What Is A HENRY? Know Your Financial Standing.

A HENRY is a High Earner, Not Rich Yet, and describes individuals who earn a high income but haven’t YET accumulated significant wealth yet (maybe due to lack of planning, being in an expensive phase of life, having prohibitively expensive goals, or simply due to age).

This post will explore what it means (and most importantly) what it feels like to be a HENRY, explore common financial challenges that might spring up when you find yourself at this impasse, and map out strategies that we’ve helped our clients implement to secure a more secure financial future.

Being a HENRY, more than anything else, means that your family earns a “dangerously” high income, which, while a wonderful thing, can also serve to make people feel overly confident and comfortable BEFORE they’ve successfully graduated out of the HENRY Zone.

We call it a “dangerous income” because it's enough money to feel totally comfortable day-to-day but not such a ridiculous amount that you don’t still need to think through your financial situation and your future decisions.

Making a "dangerous" amount of money is, without question, the idea that has resonated with my clients more than ANY other framework they’ve ever heard to describe their situation. It’s so real that most of the individuals and families my firm works with find themselves repeating this idea to me repeatedly as they try to work out this central dichotomy (we’ll get there) at the heart of their financial life.

Understanding “H.E.N.R.Y. Syndrome®” and Its Inspiration

In my experience, a HENRY making a dangerous amount of income is generally earning $250,000 to $850,000, although I’d say this concept is self-qualifying: if you recognize yourself and your financial decision-making in the description below…you will see that it perfectly explains why you feel a sort of push and pull when you think about your money!

I’ll explain the concept like this:

If you're making under $200,000, you probably have a pretty good handle on how much you're spending, how much you're saving, and what is left over each month—because you have to. There's not so much “extra," and that requires you to be extra diligent about how you are spending your money (even more so if you're committed to any sort of savings goal). That extra $100 dinner out each month? Well, that can go a long way towards building your reserve or paying off debt.

On the flip side, if you're making $3 million to $5 million a year, you really don't need to have an automatic savings plan or be super diligent about cash flow, and quite frankly, you're still going to be just fine … as long as you're not totally off your rocker!

If you're making that much money, you will end up saving and investing enough each year for your future almost just by accident!

But earning mid to high six figures?

Your income is high enough for you to be totally comfortable day to day; you travel when you want, eat out when you want, send the kids to camp and tennis lessons as much as you want, and money is of no real “concern” when you think about the next 12 months. In fact, even with relatively lackadaisical spending, you STILL seem to be growing your net worth year over year: your savings account seems to get larger over time (though you have absolutely no idea by how much), you’re maxing out your 401k and that’s enough, usually, to satisfy the tickle in the back of your head.

Earning as much as you are, you could just wing it when it comes to planning—and maybe you are—but there’s a little voice in your head wondering if that’s such a good idea. Because, again, you’re not making so much money that you can just sit back and sail into the next phase of life with the certitude that you have “enough.”

In fact, you KNOW, when you really think about it, that financial independence isn’t just going to happen.

You still need to allocate money toward specific goals and decide upon the competing priorities at the center of your life—paying for your kids’ schools, which includes the price of living in an area that has the best ones; saving for college educations; buying a vacation home, renovating your primary home, supporting a spouse or partner through a possible career change; helping your elderly parents; early retirement.

And so, every now and then, the question hits you: “Are we actually on track? Could we be doing more? Are we going to be ok when the kids’ college comes? Will we be able to retire earlier than our parents did?"

And that’s the specific sense of whiplash you might feel when you make a dangerous amount of money.

Because, again (and I think it bears repeating), you’re way past the point of worrying about every penny that comes in. You can spend as much as you'd like in your everyday life with no real worries, providing a false sense of security.

You have this weird and disorienting sense of being totally comfortable in the short term while being stressed about the future. This dichotomy can leave people feeling stuck in place and reluctant to plan because it feels overwhelming. They really don’t know where they stand, how much they will need, or where their financial blind spots are.

