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.
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?
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