5 Habits to Help You Stop Being a HENRY

If you were raised playing a certain board game, you might have adopted the idea that earning a six-figure salary is crucial to winning at life. Unfortunately, this does not guarantee the kind of wealth that leads to carefree enjoyment or financial independence. Just ask a HENRY — a high-earner who is not yet rich. This is a label you might find yourself wearing if you make a healthy household income (e.g., above $200,000 a year) but still feel like you are struggling to make ends meet.

High earners can transition from being HENRYs by following a simple path: Live below your means and invest. By doing this consistently over the years, you can go from being a HENRY to a high net worth individual.

While the method is simple, it is not easy. HENRYs often face high expenses — whether due to living in expensive areas or having large bills for necessities like child care. When there is not much left to save, the journey to building wealth can seem daunting.

To break free from this, here’s what you need to understand: Shedding the “not rich yet” part of the HENRY label is more about the habits you develop than the numbers you achieve.

Having good habits can help you shake off the HENRY label sooner than you think. However, developing these two common bad habits can keep you stuck in this phase indefinitely.

This is a common form of lifestyle inflation. When you receive a raise or a bonus, it is natural to want to celebrate, as Ross Anderson, a certified financial planner and co-founder of Craftwork Capital in Alexandria, Virginia, explains. However, if you celebrate by upgrading your home or car — or making another indulgence that comes with ongoing payments — “you’ve committed to that expense,” Anderson points out. “You need to continue earning that money every year.”

Rather than that, Anderson recommends opting for one-time treats that add joy to your life without creating a long-term financial obligation. “If you’ve had a great year, splurge on a vacation,” he suggests. If the next year is not as prosperous, you do not have to repeat it.

You might think that the solution to boosting your savings is to cut back on expenses. While this can be a useful exercise if you have never closely examined your spending, cutting back can be challenging. Setting an aggressive savings goal to compensate for a period of high spending (known as revenge saving) may not be sustainable.

If you are already on a reasonable path but want to save more, Anderson suggests making gradual changes that allow you to slightly increase your savings rate over time. For instance, you could allocate half of your next raise to boost your retirement contributions and the other half to enjoy life.

“Consistency is key,” Anderson emphasizes. “You are trying to establish a routine that you can sustain.”

By transforming these negative habits into positive ones, you are laying the groundwork to transition from being a HENRY to a HNWI — a high-net-worth individual. While the acronym may not sound as catchy, it typically signifies that you have accumulated $1 million or more in liquid assets. If achieving financial independence is your ultimate goal, this is the path you want to be on. But do not stop there. These three habits can help you break free from the HENRY lifestyle.

If your childcare expenses are as high as a second mortgage, you may be eagerly anticipating the day when you make the final payment. This could be a great opportunity to boost your savings rate, suggests Anderson. Instead of considering it as money to spend freely, treat it as a recurring expense. However, rather than sending the funds to a daycare provider or car loan company, direct them to your savings. If it helps, automate these savings to ease your mind.

“You have already proven that your budget can function without it,” Anderson points out. “Do not let that opportunity slip away without capitalizing on it.”

If bills like these have severely restricted your monthly cash flow, you could follow Anderson’s advice on incremental savings increases. Perhaps you capture 50% by boosting your retirement contributions and then use the remaining half to create more breathing room in your budget.

Rules like “save 20% of your income” can serve as a good starting point for someone looking to control their spending. However, there comes a time when you need to be more specific, as Jaime Eckels, a CFP and partner at the wealth management firm Plante Moran in Auburn Hills, Michigan, advises.

To determine how much you should be saving now, you need to outline your long-term goals. What kind of lifestyle do you envision for your retirement? Are you planning to cover your children’s college expenses? Being specific and monitoring your progress can help you ensure that you are striking the right balance between enjoying today and securing financial independence for tomorrow. “What you are doing may get you where you want to be,” Eckels remarks. “Or it may not.”