More than anything, making a “dangerous” amount of money is a feeling that you’re not living up to your financial potential. It’s this feeling that you have that you SHOULD be financially better off than you are, the fear that if you did step back and look at the big picture, what you’d see would be a lot of unfulfilled potential and money/years gone to waste. It is a common financial worry, and I’d argue that it is an elevated feeling among those making a “dangerous amount of money.”

Real Life HENRY’S- Meet Jeff and Jodi

This specific type of financial anxiety is why my new clients, Jeff and Jodi, initially reached out to me. They were 44 and 42, respectively, living in a suburb of NYC with three kids, all under the age of 10. Jodi worked at Amazon, and Jeff was at Zillow, where they made $650,000 as a household.

We had our initial “Right Fit” call, and in trying to gage their starting financial health, I began asking versions of questions like:

What’s your most significant financial priority? What are you most trying to solve for and work through?
Why now? What’s changed that’s made this the right time to do this?
Do you know your cash flow habits and how much comes in and goes out?
Or do you have a process more akin to adding whatever is left over at the end of the month into savings/investments?
How do your monthly inflows and outflows usually play out? Do they stress you out, or are they out of sight, out of mind?

Here’s what I heard back:

“My husband and I make a lot of money, and we just feel like we should have more to show for it…I need to do a better job with this. Where is it all going?”

“We feel like we’re doing a lot of the basic stuff, like maxing out our 401k’s, and we have a 529 for each of the kids…but we don't know what we should be doing next. I have this tickle in the back of my brain that there’s more that we could be doing.”

“We’re thinking about moving and buying a bigger home, but we have such a great interest rate on our mortgage, and today’s rates are higher…can we afford to scale up?"

“We obviously are doing fine – we have savings, investments, and retirement accounts, and our net worth seems to keep going up...but I don’t know…will it be enough to retire? To buy the vacation home, we’ve always talked about? We have no idea! We need someone to tell us.”

Wealth-Building Strategies for HENRYs

Here are some of the challenges and the wealth-building strategies we discussed together that I’m hoping will inspire you to think more deeply about your own financial situation:

After piecing together their monthly spending, their total compensation (coming as it did from salaries, bonuses, and RSU’s), their tax liability, and their one-off spending goals (travel, renovations, etc.), we determined that they were spending $17k in total per month and had a savings rate (the percentage of their gross income they saved) of18%. We showed them how much they would need to save to get above 20% and also above 25%.

While there was room for improvement, they were relieved because they had no idea they were saving that much!

We helped them understand WHERE they were spending their money and what this revealed about their long-term trajectory. I’ll break it down.

We like separating clients’ spending into three broad “buckets” of expenses- Fixed, Flex, and Non-Monthlies. Fixed spending is anything that is already accounted for and doesn’t require any new decisions as you’ve already committed to spending this money, and it’s on auto-pay (your mortgage/rent, daycare, gym membership, student loan payments, utilities, professional memberships, etc.) Flex spending refers to money that you more actively decide to spend money on and (as I like to explain to clients) involves you choosing to use your credit card/Apple Pay (food, dining out, entertainment, Amazon shopping, house supplies, gas). Non-monthlies are the most random throughout the year, spending that fluctuates in amount and timing. (travel, wedding/holiday gifts, insurance premiums, housing maintenance).

It can be helpful to unpack these numbers. If Jeff and Jodi are spending $17,000 per month and $13,500 of it is in their “fixed” expense bucket, well, that tells us a bit about their capacity to cut down on their spending…there’s not much low-hanging fruit to eliminate because so much of their spending is built into their lifestyle (housing, childcare, professional obligations) and those aren’t so easily changed.

The point isn’t that Jeff and Jodi NEED to cut their spending today, necessarily. In fact, a lot of their most significant expenses are going to go away in the next 2-3 years (home renovations will be done, as will child care), but it’s helpful for them to understand what levers they have available to them in their quest to reach their long term goals.

