You earn well, so why does money still feel uncertain?
If you’re in your 40s and earning what you think is a decent salary, you might have expected life to feel more financially secure by now.
You’re certainly not alone in this. Data from the Office for National Statistics shows that median earnings for full-time employees generally peak among people aged 40 – 49.
However, earning a good income does not always translate into feeling financially secure.
It’s a common issue, and there’s even an acronym to describe people in this position: “HENRY”. This was first used by Fortune magazine and stands for “high earner, not rich yet”.
So, do you think you may be a HENRY? If so, read on to understand the uncertainty.
Higher earnings often come hand in hand with greater financial responsibilities
As you get older, your financial plans typically become more complex.
For one thing, your circumstances change. You may find a life partner, have children, get on the property ladder, or maybe even start your own business.
All of these are positive steps, but they can have a financial impact and leave you feeling like you are running to stand still.
You’ll face growing financial commitments, such as increased mortgage outgoings and the costs associated with raising children. On top of that, there’s the rising cost of living and the possibility of your income not keeping up with inflation.
If you are in your 40s, you may recognise these circumstances.
Lifestyle creep can hold you back
As your income goes up, it’s likely your spending will also increase.
Home improvements, new cars, more expensive holidays, eating out, and children’s activities can gradually become part of normal life. While none of these feels extravagant on its own, taken together, they can significantly increase your outgoings.
There’s also an element of competitive spending – “keeping up with the Joneses” – where your peers are enjoying luxuries, and you feel you ought to as well.
There’s nothing wrong with enjoying the rewards of your success, but you may start facing problems when your lifestyle expands more quickly than your earnings.
This is often referred to as “lifestyle creep”. It describes a situation in which your income grows, but your long-term wealth doesn’t increase at the same pace because higher earnings are offset by higher spending.
It can help explain why, even though you are earning far more than you used to, you feel financially stretched.
Without a clear idea of what “enough” looks like for your own goals, it’s easy to fall into the mindset that you should always be earning more, saving more, or accumulating more, regardless of how much your income has already increased.
4 key questions to ask yourself as you start planning your financial future
True financial security comes from resilience, and to achieve it, you need a plan.
The 40s represent a valuable opportunity to step back and review your overall financial position. A good starting point is to ask yourself four pertinent questions.
- Are you saving enough for your retirement?
- Are your investments working as hard as they should?
- Will you and your family be financially protected if the unexpected happens?
- Is your financial plan aligned with the life you want to live?
The answers to those questions will help put you on the road to an effective, robust financial plan. This will help ensure your income supports both your current lifestyle and your future ambitions.
It’s important to differentiate between income and wealth
One of the biggest misconceptions in personal finance is that a high income automatically leads to financial security. While earning more certainly creates opportunities, income and wealth are not the same thing.
Income is what you earn, whereas wealth is what you keep and ultimately use to support your future goals. It’s entirely possible to earn an excellent salary while accumulating relatively little wealth if most of that income is spent rather than invested.
It’s not necessarily a result of poor decisions. Building a successful career and raising a family understandably become your priorities during your 30s and 40s, leaving little time to develop a long-term financial plan.
As a result, you may have reached your 40s with an impressive salary but no clear picture of whether you’re on track for the future you want.
So, you need to be clear about your financial objectives and have a plan in place that defines key issues such as when you want to retire, how much financial support you want to provide for your children, and the legacy you want to leave behind.
The right plan can help you turn a good income into long-term financial security
A comprehensive financial plan brings together every aspect of your finances, including pensions, investments, tax planning, protection, and estate planning, into a strategy built around your personal goals.
Rather than viewing each area in isolation, it considers how they work together to help you achieve the future you want.
Having a plan in place will help you start translating your income into lasting wealth by ensuring your financial decisions align with your long-term objectives.
Reviewing your plan regularly will give you the reassurance of knowing you are on track to achieve the future you want.
Get in touch
My role as a financial planner is to help you understand where you are today, identify any gaps, and create a strategy that gives you a clear financial purpose.
If the situation I’ve described here feels familiar and you’d like to discuss your own financial plans, please get in touch.
You can call me on 07769 156250.
Please note
This blog is for information purposes only and does not constitute advice or a personalised recommendation. The information is intended only for individuals.
Please do not act based on anything you might read in this article. This blog is based on our understanding of current and proposed legislation, which may change.
The value of your investments (and any income from them) can go down as well as up, and you may not get back the full amount you invested. Past performance is not a guide to future performance.
Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
When investing, your capital may be at risk.
