Established Earner (Ages 41-55): Strategies and Recommendations for Long-Term, Growth-Oriented Return Objectives

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Written By Mark

Mark is the co-owner of and has many years of experience in financial markets. 

If you’re an established earner, you may have questions about the best strategies to use in achieving the long-term growth of your capital. Perhaps you started investing years ago or you may have decided to wait until your financial picture was stable.

In either scenario, it’s possible to imagine your later years. While retirement may have seemed far off in your 20s, it’s possible to imagine a life in which you enjoy the fruits of your labor.

Whatever your circumstances today, you recognize that investing now is important to your future. 

If you didn’t inherit capital, you recognize the difference between earned income and passive income. Your earned income results from your job. To grow your capital, you must invest it.

Over time, you will derive passive income from the money you invest. For that reason, you don’t have passive income there’s sufficient earned money to invest.

Where Do I Get Investment Capital?

Your answer to “Where do I get money to invest in the market?” is clear. As an established earner, you must invest earned money to build a stronger financial future now.

More Questions to ask yourself

Even if you’re a well-established earner and you’ve built a career, it’s possible to feel uncertain in today’s work world. Before you decide to commit capital to an investment portfolio, take a moment to assess your career status:

  • Do you enjoy the work you do?
  • Are you paid well for your work?
  • Should you evaluate new opportunities or is it time to commit to a current position and/or employer?

Answering these questions can help to guide you to the right investment path. If you feel positive about your current career prospects, consider how well your current income serves your financial needs. 

Saving Money

Even if you earn a high income, you can’t build wealth without saving some of it. Your primary goal as an established earner is to put more money aside to build wealth:

Evaluate your spending. Yes, you can use software designed for the purpose or simply carry a small notebook to record your expenses. Note every expense, even small ones. You may be surprised to learn the annual cost of a coffee each day.

Identify the financial fat. Separate expenses into wants and needs. For instance, shelter, clothing, and food are primary needs. Health insurance, car insurance, and life insurance premiums are needed if others are financially dependent on you.

Many expenses are optional wants. Assess both lists. You’ll probably delete some wants from the list, especially if you’re spending money that could be saved and invested. 

Establish your savings goal. Consider how much money you’re able to put aside each month. Stick to your plan. If you’re on track with savings, it’s still okay to treat yourself every now and then. Live your life and plan for the future. 

Automate your savings. If your employer offers a 401(k) plan, you may have the option to automatically draw a certain amount of money from your paycheck. If your employer makes matching contributions, it’s an especially wise way to save!

Otherwise, you can ask your bank or employer to transfer money each payday into an investment or savings account. 

Realize that it’s important to cut costs and increase your income. Don’t save so much money that you’re tempted to skip a payment or borrow a little to make ends meet.

Established Earner: Investing Money

Now that you’re regularly saving money, invest it to grow your capital. Before you initiate an investment plan, establish an emergency fund at your bank to meet any unexpected needs.

Many financial planners recommend putting aside up the six months of earnings in liquid bank savings account or money market fund.

Recognize that investments carry different levels of possible risk and return. In general, safer or less risky investments provide lower potential returns. High growth investments often present higher levels of risk along with larger possible returns.

Read as much as you can about investments. There are many different types of exotic and unusual investments, e.g. derivatives and structured products. Many investors begin with the basics, including mutual funds, stocks, and bonds:

Mutual funds allow you to own a part of an already diversified portfolio of securities. These portfolios can include equities, bonds (see our article about the role of bond funds for mutual fund portfolio), and other securities.

Although diversification can lower your risks, it’s important to realize that mutual funds vary in risk. Select mutual funds according to your risk tolerance level and do acquire asset classes that are truly diversified.

You might even want to open a self-directed IRA with a gold IRA company for even more diversification.

Stocks are equity, or ownership, in a corporation. When you acquire equities, you own a small part of the company. As an owner, you benefit from increases in share value along with dividends (if the company pays dividends to its investors).

Historically, equities are usually considered riskier than bonds but it’s important to note that not all public companies are created equal. So-called blue-chip companies are mature organizations with long track records of performance. 

Bonds, or debt instruments, are like government or company loans. When you invest in bonds, the issuer pledges to repay your principal and interest after a specific time period.

Very generally, bonds instruments may be viewed as a lower-risk investment than equities. However, debt instruments like bonds carry lower upside potential. Simultaneously, some bond issuers carry greater risk than others.

Bond-rating agencies, e.g. Standard & Poor’s and Moody’s, rate bond issuers and issues to reflect potential risks.

Established Earnings and Diversification

Regardless of how much and when you invest money, diversification is key. Simply said, you must spread your capital amongst different kinds of investments.

Understanding that your investment positions may perform differently over time, diversification helps to preserve principal and balance your returns.

For example, if you own equities and the market’s sell-off because of higher interest rates, bonds in the portfolio may provide stronger returns. Comparatively, one equity can outperform others in the portfolio.

Mutual funds are professionally managed diversified investments, refer to our guide on asset-based fees to know if they are worth it or not. The mutual fund manager invests in a variety of securities.

