Wealth Building Strategies For Henrys

FAQs

Q1: How can I start building wealth as a HENRY?

A1: Begin by calculating your net worth, creating a budget, maximizing retirement contributions, and making informed decisions about housing and investments.

Q2: Should HENRYs prioritize paying off debt or investing?

A2: It depends on the type and interest rate of the debt. Generally, prioritize high-interest debt while still contributing to retirement accounts, especially if there’s an employer match.

Q3: How important is homeownership for wealth building?

A3: While homeownership can be a good long-term investment, it’s not always the best choice for everyone. Consider factors like job stability, local real estate market, and your long-term plans before deciding.

Are you a HENRY?

HENRY is a playful acronym that stands for “High Earner, Not Rich Yet” – an apt description of young and highly educated professionals who have substantial incomes but little or no savings.

Three primary characteristics define a HENRY:

• Feeling/belief that they have little to no wealth
• A substantially greater-than-average yearly income
• Limited or non-existent savings

HENRYs generally have enviable career prospects, but many of them feel financially stretched or may even live paycheck to paycheck for years, especially if they are working in cities with high living costs and/or carrying large amounts of student debt.

HENRYs might also be referred to as the “working rich.”

They typically work hard and regularly but spend their income on what most of the middle class and lower class would consider a lavish lifestyle.

Because they tend to spend their substantial income as fast as they receive it, HENRYs tend to feel like they are in the same basic circumstance as the bottom of the middle class or even the lower class, just working hard and living paycheck to paycheck.

Instead of budgeting and saving part of their income, devoting it toward investments in things such as a home, stocks, or savings accounts, they “budget” by buying or renting discount designer goods and using credit card mile rewards for extensive travel.

Because of their considerable disposable income and being on the path to establishing future wealth, luxury brands target HENRYs with their marketing

HENRYs typically live above their means and struggle to balance their lifestyle with their financial assets. If this sounds like you, it may be time to shed your HENRY status for good and focus on growing your wealth — even if it means making some temporary sacrifices.

You don’t have to do it alone. In many cases you may benefit from working with a financial professional. There’s no one-size-fits-all when it comes to building wealth. A financial professional can help you chart a personal course to financial security.

HENRY Wealth-Building Strategy One: Calculate And Monitor Your Net Worth

Start by calculating your net worth — the total of your assets (what you own) minus your liabilities (what you owe).

This simple exercise should help you take stock of your current financial position, and it’s also a good way to track your progress over time.

HENRY Wealth-Building Strategy Two: Pay Close Attention To Your Spending

After studying long hours and working your way into a good-paying job, you deserve to spend some money. But it’s virtually impossible to increase your net worth if you don’t live within your means.

If you can’t pay for most of your splurges without relying on credit — or wiping out your savings — then you need to rein in your lifestyle.

Pay yourself first every pay period by diverting money from your paycheck to a separate savings account and then spend what’s left over, not the other way around.

Budgeting software or smartphone apps can help you analyze your spending patterns and identify some less painful ways to cut back.

HENRY Wealth-Building Strategy Three: Take Full Advantage Of Your Workplace Retirement Plan

Making regular contributions to a 401(k) or similar plan is a no-nonsense way to accumulate retirement savings, and pre-tax contributions reduce your taxable income by the same amount.

If your employer offers a match, free money is a great reason to save at least enough to receive the full match and any available profit sharing.

HENRY Wealth-Building Strategy Four: Weigh Housing Decisions Carefully

Whether you rent or buy, paying for a place to live probably accounts for the largest chunk of your monthly spending.

Renting may do little to improve your financial situation in the long run, especially if you face rent hikes year after year, but it offers flexibility if you want or need to move.

If you intend to stay in one place for a while, purchasing a home could help stabilize your housing costs.

It typically takes three to five years to recover the transaction costs, but you would build equity in the property as your loan balance is paid off over time — more so if the value appreciates.

Nevertheless, you should resist the temptation to buy more house than you can afford, even if the bank says you can.

Future Opportunities for Wealth-Building Strategies

You may not be rich yet, but fortunately, you still have lots of time, earning potential, and opportunities like these to build wealth for the future.

Implementing these wealth-building strategies can help HENRYs transition from high earners to truly wealthy individuals. By focusing on smart spending, maximizing retirement benefits, and making informed housing decisions, you can build a strong financial foundation for the future. Remember, consistency and patience are key in your journey to financial success.

Contact your tax and financial advisors to determine the best moves for your situation.