Long-term financial plans

Posted on 10 November, 2022 by Micheal Alexander

If I asked you how much money is 6 figures, you’d probably describe it in terms of what you’d do with it. However, savvy investors think about how much a six-figure income makes earning more money easier. Anyone with a 6 figure salary can get lifetime financial security by making their money work for them.

A 6 figure salary makes you more resilient. You can afford a few financial mistakes. You can live a lavish lifestyle, but you’ll not be growing until you find the right way to use your money. The following are the mistakes people with a 6 figure salary must avoid.

1. Not Using a Budget

Most people without the concept of how much is 6 figures would go on a spending spree if it landed in their bank account. However, even if it is your monthly income, it is still a good idea to monitor how you use it. You can stunt your financial progress by squandering your income every month.

Creating a budget is a no-brainer if you appreciate how much money is 6 figures. A budget is a list of your expenditures for the month. You can split the budget into food, mortgage, fuel, utilities, etc. After making the budget, ask yourself if the amount you spend on each category aligns with your target.

Expenses such as eating out and entertainment can quickly run away from you. You can minimize them by cooking more at home and not accepting many invitations to entertainment spots.

What is 6 figures for an account with multiple monthly subscriptions? Some premium subscriptions could cost hundreds of dollars per month. Multiple such subscriptions could substantially increase your monthly expenditure. Therefore, you might want to review them and cancel the ones you are not using.

2. Failing to make long-term financial plans

Most people, even those without six-figure salaries, should make long-term financial plans. Nobody wants to lose their job when they have no savings to cushion them before getting alternative income sources.

If you have 6 figures in money entering your account every month, you are in an excellent place to make long-term plans because you probably have more disposable income. A financial plan will let you know how much money you can save or invest to guarantee your financial independence later.

A plan lets you decide which expenses are essential to you, such as retirement savings, buying property, kids’ education, etc.

3. Failing to minimize your taxes

People earning six-figure salaries pay a lot of it to Uncle Sam in taxes. Worry not if you are wondering how much is 6 figures going to cost me in tax. There are ways you can reduce your tax burden. For instance, you could get financial products such as tax-advantaged accounts that will minimize the effects of income tax.

Many tax attorneys can help you legally minimize your tax burden. A tax attorney is beneficial if you own a business because they can find deductions, credits, and exemptions you couldn’t know about if you did your taxes.

4. Overspending

The problem of overspending does not only affect people who earn six figures. However, they are more likely to do it because they feel their high income will last indefinitely.

In reality, you can encounter many unexpected changes that cut your income to a fraction of what it is. Things like job losses, accidents, and illnesses are difficult to plan for, but you can prepare for them. An excellent way to get ready is to minimize your spending to put more money into savings. Keeping a cash reserve can help you weather unexpected storms.

Lifestyle inflation threatens many people who earn more than six figures. Once you get used to a lavish lifestyle, it is challenging to go back to living like you have a lower income.

You would be surprised to know how much money is 6 figures for a person with an inflated budget. People with multiple depreciating assets such as houses, cars, and boats don’t have much money left after settling their bills.

Six-figure earners should spend more of their disposable income on assets whose value grows. These include real estate, stocks, and treasury bonds. It’s okay to indulge in a few luxuries, but with the understanding that they are not must-haves.

5. Doing your own investing

You can invest your money if you have the time to research every investment before buying it. If you don’t put your money into the correct assets, your long-term gains might erode due to incorrect risk allocation and improper fees.

You may consider hiring a professional if you don’t have enough energy or time to commit to your investments. The expert can expand and optimize your investment portfolio to maximize your earnings and minimize risks.

6. Failing to save enough money

High-income earners often max out their employer-sponsored retirement accounts. Unfortunately, they do not increase personal contributions as their incomes rise. The best way to calculate your retirement contribution is to use a percentage of your income rather than a fixed dollar amount.

Experts advise people to save 20-25% of their income for retirement. When you have substantial savings, you can invest them in index funds or stocks to compound your returns.

7. Failing to update estate plans

Many people who earn over six figures have estate plans in place. Unfortunately, many write their wills and forget to update them as their lives change.

The best way to handle your estate plan is to update it every few years to account for life changes. For instance, you might want to update your estate plan if you move to a different address or get a divorce. It will minimize confusion in the management of your estate. The same case applies when your family’s size increases.

You might also want to remove guardians from your will when your children come of age and become independent. As part of your wealth preservation, your estate plan should include your digital assets.

Conclusion

The question of what is 6 figures has two different answers depending on your level of planning. No matter how much money you earn, you will remain in a precarious financial situation if you use it all for recurring expenses. However, if you create a plan to keep yourself and your family safe, major upheavals will not put you in financial distress. Moreover, if you invest your money early on, you might be able to live a better life after you stop earning your six-figure salary.