What you can learn from the HENRY’s!

by Krantcents · 29 comments

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What are the HENRY’s? They are High Earners Not Rich Yet (earn $100-250k annually). They have expensive cars, boats, and houses that make them look rich, but all their money is tied up in these assets. They are living paycheck to paycheck! My first reaction who cares about these people until I found out there are twenty-one (21) million of them. Are they any different from the rest of us?

HENRY’s look rich, but aren’t!  In southern California, there are a lot of them! They drive a new Porsche, BMW, Mercedes, or even a Tesla. They live in a million dollar home and probably are in the entertainment industry. It may be a professional athlete or movie star. They have little or no net worth and hold no liquid wealth (cash or savings). Sounds a lot like the Jones or someone else you may know? The usual scenario is someone who gets into trouble has a lot of consumer debt, but it is not the only way.

Before you say this could never happen to you or dismiss it as an aberration, it can happen to anyone! Seventy-six (76%) percent of Americans live paycheck to paycheck! What does that mean? One in four Americans has at least enough savings to cover six months expenses for medical, emergency or job loss!. Fifty (50%) percent of those surveyed have less than a three months savings and twenty-seven (27%) percent have no savings at all. One check away from being broke!

Surprise, people who make a lot of money are no better at managing their money than the rest of us. Just because you have more money to consume does not mean it is smart to do so. Too many people think having more money is always the answer!  It is true unless you spend all of it. It is not a high earner problem, it can be everyone’s problem! It starts when you get your first career job. Suddenly you start earning more money and you succumb to spending because you deserve it.

How to avoid it?

  • Open a savings/emergency account – Make savings a priority! You need cash for those unexpected events including enough savings to cover six (6) months expenses. This is good time to evaluate your expenses! Little things like a medical emergency or job loss could throw you into a tailspin.
  • Lower your expenses – Instead of spending every available dollar on your home, cars and more, dial it back to reasonable levels. For example, I use a rule of thumb of no more than a week’s pay for rent or mortgage payment. Review all your expenses to see what is a more reasonable level? Reducing expenses does not mean you have to give up everything.
  • Create a budget and track your expenses - Most people do not realize what they spend their money on until they start tracking their expenses. A budget is supposed to provide a structure to help you reach your financial goals. The budget process is supposed to make you look at your goals and determine how your actions help or hinder you from achieving your goals.
  • Set and plan your long term goals – You cannot know where you are going until you set a goal. You cannot reach that goal unless you have a plan. Goal setting and budget is part of the same process. An annual budget keeps moving you forward toward your long term goals. You cannot set long term goals without budgeting. Increasing your net worth should be a long term goal.
  • Change your attitude about money – Just because you earn a lot of money doesn’t mean you should spend all of it. You do not have to spend a lot of money to have fun. This reminds me of when my children were very young and how they enjoyed an empty box/carton more than many expensive gifts. Accumulating memorable experiences does not mean expensive ones.

Final thoughts

Whether you are a HENRY or keeping up with the Jones, living paycheck to paycheck puts you in danger of going broke. This lifestyle is similar to a house of cards and it takes very little to knock down a house of cards. Living modestly does not mean deprivation! When did spending lavishly become satisfying? I would rather see my net worth increase every year than just having a bunch of receipts from spending too much. HENRY’s are just one paycheck away from disaster, are you?

Photo  by:  Flickr

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{ 22 comments }

Holly@ClubThrifty May 14, 2014 at 5:35 am

I know someone who makes 200K per year and lives paycheck to paycheck. And that’s in Indiana where the cost of living is ridiculously low.

Krantcents May 14, 2014 at 7:07 am

It is very deceiving! It looks great, but it is just a house of cards very similar to people who earn a lot less.

Bryce @ Save and Conquer May 14, 2014 at 10:17 am

We would be considered high earners, but we put a lot of our earnings into savings and investments. We only spend enough to maintain our frugal lifestyle and have a little fun. We certainly do NOT try to keep up with the Joneses. As you point out, that is the road to living paycheck-to-paycheck, and not for us.