Now that we knew where their spending was happening, we then created a new automated saving/investing system. The purpose of this “reverse budgeting” system is to save/invest the amount they need each month to their tax-advantaged retirement accounts, their Backdoor Roth IRAs, their diversified investment portfolios, their tax-advantaged healthcare accounts, and their savings FIRST and then live off of the rest of their income in their joint checking account (what we call the “revolving” account).

This accomplishes our first goal of ensuring Jeff and Jodi invest consistently and think about their savings plan as a priority in the same way they think about their mortgage payment or childcare. It simply needs to happen!

Investing a set amount of money each month out of their cash flow serves our broader investment. It forces us to dollar cost average the same amount into their investment accounts each month, which takes the market timing (a fool’s errand anyway!) out of the equation. Adding a set amount of money into your accounts each month over a long enough time period ensures that in months when the market is expensive, you will buy fewer shares of your chosen fund, and in months when the market dips and everything is “on sale,” you will buy more shares. Taken in a long enough investing timeline, you have put the odds in your favor that you are buying at the “best times” despite not actually thinking about that!

We mapped out where we needed to get their savings rate to hit their target of early retirement, and we ran through what the plan would look like if they bought a vacation home versus what it might be if they merely doubled their vacation budget but didn’t commit to a second mortgage.

Maximizing Earnings and Career Growth for Financial Success

With Jeff and Jodi, like with most of our clients, we discussed their career trajectory and their chosen path for maximizing their incomes during their prime earning years.

I’ll say this as a quick aside because I think it’s so important and under-appreciated: In my experience working with HENRY’s, the clearest way to increase your future income (yes, even more than through investing with us!!) is through professional development and the acquiring of new skills that lead to getting paid more at your job or in your business.

Admittedly, this is difficult to quantify and doesn't happen overnight...but in building out financial plans and looking through decades of cash flows...I can honestly say that continuously and gradually increasing your salary/bonus/commissions is the easiest and most meaningful way to generate additional income (and with substantially less capital required as compared to the “sexier” options like “passive real estate," short-term rentals, etc.)

So often on TikTok or social media, you see people touting their “7 income streams” as the way to get wealthy, and I can confidently say that this is NOT representative of how most wealthy people I know attained their wealth! I've found that my wealthiest clients have become so because they lasered in on maximizing ONE income source that they achieved by being a specialist/expert, continually learning/growing in their chosen field, making the right connections, and striking when the opportunity arises!

All this is to say that the best ROI on your money is oftentimes reinvesting into yourself via professional development, new courses, conferences, networking events, etc., and for Jodi and Jeff, it was SUPER helpful for them to understand the level of income needed to accomplish their future goals.

For example, we modeled how they were tracking to fully funding three private school tuitions and how a semi-retirement prior to full retirement in their late 50s would work (instead of going from making $650k as a household to zero, a lot of clients like the idea of being able to work part-time or use their accumulated skills/knowledge to consult…the key being they are working because they WANT TO not because they need to maximize income).

I’ll note here that for Jeff and Jody, as for many of our clients, it was the conversations around their financial purpose, values, and intentions revealed through the various scenarios we walked them through that proved just as valuable as all the tactical/technical adjustments we made to their accounts.

In fact, Jeff made an offhand comment that for as much time as he spent checking on his investments, he had never really thought about these far more impactful lifestyle decisions that he was making every day.

Sometimes, these conversations veered into areas that Jodi and Jeff probably preferred we didn’t have to cover, like planning for how they would be impacted if the unexpected and devastating happened!

We provided them this space to think about their insurance needs (which, again, nobody LIKES doing but can end up being what they are most thankful and appreciative for at the end of the process.) They each had a $1m 20-year term policy. I said, “Well, that’s a great start!” But a family with three young kids, a mortgage to pay off, three college educations, and 20 more years of earning over half a million dollars absolutely needs more short-term coverage! We showed them how to work backward and use their actual income/expenses/net worth to arrive at the coverage they would need to not disrupt their financial lives if either of them were to pass away.

