Who are Henrys?
If you are
✓ Earning a six-figure income (and therefore in the top 3% of UK earners)
✓ Living a fairly lavish lifestyle
✓ Not thinking too hard about your spending habits
✓ Living more or less paycheck to paycheck (that “rich but broke” feeling)
✓ Bonus: are a millennial
Then you might be a Henry. That is, a High Earner Not Rich Yet.
The Henry demographic and term was coined by a writer at Fortune in 2013, and defined by having a higher than average income, little to no savings, and low material wealth. In other words, if you stopped working, you would no longer be rich — you are a “working rich”.
The Henry demographic largely falls into two categories, per se, one has high income and spends with abandon, while the other has high income but expensive and difficult to drop commitments—like private school tuition fees or a big rent or mortgage. On their current track, it is not possible to become “wealthy”.
As a Henry, you may have an idea about how to save, and know on some level that you should be, but are not yet organised to get the ball rolling. That’s okay. Today’s another day. And the sooner you start, the more likely you are to have future financial stability without compromises.
Savings priorities
Remember, if you identify as a Henry, you are Not Rich Yet. A bit of intention and aspiration behind your finances wouldn’t go amiss. Save a bit, and save smart.
According to Stash Wealth, a US financial planning firm that caters to Henrys, a Henry should aim to first build an emergency fund equal to at least 3 months worth of fixed expenses. To reach your goal, automate a regular transfer from your current account and look to park it in a high yield savings account. Remember that even a small bit of money saved from each paycheck is worthwhile, and that over time even small savings can add up due to compounding interest.
Once the emergency fund has hit its goal, start to automate savings towards short-term goals (that is, goals to reach within three years), such as a vacation or down payment on a house, and medium-term goals (3+ years but before retirement). It is possible to invest in stocks, bonds, ETFs and mutual funds, which don’t penalise with high fees and taxes upon withdrawal but can potentially deliver a higher return.
From there, focus on putting money into savings and investment for retirement. If you can, max out your pension plan.
But don’t over-save to the point that you don’t have spare cash to pay your expenses or completely cut yourself off from a lifestyle that’s important to you. You can use Money Dashboard’s free tools to see the breakdown of your important monthly spending (and the discretionary spending) and work backwards from your regular paychecks.
If you feel that you don’t have money to stash away after paying basic living expenses, it’s time to scrutinise your spending habits and find ways to save up to millionaire status.
Reduce your tax exposure
If you are a High Earners Not Rich Yet in the UK, then you know that taxes can take a big hit from your income. Financial planning for Henrys will often try to help reduce this tax exposure. That includes making the most of personal savings allowance, dividend allowance, and Capital Gains Tax (CGT) allowance (if applicable).
Notably, money into an ISA does not incur any capital gains tax, dividend tax or income tax, and therefore does not count towards your personal savings or dividend allowance. So a Henry could move as much of his or her savings into an ISA as possible—up to the allowance of £20,000 per year in 2020 (remember, the new tax year starts is early April).
Locking up income into pensions also offers some relief because your contribution is topped up (check the limit before doing so). Higher-rate taxpayers get 40% tax relief on any pension contributions, compared with just 20% for basic-rate taxpayers.
You can also rent a room in your home and earn an extra £7,500 tax-free.
For more Henry UK information and advice to suit your needs, it’s best to visit a Henry wealth management expert.
