068 | Being Broke Making Six Figures

Many high-income earners, including many lawyers, don’t have anything to show for the money they’ve made. It’s such a common situation in the legal profession and beyond that there’s a special acronym for people who fit this description: HENRY.

Although it may be common for high-income earners to have a low net worth, it doesn’t have to be that way. In this episode, we’re talking about what HENRY means, why many lawyers fall into the HENRY category, and what to do if you find yourself here.

Lightly edited transcript appears after the show notes.

Topics Discussed

• what a HENRY is
• why many lawyers are HENRYs
• what to do if you find yourself in the HENRY category

Listen to the Episode

Resources mentioned

Lifestyle Freedom Starter Guide

Episode 17: How to Budget Using the Zero-Based Budgeting Method for Lawyers

Episode 25: The Fastest Way to Pay Off Those Law School Loans

Episode 30: Are You Ignoring Your Most Important Financial Number?

Work With Me

If you’re ready to go deeper with this work, click here and let’s set up a call to talk about how coaching can help.

Connect with me

Social media: @iamrhothomas on Instagram, Facebook, Twitter, LinkedIn

Email: hello@rhothomas.com

Recent Episodes

Lightly Edited Transcript

Hey friend. Welcome back to the show. I hope you are doing well and having an amazing day so far. So today we are talking about having a high income, but a low net worth, or in other words, being broke while making six figures or more. So I recently got a question from a mid level associate who’s making $250,000 a year and is living paycheck to paycheck, and she was asking, how to get out of that cycle. And so I did a video with some tips on gaining awareness and getting out of the cycle, which you can find on my Instagram and LinkedIn. but I wanted to dive deeper into the subject of having a low net worth while making six figures, because it’s so common, and it’s often a result of living this paycheck to paycheck lifestyle. So basically I wanted to play this question out a bit because if you’re like this associate who’s living paycheck to paycheck, then you likely have a low net worth, and you’re not making progress toward changing that. And to be clear, having a low net worth while making six figures was the story of my life. Five years ago, I talk all the time about how we had a negative $342,000 net worth, when we added up all our debt back in 2016, and honestly it was still the story of my life. Even more recently, because we didn’t cross over into a positive net worth until the end of 2019, and we’ve grown from there. But anyway, there is a whole term to describe people who make six figures, but have nothing to show for it. Henry. It’s an acronym that stands for high earner, not rich yet, and the associate who asked me the question, and many other lawyers fall into the Henry category. My husband and I were in the Henry category when we started our financial journey five years ago, and I know I’ve told you about the book The Millionaire Next Door, a few times, is an excellent book so if you haven’t read it yet, I highly recommend it. And I don’t think the book actually uses the term Henry, but it definitely talks about people who would be considered Henry’s versus people who have built wealth, and when I refer to wealth here I’m speaking about their net worth. So the book explores the ways that these two groups think differently about and spend their money, and many of the wealthy people weren’t making six figures, or even close to it, which makes sense, right. We’ve talked before about the fact that your income is not what makes you wealthy. You can be making a million dollars a year, but if you spend it all, then you can’t use your money to build wealth. You are not wealthy, despite that you make seven figures, you can make 40 or $50,000 a year, and be living within your means and saving and investing and building wealth. And so those examples just show that it doesn’t matter the amount of money that you’re actually bringing in. It’s what you do with that money. In the case of Henry’s. On one hand, some of them may just be starting their careers, they might have you know a lot of student loan debt, they haven’t had a lot of time with their new income to have made a dent in their student loans, or to start saving and investing and things like that. They might also be in the phase of life where they’re getting married and starting a family and childcare is no joke, like we were literally paying another mortgage for childcare before the pandemic. And also, side note, I recognize that that’s not everyone’s journey, or even what everyone wants right everyone doesn’t want to be married or have a family. But basically, some lawyers who are Henry’s are in this phase of just starting their careers and they’ve got a lot of life transitions and adulting and all of that going on. And they just haven’t had a lot of time to build wealth, right, like they haven’t had a lot of time with their income to be able to utilize it to start turning their financial situation around. On the other hand, are those lawyers who fall in this category, who have been in it for a while. So if you’re a mid level or a senior associate or counsel or partner, you’ve been practicing for a while and you’ve had some time to use your income to pay down debt and build your savings and investments, but many lawyers because of their lifestyle choices aren’t able to do that. And so that’s why age isn’t necessarily a factor in terms of whether someone is a Henry or not, because it’s not a matter of, you know how old you are, it’s a matter of having a high income, which people typically define as making six figures, but not having the corresponding net worth, that you might expect, right, like not having a whole lot in the way of wealth to show for it. So for a lot of lawyers, the amount of money they’re spending on lifestyle things like their housing their cars, shopping vacations restaurants, all that kind of stuff, contributes to the fact that they haven’t been able to build wealth, especially if they have other financial responsibilities like student loans, or childcare that are taking up a chunk of their income. So now that we’ve talked about how lawyers at various stages of their careers can be Henry’s, let’s talk about what you can do to turn things around. If you find yourself there. The main factor for being a Henry is having a low net worth. So increasing your net worth is key. Right. We talked back in episode 30 about how your net worth is your most important financial number. We put a lot of focus on numbers like your salary or your credit score, but those numbers don’t really give you a good picture of your financial health. On the other hand, your net worth will give you a great picture of your financial health, your net worth is basically the value of all of your assets, so your bank accounts, your investment accounts, savings accounts, your 401k, the value of your house, things like that. I mean, subtract all of your debts and liabilities so your mortgage, your student loans, credit cards, personal loans any other debts that you have, and taking your assets minus your liabilities or your debts, gives you your net worth. If you have more debt than assets, then you’re going to have a negative net worth, which is exactly where my husband