HENRYS are Struggling
By Kevin Gibbons
According to a recent article in Business Insider, sixty percent of millennials earning over $100,000 a year say they’re living paycheck to paycheck.
These “High Earners, Not Rich Yet” are facing a “Not Rich Ever” future. The article goes on to say that 54% of Americans in total are living paycheck to paycheck, and 40% of high-earners, those people making more than $100,000 per year, are in the same boat.
So why do millennials fit into that profile at such a higher percentage than the overall high earning population? The article, based on a survey and report by PYMNTS and LendingClub, suggests that it is due more to expenses rather than income.
Millennials are facing higher living expenses than people of older generations. Between mortgage, student debt and child costs, there is not much left over for other expenses. One financial firm reported that 40% of their clients had student loan debt – on average, to the tune of $80,000.
So how do you ensure that you progress from that HENRY status to actually being rich at some point in the future?
You put it in your Spending Plan!
1. Look at your College Experience from an ROI (Return On Investment) point of view.
Unfortunately for most of us, the days of viewing college as the grand learning and maturing process, with a guaranteed good job on the other side, are long gone. With the cost of a college education going well into the six figures and possibly saddling you with debt for 20 or more years, you have to look at it from a financial return perspective.
We recently did this for one of our clients. His daughter had identified 3 different colleges she wanted to attend. We looked at all the costs associated with each school, including tuition, housing, food, car and travel back home for visits. Then we looked at her expected income the first year after graduation (she had already decided on a major, so we could pull actual information on what graduates in her field from the different school were earning). We were then able to present a side-by-side analysis, showing how much it would cost to go to each school and what her immediate earning potential would be against those expenses. This helped the family make an informed decision as to which path to take.
2. Put your Future Wealth in Your Plan.
Barring unexpected windfalls and some good blind luck, most of us will not become wealthy if we do not specifically plan for it. When you are creating your Spending Plan, start with the assumption that some percentage of your income will go to wealth-building right now, not in ten years, not after you’ve paid off your student loan, right now!
This may mean that you have to make some other hard decisions. Maybe you rent for longer, get a smaller or older house than you may have wanted, keep your older car for longer than you had originally planned. But Paying Yourself First is such a critical component to wealth building that it is Number 1 on our list of 9 Savvy Money Habits.
3. Look at your Finances from a Lifestyle Perspective.
People today are no longer interested in slaving away at work for 20 or 30 years to the exclusion of all else. (I don’t know if people in previous generations were interested in that, or if they just accepted it as normal.) People are serious about maintaining a healthy work-life balance.
The Savvy Life supports that idea, which is one of the reasons why we look at personal finance from a lifestyle perspective. The other reason being that household spending is simply too intertwined with all the aspects of your life to not consider them.
So, while you may not be able to spend as much as you would like on all the different areas of your life, it is critical that you look at those areas and prioritize. The fact is, you will spend some amount of your income on your Home, Food, Wardrobe, Travel and Entertainment. If you do not plan for your spending in each of these areas, you will overspend, because you will spend in these areas. So figure out how much you want to (and can) spend and then stick to that plan!
The Business Insider article concludes by stating “a six-figure salary is no longer what it used to be. In today’s economy, $100,000 is considered middle class in the US.” They are correct. But we have seen clients with incomes ranging from $35,000 to over $2 million/year that were living paycheck to paycheck. Of course, having a higher income makes so many things much easier, but it is not the cure in itself. If you do not have a plan for how you will be spending your money, it really does not matter how much you make. You will run the risk of overspending, or at least, not spending it where you really want.
The key to getting from “Not Rich Yet” to “Rich Now,” starts with your Plan today.
Kevin Gibbons is a Cash Flow Planning Expert, the Vice President of The Savvy Life and co-author of the international bestseller Living The Savvy Life. For the past nine years, Kevin and Savvy Life Founder Melissa Tosetti have worked with over 650 individuals and families to create Spending Plans.
To learn about how Kevin and Melissa work with clients to create Spending Plans, visit The Savvy Life’s Home Page. If you’d like to learn about how they work with financial advisors and their clients visit: The Savvy Life Advisor’s Page.
