5 Habits to Help You Stop Being a HENRY

If you grew up playing a certain board game, you may have internalized the belief that earning a six-figure salary is key to winning at life. Unfortunately, that doesn’t guarantee the kind of wealth that translates to care-free enjoyment or financial independence. Just ask a HENRY — a high-earner who’s not rich yet. This is a label you could be wearing if you’re making a healthy household income (say, above $200,000 a year) but still feel like you’re struggling to get by.

High earners can stop being HENRYs by following a simple path: Live below your means and invest. Do this for decades, and you can go from HENRY to high net worth.

The method may be simple, but it isn’t easy. HENRYs often are navigating high expenses — whether because they live in high-cost-of-living areas or have temporary, large bills for necessities like child care. When you don’t have much leftover to save, the process of building wealth can feel discouraging.

To stick with it, here’s what you need to know: Dropping the “not rich yet” part of the HENRY label is less about the numbers you achieve and more about the habits you form.

What’s the problem with HENRYs?

If you have good habits, you’ll probably shed the HENRY moniker faster than you expected. But cultivating these two common bad habits can mean getting stuck in this phase indefinitely.

Bad habit #1: Splurging on “treats” that become bills

This is a classic form of lifestyle creep. When you get a raise or a big bonus, it’s natural to want to celebrate, says Ross Anderson, a certified financial planner and co-founder of Craftwork Capital in Alexandria, Virginia. But if you do that by upgrading your house or your car — or some other splurge that comes with ongoing payments — “you’ve taken on that overhead,” Anderson says. “You have to keep earning that money every year.”

Instead, Anderson suggests opting for one-time splurges that keep life fun but don’t require a long-term financial commitment. “If you had a great year, ball out on a vacation,” he says. If the next year isn’t as great, you don’t have to do it again.

Bad habit #2: Setting restrictive rules you can’t keep

You may think the answer to increasing your savings is to cut, cut, cut expenses. This can be a helpful exercise if you’ve never taken a meaningful look at where your money is going. But cutting back is hard. And if you’re setting an aggressive savings goal as a way to offset a period of high spending (a practice known as revenge saving), it may not be sustainable.

If you’re on a reasonable path already but want to save more, Anderson suggests making incremental changes that allow you to increase your savings rate a little bit at a time. For example, you might use half of your next raise to bump up your retirement contributions and half to enjoy life.

“It’s about the consistency more than anything else,” Anderson says. “You’re trying to come up with a routine that you can keep doing.”

The path from HENRY to HNWI

If you can turn those bad habits into good ones, you’ve started to lay the tracks that’ll transport you from HENRY to HNWI — a high-net-worth individual. That acronym doesn’t roll off the tongue as pleasantly, but it typically means you’ve accumulated $1 million or more in liquid assets. If financial independence is your ultimate goal, this is a train you want to be on. But don’t stop there. These three habits can help you escape that HENRY life.

Good habit #1: Capturing freed-up cash-flow

If your daycare bill resembles a second mortgage payment, you’re probably counting down the days until you’ve paid the last one. That could be a great opportunity to increase your savings rate, Anderson says. Rather than counting that as money that’s free to spend, treat it like an ongoing bill. But instead of sending the money to a daycare provider or car loan servicer, send it to your savings. If it helps, automate those savings so it’s off your mind.

“You’ve already proved that your budget can exist without it,” Anderson says. “Don’t let that roll off without capturing it somewhere.”

But if these kinds of bills have painfully restricted your monthly cash-flow, you could follow Anderson’s advice about incremental savings increases. Maybe you capture 50% by increasing your retirement contributions and then let the other half create more breathing room in your budget.

Good habit #2: Personalizing your savings goals

Rules like “save 20% of your income” can be a good starting point for someone trying to rein in spending. But there comes a time when you need to get more specific, says Jaime Eckels, a CFP and partner with the wealth management firm Plante Moran in Auburn Hills, Michigan.

To know how much you should be saving now, you need to sketch out your long-term goals. What lifestyle do you hope to have in retirement? Are you hoping to pay for your kids’ college? Getting specific and tracking your progress can help you know if you’re striking the right balance between today’s fun and tomorrow’s financial independence. “Maybe what you’re doing gets you to where you want to be,” Eckels says. “Maybe it doesn’t.”

One reason rules are so appealing is that we know when we’ve achieved them. So if not having clear rules feels overwhelming, consider working with a qualified and experienced financial advisor. Their sophisticated tools can help take the guesswork out of long-term planning.

Good habit #3: Exploring your investing options

As a high-earning household, using the exact same investing strategies you used when you made less money may not serve you as well now. You need to adjust regularly as your income or your capacity to save increases.

This could result in saving too little (i.e., thinking that maxing out your 401(k) means you’re saving enough), missing opportunities for other tax advantages or locking up all your wealth in accounts you can’t easily liquidate.

• Workers can leverage a range of tax-advantaged investing accounts, including familiar ones like 401(k)s, IRAs and health savings accounts. But when and how to use each one will shift as earnings change. 

• High earners who want to save more than annual contribution limits allow — or who are no longer eligible to contribute to accounts such as a Roth IRA — can use advanced strategies like the backdoor Roth or the mega backdoor Roth to achieve tax-free growth and withdrawals in retirement.

• Other nonretirement accounts can help you save for college or transfer money to minors in tax-efficient ways.

• A brokerage account doesn’t come with tax benefits but may be easier to liquidate than retirement accounts if you’re balancing goals on different timelines.