You make good money, and you feel like you're at the top of your industry, but you don't feel like a high earner. With the ever-increasing costs of food, student loans, housing, and more. You want to do more than make a living. You want to thrive. and enjoy each day. Part of your goals and planning might be for retiring early and enjoying life longer before you get too old to take advantage of this availability.
The "HENRY" Paradox
It's a weird time to be a high earner. You get your paycheck and see all those zeros. However, after taxes, student loan payments, and the high cost of living, you know all those zeros aren't going to get you anywhere.
Next, you face the "Time Tax." If you're like most of your peer group and fellow high earners, you waited until you were between 26 and 30 years old instead of 22. You might have spent a couple of extra years at grad school or building your resume. No matter what the reason, you face fewer years where compound interest would have built additional wealth for you.
Pillar 1: The "Big Rocks" Strategy (Debt vs. Invest)
Debt is a scary word, and you need a strategy that works for you. The Math of Debt helps you weigh your options between aggressively paying off your debt, which guarantees you a return, and investing in the market, which might give you a return. You should consider refinancing. If you have high-interest rates, a private loan with a lower interest rate can make a difference. You also need to consider when it's the best time to refinance high-interest private loans to free up cash flow.
Pillar 2: Crushing "Lifestyle Creep"
It doesn't matter how much money you make. Your expenses can quickly equal your income. You know that from past experience, anytime you get a raise, your costs go up as you add new items to your budget. This is the Number 1 wealth killer for high earners.
You should live by the "One House, One Car" Rule. This rule encourages you to keep your fixed costs (housing and transportation) lower. Just because the bank says you can afford a million-dollar home, do you really need one? You want to live below your means and use the extra funds for saving and investing.
Here's a tip that you can use. The next time you get a raise or promotion, live on your previous salary and invest the difference.
Pillar 3: The Tax-Advantaged Waterfall (Order of Operations)
If your employer offers a 401(k) match and you aren't taking advantage of it, you're throwing money away. You need to sign up for this benefit immediately and allow your company to invest in your future. You can also use "Stealth" accounts to save money and invest in yourself. This includes your HSA (Health Savings Account) if eligible. You want to invest the maximum amount.
Some high earners make too much money to qualify to contribute to a regular Roth IRA. When this happens, you need to explore the option of a Backdoor Roth IRA with your financial consultant.
Pillar 4: Taxable Investing (The Bridge to Early Freedom)
After you take advantage of the tax-advantaged accounts, it's time to shift focus to Index Funds in your regular brokerage account. These funds are available to before the age of 59.5, making it easier for you to retire at a younger age and have the financial support you need.
Contact Us at HEFCU to Learn More About our Financial Services
At HEFCU, we want to partner with you to set your financial goals and turn them into action. Our special strategies help you build your wealth while also taking advantage of your current financial situation. Contact us now to learn more.
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