Krantcents May 14, 2014 at 12:47 pm

Good decision! I think many people think just because you have high earnings, you should spend it. One of my colleagues constantly tells me that. I could have a nicer (more expensive) car or why not spend more on other things. His theory is spending makes you happier! High earnings create more choices in life, but you can still make mistakes.

Marie @ The Money Template May 14, 2014 at 3:05 pm

Wow, there are twenty-one (21) million of HENRY’s? Honestly, I’m not a high earner, but I’m trying not to live paycheck to paycheck. I just want to have a healthy lifestyle and a healthy bank savings.

Krantcents May 14, 2014 at 4:07 pm

Good! I think the appearance of wealth is so misleading. I used to go to school with very (old money) wealthy people. They do not look celebrity rich, but they have net worth. The HENRY’s are just like the Jones!

Poor Student May 15, 2014 at 8:06 am

Interesting perspective — so true that even though you earn a lot of money doesn’t mean you’re actually financially independent. Once that source of income is gone, pooff, everything is gone. Totally agree with your tips!

Krantcents May 15, 2014 at 11:18 am

Thanks! Yo always need a reserve for the inevitable surprises. Generally, it is called a savings account.

Peter May 15, 2014 at 3:59 pm

Love the angle you gave on this personal finance 101 post Larry. Great job.

Krantcents May 15, 2014 at 4:39 pm

Thanks, I try to make it interesting for the reader and in turn makes it interesting to me the writer.

Eric May 18, 2014 at 2:45 pm

Great article! We would be considered high income earners, but only as of the past two years. We have not increased our lifestyle (not much anyway!), and have managed to save 3 years of living expenses in the bank. The question we now face is where and how do we intelligently invest our income to overfund our retirement? 18 years to go.

Krantcents May 18, 2014 at 2:50 pm

Thanks! Although I am in favor of savings, you need to invest it. I invested in real estate income property in the late 70′s. I made a considerable amount of money and managed to not only hang on to it, but made it grow. I like real estate, but it is not for everyone.

debt debs May 19, 2014 at 2:57 pm

(Sheepishly puts hand up) I think I used to be a HENRY, although it depends what you define as High income. I’m not over $150K and my husband makes much less so on average I guess we’re not. We’re MISERY – Middle Income Still Entering Retirement Years!

Krantcents May 19, 2014 at 4:24 pm

Funny! It does not matter what you call yourself. My message is spend less than you earn and spend as much as you can on assets that appreciate. Good luck.

Kathy May 27, 2014 at 5:51 am

I believe the authors of The Millionaire Next Door calls this the Big Hat No Cattle syndrome. In Texas this saying comes from the idea that there are those with high income (big hat) but with little net worth (no cattle). It is all show. I guess they haven’t subscribed to the Warren Buffet policy of no ostentatious show of wealth….or lack thereof.

Krantcents May 27, 2014 at 6:55 am

I agree! I grew up with wealthy people who never showed their wealth, it would be considered bragging.

Free To Pursue May 27, 2014 at 7:01 am

Funny. I love the “HENRY” acronym and will be using it in the future for sure.

I guess many of us in FI circles are MENTORs then (medium earners, not the over-spenders, rich).

That was a fun read and good stats.

Krantcents May 27, 2014 at 12:35 pm

Thanks, I am learning a lot of acronyms (HENRY’s, MENTORs, DINK’s etc.). We should live our lives based on our own (old fashioned)values. I would like to think it is called principles. One of my idols was John Wooden (UCLA basketball coach)who was the winniest NCAA coach of all time (10 national championships). He lived his life based on a set of principles.

Noonan May 27, 2014 at 9:22 am

I’ve never heard the acronym HENRY before—it’s very catchy. If the HENRYs would only dial back their spending, they could all be HERBs (High Earners Retired Before 50). ;)

Krantcents May 27, 2014 at 12:38 pm

A new acronym, great! I retired when I was only 38 thanks to some discipline, a goal and a plan. Having some control over my finances and a nice nest egg gives me a great deeal of freedom.

Even Steven June 1, 2014 at 5:45 pm

I always see a fancy Range Rover on our block and my first thought will now be he must be “HENRY”

Krantcents June 1, 2014 at 6:03 pm

I wonder if he/she would know what it means? Most of the rich successful people I know do not buy such expensive cars.

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