instead of three. One luxury car instead of two. If you need help, people who don’t earn big bucks can advise you on living with less.

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Ask Rob The question: “I read everywhere that a prudent investing strategy is to buy an index rather than hiring someone to actively invest your money. Is this a good strategy no matter what the size of the money that is being invested? I am thinking of something in the $2-million range.”

My reply: “Index investing can make sense for portfolios of any size. But I get the sense you’re one of the many investors who sees indexing as a DIY strategy. Not necessarily. There are advisers who actively manage money, and those who use low-cost exchange-traded funds to track indexes. With a sizeable portfolio, you may have complex financial planning needs. Whether you go with indexing or active management, make sure you get good advice to guide your investing.”

Do you have a question for me? Send it my way. Sorry I can’t answer every one personally. Questions and answers are edited for length.

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