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These days, a high salary doesn't guarantee a life of luxury. After covering their bills, over a third of high earners say they live paycheck to paycheck, according to PYMNTS data. HENRYs (high earners, not rich yet) fall into this category. These are usually younger people who've come into a high-earning job but spend most of their income on expenses and haven't built up enough assets to be considered rich.
HENRYs may need a little extra guidance when it comes to saving for the future. Here's a closer look at their unique challenges, plus some strategies that can help HENRYs shore up their financial health.
What Is a HENRY (High Earner, Not Rich Yet)?
HENRYs typically earn a high income—anywhere from $100,000 to $500,00—but spend a large portion of their earnings on expenses and discretionary purchases rather than on wealth-building through investments. A person's net worth is calculated by subtracting the total value of their liabilities (everything they owe) from the total value of their assets (everything they own). Someone who doesn't have many assets to speak of may have a lower net worth. The average net worth to be considered wealthy in America is $2.2 million, according to a 2022 Charles Schwab survey.
Financial assets are anything you own that has value. That can include:
- Money in checking accounts, savings accounts, certificates of deposit (CDs) and money market accounts
- Investment account holdings, including money in retirement accounts
- Real estate
- Intellectual property
Debts can include everything from student loans and mortgages to auto loans and credit card debt. Education debt can be especially high for younger workers. The average student loan debt in 2022 was $39,032, according to Experian data. HENRYs may also be up against high living expenses. New York City, San Francisco, Los Angeles, Seattle and Boston—popular among young, high-earning professionals—are among the most expensive U.S. cities to live in, according to the Council for Community and Economic Research.
Living expenses are one thing, but lifestyle creep is another. This happens when a person bumps up their discretionary spending as their earnings increase. In other words, they get used to maintaining a certain lifestyle. HENRYs who live a lifestyle associated with wealth but fail to invest and save enough for the future can face financial insecurity despite having a high income.
What Are the Risks of Being a HENRY?
There are a few reasons why being a HENRY can be risky for your finances:
- It can stall your financial goals. Saving for retirement and building your emergency fund can feel challenging if you don't have much leftover money in your bank account each month. The same goes for other goals, like saving to buy a home or pay down debt.
- Job loss can have catastrophic effects. This is especially true if you don't have much in the way of assets. Are you prepared to weather a stint of unemployment or a temporary dip in income?
- Lifestyle creep may leave you overextended. Costly cars and housing might seem alluring on the surface, but a cushy lifestyle is risky if you don't have a solid financial foundation. You could be robbing your future self of financial security.
How Should HENRYs Manage Their Finances?
The real median household income in 2021 was $70,784, according to the U.S. Census Bureau. If you're earning much more than that, count yourself lucky—especially with inflation being what it is. A high income is an opportunity to secure your financial situation. Here are some steps HENRYs can take to get there:
- Refresh your budget. This begins with tracking your expenses, then paring down or eliminating wasteful spending. An effective budget still leaves room for fun money, but also carves out space for short- and long-term financial goals. The 50/30/20 rule is a good place to start.
- Make a plan to pay down debt. Debt payments might be taking a significant bite out of your take-home pay. Check your credit report and list out all your account balances, minimum payments and interest rates. You can then choose the best debt repayment method for you. That may be the debt snowball strategy or debt avalanche approach.
- Build your emergency fund. An oft-repeated rule of thumb is to save three to six months' worth of expenses in your emergency fund. That pool of cash can cover you during your next financial surprise, like a job disruption or unexpected medical bill. Padding your savings account can also increase your net worth.
- Bump up your retirement contributions. If you're already contributing to a workplace retirement plan, you're on the right track—especially if you're able to recoup an employer match. HENRYs can use extra cash to increase their contributions. Saving early and often is the best way to maximize compound interest.
- Invest beyond your retirement accounts. Tax-advantaged retirement accounts are important, but HENRYs with disposable income can also put money into other investment vehicles. That may include a regular brokerage account or health savings account (HSA). Those with a higher appetite for risk might also sprinkle more volatile assets into their investment portfolio, such as cryptocurrency, real estate properties or venture capital.
- Connect with a financial advisor. High earners may benefit from working with an experienced financial advisor. An advisor can provide personalized investment and retirement planning advice, along with strategies for lowering your tax liability.
The Bottom Line
HENRYs may not be struggling to make ends meet, but that doesn't mean they're financially thriving either. High earners tend to have different financial challenges—especially younger workers who don't yet have the assets to be considered rich. The good news is that it's never too late to begin securing your financial future.