Understanding HENRYs: High Earners, Not Rich Yet

In today’s world, a high salary doesn’t necessarily equate to a life of luxury. According to PYMNTS data, over a third of high earners live paycheck to paycheck after covering their bills. This group, often referred to as HENRYs (High Earners, Not Rich Yet), typically consists of younger individuals who have secured high-paying jobs but spend most of their income on expenses, leaving little for wealth-building investments. At O1ne Mortgage, we understand the unique financial challenges faced by HENRYs and are here to help you navigate them. Call us at 213-732-3074 for any mortgage service needs.

Who Are HENRYs?

HENRYs generally earn between $100,000 and $500,000 annually but allocate a significant portion of their earnings to expenses and discretionary purchases rather than investments. A person’s net worth is calculated by subtracting their liabilities from their assets. Despite their high income, HENRYs often have a lower net worth because they haven’t accumulated enough assets. According to a 2022 Charles Schwab survey, the average net worth to be considered wealthy in America is $2.2 million.

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 range from student loans and mortgages to auto loans and credit card debt. Education debt is particularly high for younger workers, with the average student loan debt in 2022 being $39,032, according to Experian data. Additionally, HENRYs often 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.

The Risks of Being a HENRY

Being a HENRY comes with its own set of 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. This also applies to other goals, such as saving to buy a home or paying down debt.

Job Loss

Job loss can have catastrophic effects, especially if you don’t have many assets. Are you prepared to weather a period of unemployment or a temporary dip in income?

Lifestyle Creep

Lifestyle creep occurs when discretionary spending increases as earnings rise. While a cushy lifestyle may seem appealing, it can be risky if you don’t have a solid financial foundation. You could be jeopardizing your future financial security.

How HENRYs Should Manage Their Finances

The real median household income in 2021 was $70,784, according to the U.S. Census Bureau. If you’re earning significantly more than that, consider yourself fortunate, especially given the current inflation rates. A high income presents an opportunity to secure your financial future. Here are some steps HENRYs can take:

Refresh Your Budget

Start by tracking your expenses and then eliminate wasteful spending. An effective budget should leave room for discretionary spending 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 best for you, such as the debt snowball strategy or the 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, such as job disruptions or medical bills. Increasing your savings can also boost your net worth.

Increase Retirement Contributions

If you’re already contributing to a workplace retirement plan, you’re on the right track, especially if you can take advantage of an employer match. HENRYs can use extra cash to increase their contributions, maximizing compound interest over time.

Invest Beyond Retirement Accounts

While tax-advantaged retirement accounts are essential, 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. 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. High earners face unique financial challenges, especially younger workers who haven’t yet accumulated enough assets to be considered rich. The good news is that it’s never too late to start securing your financial future.

Maintaining healthy credit is part of that journey. At O1ne Mortgage, we are committed to helping you achieve your financial goals. For any mortgage service needs, call us at 213-732-3074. Let us help you build a secure financial future.