You achieve even greater diversification and spread the risk if you own both bond and equity mutual funds or a variety of stock funds or several bond mutual funds. 

Asset allocation is related to diversification. This concept involves the decision of what part of the portfolio is invested in any asset category (security type). It’s determined based on your risk tolerance profile and other factors.

In general, younger investors may be able to afford more risk because there’s more time to offset losses.

Debt and Investment

High-interest credit cards or any other loan carrying higher interest charges. Your investment portfolio returns may not be higher than the carrying costs of these debts.

It makes sense to pay off these charges before committing capital to an investment strategy.

After you repay debts like credit cards, direct this money to your investment portfolio. Going forward, pay your credit card bills in full to avoid owing high-interest charges in the future.

What’s the Cost of a Mutual Fund?

Many mutual fund companies require a modest minimum initial investment amount. After you contribute the minimum amount, it’s often possible to contribute less.

Mutual funds may also waive the initial minimum account size if you agree to invest a certain amount every month. You also may acquire no-load mutual funds or exchange-traded funds (ETFs) that trade like shares on an exchange.

High Earners Not Yet Rich (HENRYs)

If you’re a high earner who’s not rich yet (HENRY), you’re in the fortunate position of having discretionary income and a higher potential of becoming wealthy in the future. You have a good job. 

The acronym HENRY refers to some individuals and families who earn $250,000 – $500,000 per year. These individuals or families are inclined to spend a lot and seem to have little left over after paying housing, school, and tax costs. 

Are you a HENRY?

HENRYs seem to have it all but, unfortunately, they’re spending too much and saving or investing too little.

Often, HENRYs are considered the “working rich” because they haven’t yet accumulated wealth and passive income.

They’re targeted by luxury brand marketers. They have the money to get expensive clothing, accessories, vehicles, and more.

If you earn a high income and you’re an established earner, it’s important for you to consider the time value of money. The time is now. You must reduce debt, spend less, save more, and invest earned money to grow capital.

Established Earners: the One Percent

HENRYs are often considered amongst the wealthiest Americans. Unfortunately, many HENRYs live in cities and bear the highest costs of living.

For instance, a $250,000 income may acquire more in the Midwest than it does in Manhattan. Rising investment bankers are assumed to live a wealthy lifestyle but, to do so, many forego the chance to grow wealth.

Doctors, attorneys, and other professionals may be faced with the need to present a wealthy appearance to their clientele. Making these financial decisions means that HENRYs won’t have invested assets to fall back on if they lose a job or change careers.

Unfortunately, without making changes in how the high earner saves and spends, they’re living paycheck-to-paycheck and probably suffering high stress as well.

Investment Strategies for established Earners:

HENRYs may earn large salaries but most have meager savings and fewer investments. Improved spending habits, more savings, diversified investments, and strategic tax credits can help these established earners.

Many high-wage earners are in the highest tax brackets for income. It’s essential to consider the importance of tax planning to reduce taxes. More money saved on taxes can be invested for the future.

To lessen the tax burden, high-income earners should contribute to retirement plans, such as an employer’s 401(k) or an individual retirement account (IRA) to reduce taxable income. Older established earners can contribute more to their retirement while saving on taxes.

While 401(k) contributions aren’t directly tax-deductible, the earner directs pre-tax dollars to the retirement plan.

Therefore, by investing in the 401(k), the established earner lowers their taxable income reported to IRS. For instance, if HENRY earns $250,000 per year and directs $25,000 per year to their 401(k), the taxable income reported is $225,000 ($250,000 – $25,000).

This strategy allows the established earner to benefit from lower taxes plus higher savings and investments.

Lower Debt

Accumulated debt can keep established earners from reaching their full wealth potential.

The burdens of education loans, credit cards, car loans, and mortgages may leave the high earner feeling as though they’re on a treadmill. Big debts erode earnings, too, by limiting the amount of money that could be saved and invested.

Established earners can take the following steps to get out of debt:
Pay more than account minimums on your credit cards. Make more than one payment a month when possible to reduce your balance and the applied interest charges.

Limit the use of or stop using credit cards.

Pay off other loans, e.g. student loans. By paying more than the minimum payment, it’s possible to quickly resolve the debt and lower the accrued interest.

Loan consolidation can help to save money by reducing the loan interest rate and payment.

Bottom Line for earners between the age of 41 to 55

Whether you’re an established earner or a high earner with debt and high overhead costs (HENRY), it’s important to invest for your future.

If you haven’t saved and invested enough, you must manage consumer spending, educational expenses, and dwelling costs. Achieving a rich future can be difficult if you don’t allow enough for investments and retirement at the present.

To improve your financial position, reduce debt, increase retirement and investment account contributions, and lessen your tax obligations. Seek advice from professional wealth advisors to ensure a healthy financial future.

Take control of your financial future today. While it can be tempting to participate in get-rich-quickly schemes, know that the tried-and-true path to wealth requires discipline.

You must save and invest while patiently letting your capital grow with time. It’s okay to begin small.

The most important advice to established earners is invest now. Don’t forget to read our related article about investment strategies for investors from 56 to 65 years old.

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