Let me start off by saying that I am allowed to say “HENRY” freely. Why? Many of our new clients are HENRYs. Our clients are young (Gen X & Gen Y), but they are out there crushing it in the real world (world-class physicians, topnotch business owners, and superlative young professionals). And the sad truth is student loans are the main reasons why they are “Not Rich Yet.” But darn it, we are getting there! Okay, back to the show. Are you among a growing group of people in the U.S. who have a high household income, yet your savings never seem to grow significantly year after year? Believe it or not, there is a name for people like you, and there is a very good chance that you might be a HENRY. HENRY stands for "High Earners, Not Rich Yet," and it is just the newest socio-economic acronym from a long list of media catchwords. You may remember the popularity of terms like YUPPIES (Young Urban Professionals), DINKS (Dual Incomes, No Kids) couples, or even BOBOs (Bourgeois Bohemians) in the past.
Today it is all about HENRYs. But what in the world does this term mean?
The definition of a HENRY tends to be much more fluid than similar acronyms and can change based on who you are asking. The confusion usually centers on exactly how much a household needs to earn before it qualifies as a high "high-earner," and the acceptable age range necessary for categorizing someone as a HENRY.
Although most people place the household income of HENRYs somewhere between $250,000 - $500,000 some financial professionals lower the threshold to a “mere” $100,000 a year in earnings. This lower income requirement greatly increases the number of potential HENRYs.
The most popular definition of HENRY only includes those born between 1981 and 1996; a group commonly known as Millennials. But, again, there is disagreement about whether it is appropriate to restrict the term to a single generation. Some people prefer to adopt a more inclusive definition of the term, pushing the top end of the age bracket to 55.
While some conditions of HENRY’ism are debatable, some aspects are generally agreed upon. It is these core characteristics which unities all HENRYs regardless of age or income level. These traits are:
- A higher than average income level
- Little to no savings
- Feelings of low material wealth despite income level, leading some financial experts to dub these individuals "the working rich" — those who must continue to work potentially long hours despite high-earning careers.
The History of HENRYs
The term HENRY first appeared in a Fortune Magazine article in 2003. In the original article, the writer, Shawn Tully, used the term, HENRY to describe those individuals who would be the ones who were most affected by the alternative minimum tax, or AMT. Since that time, the definition has been expanded and the list of problems facing HENRYs has grown.
Regarding HENRYs and Finances
HENRYs have it tough. They work long hours and earn a good salary, but have little to show for it. This is mostly due to HENRYs having to pay a huge percentage of their income as taxes, student loans, and by spending the majority of the rest on ballooning day-to-day expenses. As a result, instead of living like the top 1 percent of earners in the U.S., which they are, HENRYs wind up feeling the same as any other paycheck-to-paycheck individual.
Okay, so you’re a HENRY, now, how do you stop being a HENRY? Well there is only one way out, increase your net worth! Here are six very simplified ways to build your net worth. "Net worth" is the simplest indicator of your overall financial well-being. Simply defined, it's the difference between your assets (such as investment accounts, retirement funds and properties) minus all liabilities (including mortgages, credit card debt and other loans). Your net worth is very important in helping you determine how much debt you have and how it can affect your future wealth. It also helps you to highlight critical areas in your financial life that you should focus on early enough.
If you have already calculated your net worth and found that it’s lower than you expected, or that you need to increase it starting now; here are a few simple ways to help.
Review Your Liabilities and Pay off Debt
This is one of the simplest ways to raise your net worth. Review all your liabilities keenly and try to reduce or eliminate them all-together. Your liabilities may include student loans (3rd focus area), credit card debt (1st focus area), car loans (2nd focus area), and mortgages (4th focus area), among many other types of loans that you may be owing friends and colleagues.
Focus on paying off the debts with the highest interest rates first, and pay off the other low-rate debts along the way. A lower debt burden means a higher net worth and the vice versa is true.
Review and Increase Your Assets
Determine the total worth of your assets and how it's likely to change over time. Are your assets appreciating or depreciating? How much equity do you have in your home? How are your rental properties performing or likely to perform in the future? What is the state of your stock investments, bonds, mutual funds, retirement funds?
Ask yourself as many questions as possible about your assets and review them thoroughly. Increase the assets while simultaneously lowering your debt and your net worth will automatically shoot up.
Reducing your expenses is easier said than done, but it’s a great way to help boost your net worth. Work out your current expenses and see if there are expenditures that you can afford to cut back. Remember, the less money you spend, the more you are accumulating in net worth. A great tip on how to start spending less is to avoid the use of credit cards in favor of cash. A large bulk of uncontrolled debt comes from the use of credit cards.
Find New Sources of Income (aka Side Hustles)
Getting additional income from several sources can go a long way in helping you increase your net worth. It will not only help you pay off your debts sooner, but also take way your need to borrow often. You can get additional income from a second job, doing some freelance work, selling items online, or starting a part-time business. There are many endless opportunities out there; all you need to do is find the one that works for you.
Maximize Retirement Contributions
Retirement contributions benefit you in two ways. One, they defer your taxable income because they are deducted before taxes (Assuming it is not a Roth). Second, they boost your available generative assets. Check if your employer offers a retirement plan and start contributing towards it. If you already have a 401(k) plan through your employer but aren’t contributing to the maximum, consider doing it if you want to boost your net worth by a big margin. You can also open an IRA (Individual Retirement Account) and start investing there.
Pro Tip: At bare minimum, make sure you take advantage of the full match (if they offer one)! For example, if you employer offers a 50% match on the first 6% you contribute, make sure you are saving 6% of your salary. In return you will receive 3% (50% * 6%) from your employer to your retirement plan. This is why they call it “free” money. Would you ever say no to a 3% bonus each year? Yea, that is what I thought! Get your full match!
Store Your Money Where It Can Grow
Avoid storing your money in savings accounts (besides short-term needs and your emergency fund) where it can’t grow or earn interest. Keep the money in interest-bearing accounts or invest it in stocks where it can work for you. You best friend is compounding interest! This is one of the simplest ways to increase your net worth through long-term investing*.
Being a HENRY is not a bad thing, you must have done something right to earn that high income! Now, let’s get the net worth growing and you can ditch the HENRY status! It won’t happen overnight (unless you hit the lottery…which is not common), so you need to start making good decisions now. Success in personal finance comes from many small victories, the get-rich-quick dream, is just that, a dream. You can do this, got get ‘em!
Written by Chad Chubb, CFP ®
*All investing involves risk, including the possible loss of principal. There is no assurance that any investment strategy will be successful.