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Are You a HENRY? (High Earner, Not Rich Yet)

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Being labeled as a HENRY isn’t exactly a badge of honor unless your hobbies include flying around in a cape or pioneering the auto industry. HENRY, short for “High Earner, Not Rich Yet,” describes those who’ve climbed the corporate ladder, earned glowing salaries, and splurged on a fancy car.

Yet, despite these achievements, the true financial security of the rich remains elusive.

Student debt, a lack of financial know-how, and impulsive spending habits are common hurdles that keep HENRYs from reaching true wealth. But you’re close; all it takes is using the right strategies and some hefty discipline. Discover if you’re a HENRY and learn how to bolster your financial future.

This article will include:

  • Everything to know about HENRY income and demographic.
  • Whether you would be considered a HENRY.
  • Steps to build your wealth and achieve financial security.

Read more:

What Is a HENRY?

HENRY is short for “High Earner, Not Rich Yet,” — an acronym that does what it says on the tin. These folks usually have an annual income between $250,000 and $500,000, but despite their impressive earnings, they haven’t quite reached that coveted wealthy status.

Writer Shawn Tully coined the term in Fortune magazine in 2003, describing HENRYs with “a higher than average income, little to no savings, and low material wealth”. Essentially, they’re earning a lot but don’t have the assets to make them truly rich.

Young millennials or families with big salaries often get stuck with the HENRY label, as much of their income goes toward education, taxes, housing, bills, and that pricey coffee addiction.

After covering all these costs, little cash (and enthusiasm) is left for investments or savings. So, while they may flaunt the latest Apple devices and Instagram-able vacations (guilty), they aren’t actually building long-term wealth.

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You might also land in the HENRY category if you’re a doctor, lawyer, or dentist. Sure, there’s the potential to earn a lot, but your future wealth may depend more on your ongoing high salary than on income-generating assets. In simple terms, if you stopped working, would your financial situation look as rosy?

What Is Considered a High-Income Earner?

What you consider high income can easily be up for debate, so I’ll play it safe with a basic definition and some good-old statistics. A high-income earner brings in a significant amount of money compared to the average income in their country.

Do you fall into the high-earner category? Here are some US stats to compare: 

Category Annual wages
Average $61,136
Upper 5% $344,667
Upper 1% $785,968

Source: Economic Policy Institute

Nowadays, figuring out what it means to be “rich” can be tricky. With the cost of living, housing, and consumer goods skyrocketing, it’s harder than ever to pin down what fits the bill.

When discussing high-income earners, I’m focusing on those making substantially more than the average income. The ones with a higher standard of living, perfect teeth, and a pantry full of organic food — but spoiler: this doesn’t always translate to “rich.”

Are You a HENRY?

Most HENRYs are young professionals who’ve finally reached that high-income level. Maybe you’ve climbed the ladder, hopped from job to job, or taken up a side hustle — either way, you’re finally enjoying the financial fruits of your labor.

The cash is most definitely flowing, so why are you still living paycheck to paycheck? Even with your boosted salary, those taxes, bills, and living expenses make it feel like there’s not much left to save or invest.

If you feel like I’m staring into your soul, you’re probably a HENRY. You’re making good money but haven’t hit that true wealth mark yet. Don’t worry; recognizing it is the first step towards changing it.

Are HENRYs Addicted to Shopping?

Another surefire way to spot a HENRY is their love for bagging the best brands, upgrading to the latest technology, and driving shiny new cars.

Don’t get me wrong, there’s nothing wrong with spending your hard-earned cash, but if it’s at the cost of your financial security — then it’s a problem. 

Living expenses are one thing, but lifestyle creep (when spending increases with earnings) is a different story. You start enjoying all those overpriced cars, clothes, and cat accessories that come with a certain lifestyle.

But while these aspirational purchases certainly bring a buzz, they’re risky if you don’t have a solid financial foundation, as you’re jeopardizing your future financial security.

Marketers see dollar signs with aspirational buyers and often target HENRYs during this transition, aiming to build loyalty that will last as their wealth grows. There are more HENRYs than ultra-wealthy individuals, making them a major money-making market, even if the products or services are slightly discounted to appeal to them.

