Reaching a six-figure income is a significant milestone that opens the door to greater financial stability and wealth-building opportunities.
However, to ensure you make the most of your increased income and maintain financial health, it’s essential to implement certain strategic money moves. Here are seven crucial steps to take once you start earning $100,000 or more annually.
1. Eliminate High-Interest Debt
One of the first actions to take when you begin earning a six-figure income is to eliminate any high-interest debt. This includes student loans, credit card balances, and any other outstanding debt with high interest rates. According to Alissa Krasner Maizes, a financial planner and founder of Amplify My Wealth, paying off high-interest debt offers the quickest return on investment.
Start by automating monthly payments that go beyond the required minimum payment. Focus on your highest-interest debt first, and once that is paid off, move on to the next highest interest debt. Continue this process until all high-interest debt is cleared, leaving you debt-free and financially liberated.
2. Maximize Retirement Contributions
After clearing your high-interest debt, the next step is to maximize your retirement contributions. As a high earner, you should take full advantage of your employer’s retirement match and contribute the maximum allowed to tax-advantaged retirement accounts. Krasner Maizes advises considering Roth options, which involve paying taxes now to enjoy tax-free growth and withdrawals in retirement.
By maximizing your retirement contributions, you’re not only securing your future but also taking advantage of the tax benefits available to high-income earners.
3. Create a Holistic Financial Plan
With a six-figure income, it’s crucial to have a comprehensive financial plan that addresses both short-term needs and long-term goals. Utilize free financial tools, such as those offered by financial services companies like Empower, to manage and invest your money wisely. Empower provides tools for checking your net worth, planning savings and retirement, and performing investment checkups.
Their portfolio analyzer helps you assess risk, analyze past performance, and model asset allocations, while their investment-return calculator estimates potential earnings based on your investments and expected rate of return. Creating a free financial dashboard allows you to track your progress towards your goals and ensure your money is working effectively for you.
4. Update Your Expense Plan
Once you have cleared your debt and maximized your retirement contributions, it’s time to revisit and update your budget. Eliminate unnecessary expenses and adjust your budget to reflect your new income. Krasner Maizes emphasizes the importance of trimming expenses rather than increasing them, as this will help you amplify your wealth more quickly.
By maintaining a disciplined approach to spending, you can better allocate your resources towards savings, investments, and other financial goals.
5. Fund Your Emergency Fund
Regardless of your income level, having a robust emergency fund is a critical financial priority. With a six-figure salary, you have the advantage of being able to allocate more towards this fund. Krasner Maizes recommends directing extra income to a high-yield emergency savings account.
While the general recommendation is to have three to six months of expenses saved, the exact amount should be tailored to your personal circumstances. Building a substantial emergency fund ensures you’re prepared for unexpected financial challenges without compromising your long-term financial goals.
6. Open a Brokerage Account
If you haven’t already, consider opening a brokerage account. Automate contributions into this account to build a diversified investment portfolio. Krasner Maizes suggests that opening a brokerage account and investing regularly can help reduce financial regrets and boost financial confidence.
A brokerage account allows you to invest in a wide range of assets, providing opportunities for growth beyond traditional retirement accounts.
7. Develop an Investing Strategy
Earning $100,000 or more presents an excellent opportunity to refine and implement a robust investing strategy. Jon Klaff, general manager at Magnifi, advises considering personalized individual investing based on your personal goals. A diversified investment strategy is crucial for minimizing risk and maximizing returns.
Diversification can include purchasing fractional shares, investing in a variety of companies, buying mutual funds, and incorporating bonds or diversified bond funds into your portfolio. A well-defined investing strategy helps you stay focused on your long-term goals and avoid being swayed by market trends and groupthink.
Conclusion
Achieving a six-figure income is an exciting milestone, but it also requires careful financial planning and disciplined money management. By eliminating high-interest debt, maximizing retirement contributions, creating a holistic financial plan, updating your budget, funding your emergency fund, opening a brokerage account, and developing a solid investing strategy, you can ensure that your increased income leads to sustained financial health and wealth-building for the future.
