Dickson: Are you a HENRY?

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SALT LAKE CITY — Have you ever heard of a HENRY? A HENRY stands for “high earner, not rich yet.” They’re people who make six-figure salaries but still feel strapped by expenses.

How is that even possible?

“I’m seeing a lot more of this as a financial planner,” said Shane Stewart, a certified financial planner with DMBA. “We’re focused on the wrong number. This is true for any of us but especially for these HENRYs. Focusing on income is the wrong thing to focus on. We need to focus on expenses.”

So, it doesn’t matter how much money you earn, in a sense. If you spend more than you earn, you’ll be broke.

“I’ve seen some really successful cases,” Stewart explained. “One particular extreme case was a very young person with a high income who spent like he had no income for the first few years of his career. They road a moped to work rather than drive a car. They thought, ‘I’m really young. I need to build up some wealth first’.”

Money saved now versus money saved later

I’ve pounded into my children how much they need to start saving now when they’re young. I try to impress upon them the power of compound interest. The same $100 saved at age 20 is worth so much more than $100 saved at 40 because of the miracle of compound interest.

“I remember advice I received early in my marriage,” Stewart offered. “If you’ll live 10 years like no one else will, you can live the rest of your life like no one else can.”

Buy the moped, not the BMW. No matter what income you have, live on a little less from the beginning.

Needs versus luxuries

I remember when I was a teenager, I would say things like, “I need these Gloria Vanderbilt jeans.”

My father would reply: “That’s a very loose use of the word need.”

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Like with so many things, the older I get the more I realize how right he was. I confused luxuries with necessities.

“Many times when I visit with someone who is having issues with this, I’ll ask them to fill out a prioritization sheet,” Steward said. “Give me what is crucial. Then tell me what is important, what is optional and what you could do without. It’s interesting to have them go through this and put it on paper. If people can define what their needs are, what their needs truly are, they’re often better at managing their expenses.”

We spend what we earn

As people earn more money, do they always spend more, so they never feel any breathing room? “Generally,” Stewart answered. “Generally people spend what they have.”

Whether that’s $30,000 or $300,000.

“Setting up automatic savings is incredibly helpful no matter what your income is,” Stewart advised. “If these HENRYs would say, ‘I need a savings account and a retirement account, and I’ll live on what’s left,’ they’d be in much better shape.”

If you’re spending every dime you make, you’re living hand to mouth, even if you make $300,000. Remember to focus on the right number — your expenses — or you’ll end up a HENRY.

“I admire those young people who make $300,000 but decide to live on $100,000,” Stewart offered.

Me too!

Follow @amandadickson