and I were five years ago. If you’re bringing in six figures or multiple six figures, but your net worth is staying the same year after year, then you know you’re missing something there, right, you’re not utilizing the income that you have in the best way, or the most effective way, because you’re not keeping any of it for yourself. And if you’re just starting out, like if you’re, you know, first year, second year, and you’re a Henry because you haven’t had time yet to pay down your debt and build your assets, be mindful of the decisions you’re making with your money now, so that you don’t end up spending all your income and not able to make progress on your finances and grow your net worth. I always tell Junior associates to increase their lifestyle slowly, so don’t come out and immediately get all the fancy lawyer stuff and think you should be living, whatever idea you had of being a fancy lawyer. Live similarly to the way you did while you were in school, maybe with a few upgrades here and there, while you’re tackling your loans and saving and investing and all of that. Otherwise, if you’re not careful, you could end up still being a Henry five years from now 10 years from now, because you’re spending all your money and not able to use it for the things that would actually help you build wealth and get your finances on track. Right. And if you’ve been out for a while, but haven’t been able to build your net worth, focus on increasing that net worth, which means growing your assets, decreasing your debt are both with Henry, who have large student loan balances and other debts like credit cards and personal loans, paying down your debt is going to be really helpful because it helps you to increase your net worth. One because you’re decreasing the amount of debt that you have and to because you’re also decreasing the amount of interest you’re paying out. We talked back in episode 25 about the debt snowball method being a really effective way of paying off your debt with that method, you pay the minimum payment on all of your debts except the one with the smallest balance, and you pay as much extra on that one as you can until you pay it off, then you move to the next smallest balance. And that method is the one my husband and I actually used, and it’s the method I recommend to all my clients and I like it because of the psychological benefits. So as you’re paying off these smaller loans and you’re seeing the debt balance go down, and you’re getting those paid in full letters, you gain so much momentum. So then, you’ve already built up this evidence right that you can do it as you get to these larger and larger balances, because you’ve paid off so much already, so you’re more likely to keep going and actually pay everything off. And aside from paying down your debt, you can increase your net worth by increasing your assets. Most often this is through saving and investing. so please make sure you’re prioritizing your saving. Please make sure you are prioritizing your saving and investment goals, don’t just, you know, hope and wish that you have something left over at the end of the month to put toward those. If you have a 401k and your employer offers a match, invest enough to get the full match. So to give you an example, let’s say your employer matches your contributions. 50% up to the first 6% that you put into your 401k. This means if you make $100,000 And you put $6,000 in your 401k, your employer will put another $3,000 in that is free money that you’re leaving on the table if you’re not investing, up to the match, and whether you are working on increasing your assets or decreasing your debt or both. It all comes back to your budget, your budget is so important so if you don’t have a budget, I highly recommend that you make one. Go back to Episode 17, where I go through exactly how to do a zero based budget which is the budget that I use and that I teach my clients to use in creating your budget, you want to look at where you’re spending your money and decide if you like where you’re spending your money, because something I’ve noticed with a lot of my clients is they’ll have this idea of how much they’re spending in particular areas, and it’s almost always more than that, like double what they thought they were spending. And so when you’re trying to estimate how much you’re spending in your head, you’re going to naturally assume that you’re spending less than you are going to have it on paper and you can see exactly where your money’s going, then you can determine if you actually like where it’s going, right, if you like where you’re spending your money and you like the amount that you’re spending, and you can adjust accordingly. The point I’m making is when you make your budget, you get to plan where you’re going to spend your money. And part of that plan is going to be your financial goals whether that’s saving or investing or paying off debt. And when you’re able to decrease your expenses, you’re increasing the amount of money available to go toward those goals, which ultimately increases your net worth. You don’t have to wholesale you know cut out everything you love, you know I talk all the time about how you don’t have to deprive yourself to be good with money or to reach your money goals, but many people aren’t paying attention to where they’re spending their money in the first place. When you are mindful of the amount that you’re spending in different areas, and you’re being intentional about it, then you can direct more money to the areas that are important to you, and decrease the amount of money that’s going to other areas that you don’t care about as much. Not being intentional leads to so many opportunities for wealth building going out the window because you’re basically prioritizing things you don’t even care about right, like you’re spending money on those things, even unintentionally. And so, that money is not available for your wealth building goals being more intentional often allows you to cut back on your spending, which frees up more money to put toward your wealth building as well. So those are my tips for getting out of the Henry category. It all comes back to increasing your net worth. And that foundation of building a budget that works for you. If you are a high earner, with a low net worth and you’re ready to manage your money better, please reach out to me. I help lawyers master their money and I can help you too. So, just head to rho Thomas comm slash coaching, and let’s schedule a call. Alright so that’s it for this week’s episode, don’t connect with me on LinkedIn and Instagram, my handle on Instagram is at I am rho Thomas, and my name on LinkedIn is rho Thomas. Please also take a second to subscribe to the podcast and leave a review, both of which helped the visibility of the show. And finally, please share this episode with a friend or two you think would enjoy it. And if you share on Instagram. Don’t forget to tag me. Alright, as we close out friend. I pray that you will review your finances and get honest with yourself about where you stand. I pray that you will take the steps you need to take to grow your net worth, especially if you find yourself in the Henry category. And as always, I pray that you continue to take steps to regain control of your time, build wealth and live the life of freedom and choice you deserve. Talk to you later.