Tax Strategies and Investment Options for HENRYs

We explored tax-efficient ways to sell some of their accumulated RSUs and created a disciplined strategy to do so over the next 5 years that wasn’t dependent on day-to-day market fluctuations but rather their level of concentration in the company as compared to the rest of their assets and the resultant capital gains they’d buy.

This involved rethinking the place RSUs served in their broader financial life and helping them understand that their RSUs were treated identically as if they received a cash bonus that was immediately invested in their company’s stock. They were taxed on their RSUs as soon as they vested, whether they held onto them or sold them, so deciding which to do was a cash flow and an investment decision more than it was a tax decision. (My favorite question around vesting RSUs: if your company gave you a $50,000 bonus, would you go out and buy $50,000 of company stock? If not, we might want to think about selling!)

We discussed the current makeup of their investment portfolios and the amount of cash they kept in their emergency reserves, always trying to fill in the knowledge gaps and identifying their investment comfort level via questions like:

Is the amount you keep in cash comfortable for you? Do you keep a certain amount of upcoming living expenses in the bank, or does money stay there until something moves you to invest/re-allocate it?
If we are electing to keep more in cash than financially necessary, are we ok with what that trade-off might mean in terms of keeping up with inflation, rising costs of living, and the purchasing power of your cash?
Do you think about the allocation to stocks and bonds within each account or in terms of the total across your entire net worth? How do you quantify risk when it comes to investing in stocks vs. bonds?
How did you arrive at owning mutual funds instead of ETFs/Index Funds? Let’s look at the internal fund ratios as well as our investment allocation to determine what might make the most sense moving forward.
What do you think about the tax impact of your current investment and rebalancing strategy? Do you have a plan to harvest losses proactively to offset capital gains? Have you set a capital gains budget to ensure that you don’t have unnecessary capital gains in a year when your tax bill is already quite large?

Investment planning and management is not just about the buying and selling of funds or even what your account performance YTD (which can and will fluctuate wildly year-to-year): it’s about understanding WHY you own what you own, what returns you need to achieve over time, what level of risk you’re comfortable taking to the get there, how your investments are (hopefully) helping to lower your lifetime tax-bill, and most importantly, how your investments can serve as a tool to help you achieve your financial goals.

Next, we looked at their existing retirement account structure from a tax perspective. They had over 90% of their retirement accounts held in Pre-Tax 401k’s. While it’s great that they didn’t have to pay taxes on this money when they contributed the funds (and are benefiting from tax-deferred growth), they will have to pay ordinary income taxes on the full value of the account as they distribute them in retirement!

To try and provide more balance to this lopsided tax allocation (and after looking at their future tax projections), we set up Backdoor Roth IRAs for each of them (which required converting a small Rollover IRA into a Roth and moving another, larger, IRA into their active employer-sponsored 401k), we maxed out their Health Savings Accounts (as they were already utilizing a High Deductible Health Care Plan.)

HSAs can be a fantastic vehicle as they are the only ones in the tax code that provide a TRIPLE tax benefit: contributions are tax-deductible, investment growth is tax-free, and distributions are tax-free if used for qualifying medical costs as we are all sure to have as we get older!

Of course, ALL of these were planning areas that Jeff and Jodi needed help organizing and evaluating, but everyone’s different! The point is that HENRY’s are in a unique position by nature of their high incomes, busy lives, and 15+ years until retirement time horizon to be intentional, proactive, and ultimately, to reach financial independence significantly earlier than most Americans do!

The sooner you start, the easier it is to achieve financial security. This fact is the only guarantee in finance that I would ever offer!

The first step involves getting out of your “own head” and seeking an objective fiduciary outside your family to help you understand where you’re starting from and where you’re trying to go.

What happens after that is up to you.

Onward and upward! Schedule a call with us today!

Editors Note: This article was originally published in January 2020. It has been updated to provide more comprehensive and up-to-date information.