Social media doesn’t help. Most of us are guilty of comparing ourselves to the lavish lifestyles we see online. Of course, the healthy thing would be to say adios to these brain-numbing apps. But no, instead, we feel the urge to upgrade our lifestyles — book that pricey vacation, touch up our closet, or re-decorate the house.

The irony is that many of these “wealthy” friends and influencers don’t truly live the life they flaunt on social media. But they do succeed at something — prompting high earners to spend just enough to be out of reach of that desired “rich” status (and the cycle repeats).

Wealth Planning for High-Income Earners

HENRYs can improve their financial situation with several strategies. You can focus on paying off debt, boosting contributions to retirement and investment accounts, and minimizing your tax liabilities. With these actions, you can transition from “not rich yet” to joining the ranks of the wealthy.

Budgeting for High-Income Earners

I’ll admit that budgeting isn’t my strong suit — but even we impulse shoppers are capable of tracking expenses. Knowledge is power, so tracking your spending is the first step towards reducing or eliminating wasteful expenses (while leaving room for some “fun money”).

One effective method is the 50/30/20 rule. It’s simple — allocate 50% of your income to needs, 30% to wants, and 20% to savings and debt repayment. This method gives you a balanced and achievable approach to managing your finances.

You can try the zero-based budget if your spending habits need more discipline. In this system, you assign every dollar to a specific purpose, like spending, saving, or investing. The goal is to “zero out” each month with all your income allocated.

A handy zero-based budget trick is to include planned income for the month. By accounting for this income alongside the money already in your bank account, you can better plan your expenses and ensure everything is covered.

Tip: To prevent any loose ends with “missing expenses”, limit your spending to just one or two credit cards and avoid overusing third-party platforms like Venmo or PayPal.

Debt Reduction Methods

One major obstacle preventing HENRYs from getting rich is debt. Most of us know what it’s like to be weighed down by student debt, auto loans, mortgages, or credit card debt — all roadblocks to those laying down those all-important savings and investments.

Educational debt, in particular, can be a killer for younger professionals. According to the National Center for Education Statistics, the average student loan debt borrowed for a four-year bachelor’s degree was $30,500 in 2019-2020.

While it’s easy to look the other way at those mounting bills, we both know that never ends well. As painful as it may be, start by listing all your living expenses and debts. Check your credit report to ensure you have a complete picture of all minimum payments and interest rates.

Once everything is laid out, choose a debt-elimination strategy that works best for you. Two proven methods are the debt snowball and debt avalanche approaches.

Here’s a summary:

  • Debt snowball method: List your debts by balance, starting with the smallest. Make minimum payments on all your debts, but allocate any extra funds to the smallest debt first. Once that debt is paid off, move to the next smallest balance.
  • Debt avalanche method: Order your debts by interest rate, starting with the highest. Make minimum payments on all debts, but apply extra funds to the debt with the highest interest rate first. The perk of this method is that you’ll pay less in interest over time. However, it can take longer to see the results, which might feel less motivating initially.

Both methods have their benefits. The debt snowball can give you quick wins, making it easier to stay motivated. However, the debt avalanche can save you more money in the long run by reducing the amount of interest you pay.

High-Income Investment Strategies

Reducing debt is a crucial move towards wealth, but making the right investments is how you get on the path to “rich” status. The good news? Once you’ve tackled your debt, you’ll have more to invest.

A popular choice to diversify your investment portfolio is real estate. Investing in real estate investment trusts (REITs) can provide growth and results while avoiding the demands and duties of owning properties.

You can also explore opening a taxable brokerage account to buy and sell stocks, ETFs, index funds, or mutual funds. Index funds are a solid choice if you prefer a low-maintenance approach or are new to investing. These passively managed funds let you invest in a broad market index, such as the S&P 500, with low fees and minimal risk.

Diversifying your investments is key. Don’t put all your eggs in one basket. Spread your investments across different asset classes to reduce risk and increase potential returns. Combining stocks, REITs, and other investment vehicles can provide a balanced portfolio.

Tax Deductions and Credits

You’ve finally bagged that high salary, only to be beaten down with high taxes. As a high-wage earner, you’re no stranger to paying high taxes on your income, so exploring tax strategies should be at the top of your agenda.

