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5 Avoidable Spending Mistakes of Early Life High Earners

Do you have a great job with a generous salary or have started a business that has taken off but still find you’re living paycheck to paycheck?

You’re not alone. Many HENRYs (high earners, not rich yet) early in their careers find it difficult to juggle their increased finances and expenses.

Whether you’re at a booming tech company, just started your medical practice or recently passed the bar exam, don’t make these same five mistakes that thousands of young, high earners make each year.

1. Running up Credit Card Debt to “Keep up With the Joneses”

Having the newest car and best wardrobe is fantastic, until you apply for a mortgage and find out your credit score is less-than ideal. How much you run up on your credit cards makes up 30% of your total FICO credit score.1 If you’ve got a low score, you will likely pay higher interest rates or have trouble getting a business or home loan.

If you are using your credit card, try to use less than 30% of your total credit limit to keep your score in check, and don’t forget to pay off that balance each month. Keeping luxury purchases to a minimum will reduce stress and allow you to maintain your lifestyle, even through retirement.

2. Not Saving for Retirement

The last thing anyone wants is to see their paycheck shrink just to be put into an account they can’t touch for years to come. Although it isn’t the most exciting way to spend your new income, saving for retirement is more important now than ever. General guidelines say to save between 10-15% of your income, starting in your 20s.2

Putting off saving for even five years as a HENRY could mean a difference of tens of thousands of dollars to your retirement account. Even those with student loan debt should think twice before neglecting their retirement account to pay extra on a student loan.

In 2016, between law, medical and dental programs, at least 69% of students graduated with student loans.3 However, student loan interest rates can be lower than expected returns on an investment account. For example, the interest rate on direct unsubsidized loans for graduate or professional borrowers for 2018-2019 was 6.60%.4 Although investment performance can never be guaranteed or promised, it is generally projected that a retirement account invested in globally diversified stocks can return around 7% on an average, annual basis.5

That means you could miss out on nearly 0.5% of a return each year by choosing to pay extra on a student loan instead of saving for retirement. This may not sound like much, but compounded over may years, it can add up.

3. Forgetting Estate Planning Documents

One of the biggest mistakes a high earner can make is forgetting to have estate planning documents. Not only does estate planning allow for designating who will receive your assets, it can also help you avoid hefty estate taxes and protect your personal assets (e.g., real estate, business, etc.). Getting a financial power of attorney, buy-sell agreements and a succession plan in place can ease your nerves, protect your successors and keep your wallet happy.

4. Having Inadequate Insurance

HENRYs need to ensure they have adequate insurance to protect themselves and their businesses. Lawsuits are not uncommon in high-profile positions, such as a doctor, dentist or lawyer. In fact, one in three physicians has dealt with one at some point in their career.6

Keep malpractice or professional liability insurance top of mind as you enter your career. With a high income, it is also important to look into life and disability insurance. At least one in four Americans will experience some sort of disability during their career.7 Having insurance in place and understanding what is available for long-term care can bridge that gap in income that someone with a disability could experience.

5. Not Negotiating

Successful millennials are likely to have several job offers. The company may be a great place to work, but that does not mean you need to immediately accept. There is a reason they picked you to work for them, and negotiating things like salary and benefits is not uncommon. Even young business owners can use negotiating to their advantage.

For example, if your practice is looking at different medical equipment companies, don’t be too quick to pick the first vendor that shows interest in you. Keeping your business costs down will not only cut costs but also keep your customers happy as your services remain competitive. Remember, the best vendor is not necessarily the cheapest. Up-front costs may be high, but time saved from staffing or repairs could ultimately be a deciding factor.

Get Started

The best thing about these five techniques is that they can be started now, even if you were not yet applying them. By making these small adjustments early, you could be greatly impacting your future.

Want to get started with your planning? Contact us.

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 Financial planning for early earners

Wipfli Financial Advisors, LLC (“Wipfli Financial”) is an investment advisor registered with the U.S. Securities and Exchange Commission (SEC); however, such registration does not imply a certain level of skill or training and no inference to the contrary should be made. Wipfli Financial is a proud affiliate of Wipfli LLP, a national accounting and consulting firm. Information pertaining to Wipfli Financial’s management, operations, services and fees is set forth in Wipfli Financial’s current Form ADV Part 2A brochure, copies of which are available from Wipfli Financial upon request at no cost or at www.adviserinfo.sec.gov. Wipfli Financial does not provide tax, accounting or legal services. The views expressed by the author are the author’s alone and do not necessarily represent the views of Wipfli Financial or its affiliates. The information contained in any third-party resource cited herein is not owned or controlled by Wipfli Financial, and Wipfli Financial does not guarantee the accuracy or reliability of any information that may be found in such resources. Links to any third-party resource are provided as a courtesy for reference only and are not intended to be, and do not act as, an endorsement by Wipfli Financial of the third party or any of its content or use of its content. The standard information provided in this blog is for general purposes only and should not be construed as, or used as a substitute for, financial, investment or other professional advice. If you have questions regarding your financial situation, you should consult your financial planner, investment advisor, attorney or other professional.
Stephanie Forrester
Stephanie Forrester

Associate Advisor

Stephanie Forrester is an Associate Advisor with Wipfli Financial Advisors, based in Appleton, WI. In her role, Stephanie assists our Appleton advisory team with personal financial planning and investment management for individuals, families, small businesses and retirement plans.

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5 Avoidable Spending Mistakes of Early Life High Earners

time to read: 4 min