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Understanding HENRYs: High Earners, Not Rich Yet

These days, a high salary doesn’t guarantee a life of luxury. According to PYMNTS data, over a third of high earners live paycheck to paycheck after covering their bills. HENRYs (High Earners, Not Rich Yet) fall into this category. Typically, these are younger individuals with high-earning jobs who spend most of their income on expenses and haven’t accumulated enough assets to be considered wealthy.

What Is a HENRY?

HENRYs usually earn between $100,000 and $500,000 but spend a significant portion of their earnings on expenses and discretionary purchases rather than on wealth-building investments. A person’s net worth is calculated by subtracting their liabilities from their assets. The average net worth to be considered wealthy in America is $2.2 million, according to a 2022 Charles Schwab survey.

Financial Assets and Liabilities

Financial assets can include:

• Cash
• Money in checking accounts, savings accounts, certificates of deposit (CDs), and money market accounts
• Investment account holdings, including money in retirement accounts
• Real estate
• Vehicles
• Jewelry
• Art
• Intellectual property

Debts can include student loans, mortgages, auto loans, and credit card debt. Education debt can be particularly high for younger workers, with the average student loan debt in 2022 being $39,032, according to Experian data. HENRYs may also face high living expenses in cities like New York, San Francisco, Los Angeles, Seattle, and Boston, which are among the most expensive U.S. cities to live in.

Risks of Being a HENRY

Being a HENRY can pose several financial risks:

• Stalled Financial Goals: Saving for retirement and building an emergency fund can be challenging if you don’t have much leftover money each month.
• Job Loss: Without substantial assets, a job loss can have catastrophic effects. Are you prepared for a period of unemployment or a temporary dip in income?
• Lifestyle Creep: Increasing discretionary spending as earnings rise can lead to financial insecurity despite a high income.

Managing Finances as a HENRY

With the real median household income in 2021 being $70,784, according to the U.S. Census Bureau, earning significantly more is an opportunity to secure your financial future. Here are some steps HENRYs can take:

Refresh Your Budget

Track your expenses and eliminate wasteful spending. An effective budget should leave room for fun money while also allocating funds for short- and long-term financial goals. The 50/30/20 rule is a good starting point.

Pay Down Debt

Debt payments can take a significant bite out of your take-home pay. Check your credit report and list all your account balances, minimum payments, and interest rates. Choose a debt repayment method that works for you, such as the debt snowball or debt avalanche approach.

Build Your Emergency Fund

A common rule of thumb is to save three to six months’ worth of expenses in your emergency fund. This pool of cash can cover unexpected financial surprises, like job disruptions or medical bills, and increase your net worth.

Increase Retirement Contributions

If you’re already contributing to a workplace retirement plan, you’re on the right track. HENRYs can use extra cash to increase their contributions, maximizing compound interest over time.

Invest Beyond Retirement Accounts

While tax-advantaged retirement accounts are important, HENRYs with disposable income can also invest in other vehicles, such as regular brokerage accounts or health savings accounts (HSAs). Those with a higher risk tolerance might consider more volatile assets like cryptocurrency, real estate, or venture capital.

Consult a Financial Advisor

High earners may benefit from working with an experienced financial advisor who can provide personalized investment and retirement planning advice, along with strategies for lowering tax liability.

The Bottom Line

HENRYs may not be struggling to make ends meet, but that doesn’t mean they’re financially thriving. High earners, especially younger workers, face unique financial challenges. The good news is that it’s never too late to start securing your financial future.

For any mortgage-related needs, call O1ne Mortgage at 213-732-3074. We’re here to help you navigate your financial journey with confidence.

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