A Health Savings Account (HSA) can help you reduce taxes by letting you contribute pre-tax money to cover medical expenses. Contributions lower your taxable income, the funds grow tax-free, and withdrawals for qualified medical expenses are also tax-free.

After age 65, you can take out HSA funds for non-medical expenses with no penalty (though you need to pay regular income tax on withdrawals).

You can also tackle your taxes with education-related deductions and credits. The Student Loan Interest Deduction lets you deduct up to $2,500 of interest paid on student loans. The Lifetime Learning Credit offers up to $2,000 per year for tuition and related expenses, helping to lower your tax bill.

Another tried-and-tested strategy is contributing the maximum amount to retirement accounts like a 401(k), 403(b), or IRA. Contributions to these accounts can often be deducted from your taxable income, either partially or fully. This not only helps reduce your taxable income now but also sets you up for a more secure retirement.

Remember: Take advantage of employer matches if available. It’s basically free money for your retirement and can significantly boost your savings.

HENRY Retirement Plans

Most HENRYs are millennials or young professionals still clinging to their youth (or maybe that’s just me). But it’s never too early to explore retirement plans, especially if it can help get you out of that HENRY status.

Let’s talk about the backdoor Roth IRA. This is a nifty workaround that lets high-income earners take advantage of the tax benefits of a Roth IRA.

Normally, you can’t contribute directly to a Roth IRA if you earn $161,000 or more as an individual (or $240,000 or more as a couple) in 2024. But there’s a legal loophole: you can convert a traditional IRA into a Roth IRA regardless of income.

Here’s how to do it: You can contribute up to $7,000 (or $8,000 if you’re over 50) to a traditional IRA. When the money is in your traditional IRA account, you convert it to a Roth IRA. But a heads up — you’ll need to pay taxes on the money you convert, so make sure you have the cash to cover that tax bill.

You can also convert existing IRAs, like Savings Incentive Match Plan for Employees (SIMPLE) or Simplified Employee Pension (SEP) IRAs. Just keep in mind that if you’re converting an existing IRA, you’ll pay taxes on the entire amount, including any growth. So, ensure the funds are ready to pay those taxes.

Now, let’s look at 401(k) plans. Unlike a Roth IRA, a 401(k) has no income limits, so you can contribute the lesser of your income, or up to the contribution limit. For 2024, that’s $23,000, or $30,500 if you’re 50 or older.

Contributions to a traditional 401(k) reduce your taxable income and grow tax-deferred. Some employers also offer a Roth 401(k) option, where contributions are made with after-tax dollars, but withdrawals in retirement are tax-free, provided you’re older than 59 and have had the account for at least five years.

Bottom Line

So, if you find yourself earning well but still struggling to build substantial wealth, you’re probably a HENRY. But you can change that. Focus on reducing debt, increasing retirement and investment contributions, and managing your taxes wisely.

With these strategies and a good dose of self-control, you’ll be well on your way to moving from “high earner, not rich yet” to true financial security.

FAQs

What is the HENRY definition in finance?

HENRY stands for “High Earner, Not Rich Yet.” It refers to individuals or households earning a substantial income, typically between $250,000 and $500,000 annually, but who haven’t accumulated enough wealth to achieve “rich” status. They often have high expenses and limited savings or investments, making it challenging to reach true financial independence.

What’s the difference between a HENRY and a DINK?

A HENRY is a high earner not yet rich, while a DINK stands for “Dual Income, No Kids.” DINKs are typically couples who both earn an income but don’t have children, allowing them to save more easily. HENRYs may or may not have kids, but their high earnings don’t translate to substantial savings or wealth due to lifestyle expenses.

What net worth is considered wealthy?

Net worth can vary widely, but generally, having a net worth of $2 million or more is often considered wealthy. This includes assets like real estate, investments, and savings minus any debts. Most importantly, wealthy individuals have enough financial resources to live comfortably and maintain their lifestyle without relying on regular income.

What’s a high-earner salary?

A high-earner salary typically starts around $300,000 to over $500,000 per year. However, this can vary based on location and industry. High earners often face higher taxes and expenses, which can impact their ability to save and invest, distinguishing them from those who are truly wealthy.

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