In 2003, Fortune Magazine coined a new term to define a growing demographic in America.
The term, HENRYs (High Earners Not Yet Rich), refers to individuals who earn anywhere from $250,000 to $500,000 annually, but despite such significant income, often do not have much money in their pocket after paying living expenses such as taxes, housing and family costs.
In addition to living costs, many HENRYs are saddled with significant student loan debt, which is not only delaying their ability to save, but also postponing investing for retirement. Over the long term, this can be a troubling problem because HENRYs are essentially relying entirely on their incomes rather than establishing important wealth building assets. If this sounds like you, keep reading as I delve into some of the challenges faced by HENRYs struggling with student loan debt and offer suggestions for addressing this problem.
Inability to save
Rising student loan debt in America has had a profound impact on the ability to save money, particularly in the form of an emergency savings account. A recent Bankrate survey of those who have or had student loan debt found that 34 percent said the loans delayed building emergency savings.
When you don’t have emergency savings to cover unexpected expenses it can lead to a spiraling cycle of increasing debt. Without readily available savings, (ideally three months of income), unplanned expenses like car repairs or medical bills, often require using a high-interest credit card.
Yet another important issue linked to a lack of savings is stress. Kiplinger calls it “debt stress” and says those who have significant debt for years find that everything from happiness to work performance and relationships are impacted.
Missed time in the market
Not having an emergency savings account is just one challenge faced by HENRYs with significant student loan debt. Retirement investing also suffers.
About eight in 10 adults in this country who have student loans (81 percent) admit to making financial and personal sacrifices as a result of their student debt. And for about 50 percent of those people that means putting off contributing to retirement accounts.
Lost years in the market are a serious matter given that compound interest is one of the most powerful parts of investing over the long term. Compound interest is interest accrued on top of interest, and the longer you’re in the market, the more significant that accumulation becomes. In other words, establishing a retirement fund early in your career is an important step toward significant, long-term wealth building.
High interest debt for cars, homes, and credit cards
The same Bankrate survey that revealed how significantly student loan debt is impacting our savings also shows that such debt is delaying one’s ability to pay off credit cards. About 27 percent of respondents said they’re putting off paying other debts such as credit cards because of student loan burdens.
A lack of free cash also means HENRYs and others may resort to using high-interest approaches to buying things such as cars, homes and other significant purchases.
Now let’s look at a better approach to many of these challenges, a plan of attack that can help get your situation under control.
Review and dial in cash flow management
Taking a detailed look at your monthly spending, including everything that comes in and goes out, is the first step toward gaining control of your cash flow.
Write down all of your expenditures and scrutinize them carefully, identifying areas where you spend money on unnecessary items. This could include shopping, trips to Starbucks, an excessive number of monthly subscriptions, dining out regularly and more.
Make lifestyle changes
Now begin to start thinking about making some lifestyle changes, cutting back on some of that unnecessary spending, which is an important step toward improving your monthly cash flow.
There’s a variety of ways to go about this but can include everything from reducing subscriptions, to finding ways to trim monthly energy costs, and refinancing high-interest debt such as car loans or mortgages. You might also think about shopping around for a less expensive phone plan or cheaper insurance. The key is to do a thorough and detailed review of your monthly expenditures and find at least two to three ways to make changes.
Accelerate student loan repayment
There are many advantages to accelerating your student loan repayment, including paying less debt over time and having more money to address other priorities in life.
There’s a variety of ways to go about accelerating your payments including making bi-monthly payments, adding extra money to each payment (even as little as $20 extra per payment can help), and enrolling in autopay (which can provide an interest rate reduction).
Save what you can
Having a savings account is an important habit no matter who you are. Even HENRYs must remember that while it’s important to pay down debt, the first step should be establishing at least some savings as a cushion for emergencies.
And ideally, once you’ve made some lifestyle changes and reduced your monthly spending, you can begin not only ramping up your savings but also accelerating those student loan payments.
I am excited to announce the release of my new eBook-The Professional’s Guide to Paying Off Student Loans. You can access this resource via this link. It equips you with the knowledge to navigate the complexities of income-driven repayment options. Are student loans preventing you from living your best life? I can help. Schedule a free consultation with me today!
STUDENT LOAN REPAYMENT CONSULTING!
Future Map Financial now offers Student Loan Repayment Consulting for student loan borrowers. This service is to help you identify challenges and opportunities related to your current student loan repayment plan and to assist you with creating and implementing the optimal student loan repayment strategy for your personal and financial circumstances. Click Here to Learn More!
As always, I invite you to reach out to me – in real life – with any comments, feedback, or questions! [email protected]. Are you ready to take the first step towards securing your financial future? If so, schedule your free 30-minute no-obligation student loan repayment consultation with me today. Schedule Your Consultation with Frank.
Disclaimer: The information contained in this article is for informational purposes. None of the information provided in this article is intended as investment, tax, accounting or legal advice, as an offer or solicitation of an offer to buy or sell, or as an endorsement of any company, security, fund, or other securities or non-securities offering. Please consult with your accountant, finance professional, and/or legal counsel regarding your specific circumstances. Reproduction of this material is prohibited without written permission from Frank Shields, and all rights are reserved. Read the full Disclaimer.