Earn a lot, but don’t feel rich? You might be a HENRY

One of the most dangerous money myths that still pervades to this day is that the more money you earn, the better you become at managing it.

For most of us, our income trajectories throughout the lifetime of our careers will be pretty standard. We start out earning modest amounts, and as time goes on and our skills and experience grows, so too do our wages.

The bad habits of these HENRYs is something all of us can be or are guilty of, no matter our income bracket.Credit: Dionne Gain

While some people are brilliant budgeters who use their salary increases as an opportunity to save money and work towards long-term wealth accumulation goals like owning property and creating an investment portfolio, lots of us simply begin to spend more as we earn more.

It’s an easy thing to do, especially when it happens incrementally. You’ve just got a promotion, so why not take a holiday where you treat yourself to five-star hotels? Or you upgrade the family car, but instead of a budget-friendly model, you go for something a little more luxurious?

Perhaps you decide to hire a house cleaner, or you find yourself ordering takeaway or dining out more often because you’re working long hours. Maybe you received a performance bonus and splash out on a gift to yourself to celebrate your hard work. Whatever the situation, this creep of spending usually happens incrementally. Then one day, you wake up and realise you’ve become a HENRY.

Yes, there’s a snazzy little acronym for these people: High Earners Not Rich Yet.

Understanding the basics of how to budget and manage your finances doesn’t automatically come with a higher income bracket.

Though the term was first coined by Fortune Magazine in 2003, it’s been having a resurgence of late as more and more Australian millennials make their way into the high-income tax bracket but are finding themselves with less wealth than they’d hoped for.

In theory, being a HENRY is a good problem to have. To qualify as one means you’re already within the highest-earning Australian tax bracket – bringing in $190,000 or more a year on your own, or a combined income of $380,000 with a partner. As I said, a good problem to have.

That’s the “HE” part of the acronym covered, but it’s in the “not yet rich” bit where things become a lot less fun. What separates HENRYs from other high-earners is a lack of assets and savings, and usually spending all of their income – or even beyond that.

According to the Australian Bureau of Statistics and data collected from McCrindle, though the highest earners in Australia are aged between 25-64, the majority of HENRYs are aged between 35-44.

Despite having an average income difference of just $10,000 between themselves and the highest-earning cohort (those aged 45-54), the difference in wealth – primarily through assets – is stark, with the data shows that HENRYs aged between 35-44 have an average household net wealth of $692,000, while high-earners aged 45-54 have $1.2 million.

Before you pull out the world’s smallest violin for people bringing home A+ financial bacon, hear me out. Though a salary of over $190,000 is something most of us would dream of, the bad habits of these HENRYs is something all of us can be or are guilty of, no matter our income bracket.

Financial literacy is not a given, and that’s precisely why presumptions like earning more money somehow makes you better at managing it is so dangerous. When you look around at your friends, family or colleagues and see those who are the most financially stable and the best with money you’ll realise they’re not always the highest earners.

That’s because being good with money is less about the figure on your paycheck, and far more about what you do with it when it hits your bank account.

The fastest way to hold on to money, whether you’re earning $80,000 or $250,000 is to not increase spending in line with your rising income. In other words, create a realistic budget where there is always some money left over at the end of the week. This means fighting the temptation to spend every last cent of what you earn and being conscious of your spending.

When you’re working long hours or in a job you don’t necessarily love, discretionary spending can feel like a balm to the problem. Blowing off a bad week with an extravagant weekend of drinks and dining, or enjoying a late-night online shopping spree might give you a temporary dopamine hit, but these are the moments where you need to remember “future you” and look out for their interests.

That doesn’t mean cutting out all forms of enjoyment from your life. If travel is something you really love and that’s important to you, you should absolutely keep doing that. But instead of booking last minute or on a whim, set alerts for flight deals, consider visiting during off-peak seasons, or book with a group of friends.

If taking a break from your desk each day and buying your lunch is something you can’t do without, prioritise cooking during the evenings and on weekends to find savings there.

And if you have existing debt with high interest (credit cards, I’m looking directly at you), prioritise clearing that above anything else.

Though having $5000 in your savings account might feel good to look at and motivate you to keep going, if you also have a credit card debt of $5000 and are paying 20 per cent interest (as opposed to a bank’s savings interest of around 5 per cent), the answer is clear.

Of course, earning a six-figure salary provides you with an opportunity to save more and generate substantially more wealth than someone earning five figures over the course of your working life.

But one of the harshest realities of personal finance is that understanding the basics of how to budget and manage your finances doesn’t automatically come with a higher income bracket.

Without that foundation and by continuing to assume knowledge is a by-product of money, we’ll only continue to see more HENRYs.

Victoria Devine is an award-winning retired financial adviser, best-selling author and host of Australia’s No.1 finance podcast, She’s on the Money. Victoria is also the founder and director of Zella Money.

• Advice given in this article is general in nature and not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their personal circumstances before making any financial decisions.

Expert tips on how to save, invest and make the most of your money delivered to your inbox every Sunday. Sign up for our Real Money newsletter.