
HENRYs are often referred to as “the working rich,” as a significant number of them find themselves living from one paycheck to another, regardless of their high incomes. While they earn well, they aren’t necessarily accumulating wealth. In this article, we’ll dissect the factors contributing to this trend and assist you in determining whether you belong to the exclusive HENRY Club. We’ll do this by outlining the prevalent recurring patterns shared by individuals who are High Earners but not yet rich.
If you’ve explored our website, you’re likely familiar with our frequent discussions about HENRY. No, we’re sharing our fantasy team’s starting running back Derrick Henry, or that Henry Cavill will always be our top-ranked superman. Rather, we’re captivated by a group of ambitious young professionals with aspirations of achieving financial success and crafting their dream lives. They’re High Earners, but they haven’t quite reached the “rich” status yet. We affectionately refer to them as HENRYs.
Despite our extensive chatter about HENRYs, many still ask, “Do I belong to this category?” While there are numerous factors that categorize our clients as HENRYs, the easiest way to determine if you’re one of them is by examining your lifestyle. Before delving into what might sound like a captivating ABC series, “HENRY in Paradise,” let’s clarify the two defining characteristics that define a quintessential HENRY: HIGH EARNING and NOT RICH YET.
WHAT CONSTITUTES HIGH EARNING?
The term HENRY originated in a 2003 Fortune article, and over time the classification evolved. Present-day HENRYs are individuals earning between $100k and $500k annually.
Most HENRYs are young professionals in their 30s who have followed various paths to attain their current income level. Some have climbed the corporate ladder within a single large company or hopped between firms, gradually increasing their income with each career move. Others have ventured into entrepreneurship, weathering the early years of struggle to reap substantial dividends.
Then there are the side hustlers, individuals who have balanced both a 9-5 job and freelance work, launched their food truck, or offered weekend tennis lessons. Even if their full-time employment didn’t quite reach six figures, their side endeavors elevated them to HENRY status.
Despite their diligent efforts, HENRYs often find themselves in a quandary at the end of each month. They earn well, yet it feels like they’re perpetually living paycheck to paycheck. They’re high earners, but they don’t feel rich.
WHAT DEFINES RICH?
The definition of “rich” has grown hazy in the contemporary landscape. The costs of consumer goods have soared and the cost of living seems higher than ever. Housing prices are higher than ever, and basement suites in Vancouver are renting for over $2500 per month. Someone who could have afforded a condo five years ago may find it unattainable today. However, this doesn’t necessarily mean they’re less “rich.”
Modern “experts” argue that being rich hinges on various factors, including your geographical location. $150,000 may go far in Edmonton, but it won’t provide a lavish lifestyle in Toronto.” While it’s true that the value of your dollar varies by location, this doesn’t automatically make a high-earner in Edmonton richer than their counterpart in Toronto. Richness isn’t solely about the purchasing power of a dollar; it’s about the surplus of dollars you possess.
“Rich” is subjective; it means different things to different individuals. It’s more about what you can accomplish with your money and how you perceive your financial situation, rather than the absolute amount you have.
DO YOU CLASSIFY AS A HENRY?
For that reason, entry into the HENRY club doesn’t exclusively hinge on your salary. HENRYs typically share certain traits. HENRYs might not struggle to make ends meet, but they might not be flourishing either. When our clients first approach us, they often pose similar questions that hint at their lifestyle:
Why am I still living paycheck to paycheck?
I’m nearly 40; how much should I have in my account?
I have leftover money; what should I do?
Is this affordable?
What’s the best way to spend my year-end bonus?
Their confusion usually stems from two main sources: lifestyle inflation or lack of financial knowledge. Let’s explore these two hallmarks of HENRYs:
Lifestyle Inflation:
We frequently address the concept of Lifestyle Inflation at ARC Wealth. It occurs when your spending increases in tandem with your income. Many clients approach us with statements like, “I’m still living paycheck to paycheck despite earning $150,000 a year!” Each time they receive a raise or bonus, they have an opportunity to break free from this cycle.
However, HENRYs often succumb to comparing themselves to the extravagant lifestyles portrayed on Instagram. Instead of using their increased wealth to pursue financial well-being, they upgrade their lifestyles. They move from Uber X to Uber Black, opt for pricer flight options, dine out more frequently (or increase their weekly orders of Skip) – all valid choices, but they must be made with fiscal prudence. A dollar-for-dollar lifestyle upgrade is a surefire way to remain a High Earner who isn’t quite “rich” yet.
How to be Rich
Ramit Sethi, author of “I Will Teach You to Be Rich” advocates cutting back on expenses that don’t align with your true values to freely spend on what truly matters. For instance, someone earning $85,000 a year might feel more confident vacationing in Bora Bora without incurring debt than someone earning $140,000. In this context, who is richer? We argue that the person who enjoys their hard-earned money without guilt is the “richer” of the two.
There are only two ways to accumulate wealth and achieve “rich” status: by increasing your income or reducing your expenses. You have more control over the latter. While we wholeheartedly endorse career advancement strategies and side hustles, the most effective approach is to assess your lifestyle and spending habits.
You Don’t Know What You Don’t Know:
Another common thread among HENRYs is a lack of financial knowledge, often not by choice. Financial education is conspicuously absent from school curricula. Pythagorean theorem won’t tell us how to save on tax (trust us, we tried). Those who don’t fall prey to lifestyle inflation or paycheck-to-paycheck living often struggle with a different dilemma: they’re uncertain about how to allocate their surplus funds. This can be equally frustrating, as not having a firm grasp on your finances leaves you wondering if you can afford certain purchases.
Imagine you’ve recently received a substantial raise, and after maintaining your existing lifestyle for several months, you now have a considerable sum of money sitting idle. You’ve been contemplating a summer vacation to Greece, and with this newfound cash, you know you could afford it. However, the question lingers: should you? Could that money be put to better use elsewhere? Should you invest it or save it for a down payment on a house?
These are the quandaries many HENRYs face due to a lack of financial literacy or an absence of comprehensive financial goal setting. Understandably, they are preoccupied with their high-earning careers.
The essence of the matter is this: there’s no predefined roadmap to financial freedom. Life doesn’t come equipped with a financial equivalent of the Trevi foundation, throw in three coins and get your wishes granted. Well, it didn’t, until our company was established. As Epictetus said, “Keep company only with people who uplift you, whose presence calls forth your best.”