7 Things You Must Do When You Start Making 6 Figures
Once your salary reaches $100,000, you need to take certain steps to ensure you keep building wealth and stay in good financial health.
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There’s a chance you already might be making some of these money moves, even if you’re earning a little less. Make sure you start taking these actions as soon as you begin earning $100,000.
1. Eliminate High-Interest Debt
Those who just started earning six-figure incomes will need to quickly pay off any high-interest debt. Think student loans, credit card balances or any other outstanding debt where the interest rate is extremely high.
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Alissa Krasner Maizes, financial planner and founder of Amplify My Wealth, said eliminating this debt yields the quickest return on investment. Not sure where to begin? Krasner Maizes recommends automating monthly payments beyond the required minimum payment due.
Start with your highest-interest debt and, once you eliminate this debt, move on to paying off debt with the next highest amount of interest. Keep going until you have paid off all high-interest debt — and find yourself debt-free.
2. Maximize Retirement Contributions
Once you have cleared any outstanding debt, Krasner Maizes recommends maximizing your retirement contributions. Those earning a six-figure income will need to at least contribute the amount their employer matches for their retirement account.
“Ideally, maximize your contributions to tax-advantaged retirement accounts and consider the advantages of a Roth option as you will pay tax now,” Krasner Maizes said. “As long as you follow the necessary rules, you will not pay taxes on the growth or when you withdraw the money for retirement.”
3. Create a Holistic Financial Plan
When you start earning six figures, it’s a good idea to make sure you have a solid plan in place for your future. There are free financial tools you can use to help ensure your money is well-managed and invested.
A financial services company called Empower has free tools that let you check your net worth, plan your savings and retirement and do a checkup on your investments. It also offers professional wealth management and various investment products.
Its portfolio analyzer lets you assess your overall risk, analyze past performances and model individualized asset allocations. There’s also a free investment-return calculator that estimates how much money you can earn over time, based on the amount of money you invest and the expected rate of return.
If you’re trying to develop a long-term plan for your money, this is a good place to start. You’ll learn how much money you really have, how much you should be saving, make sure you’re properly invested and gauge where you’re at in your retirement-savings journey.
It takes just a few minutes to create a free dashboard and see how well you’re tracking toward your goals.
4. Update Your Expense Plan
You’ve cleared your debt and maxed out contributions to your retirement fund(s). Now, it’s time to revisit your expense plan, or budget, and update accordingly.
Krasner Maizes recommends eliminating any unnecessary expenses and tweaking wherever possible to determine how much money you have at the end of the month.
“As tempting as it may be to increase rather than trim your expenses,” Krasner Maizes said, “this will help you amplify your wealth sooner than you can imagine.”
5. Fund Your Emergency Fund
Regardless of how much you earn, one of the highest financial priorities anyone can have is to create a robust emergency fund.
What makes earning $100,000 so beneficial for your emergency fund is the ability to allocate the income increase directly toward it. Krasner Maizes recommends directing your extra income to a high-yield emergency savings account.
While three to six months of expenses are often the baseline for these funds, Krasner Maizes said finances are personal.
“You should decide how much money you prefer to set aside for your emergency fund,” said Maizes.
6. Open a Brokerage Account
If you do not already have a brokerage account, you may consider opening one. Krasner Maizes said to consider automating contributions into a regular brokerage account.
For those financially leveling up, making this move — along with the aforementioned steps — may help decrease the likelihood of financial regrets and allow you to experience financial confidence.
7. Have an Investing Strategy
You don’t need to earn $100,000 to start purchasing stocks or create a retirement fund. But you certainly should have an investing strategy if you are making six figures.
Jon Klaff, general manager at Magnifi, said this is a great opportunity to think about your approach to personalized individual investing. Ask yourself what your personal goals are and how you can make investing decisions based on these goals.
Klaff recommends making diversification a key component of your investing strategy. You may diversify with the purchase of fractional shares to spread investments across more companies, buying funds and investing in bonds or a diversified bond fund to help reduce risk in your portfolio.
“Having an investing strategy helps you to stay focused and avoid group thinks and short-term trends in the markets,” said Klaff.
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This article originally appeared on GOBankingRates.com: 7 Things You Must Do When You Start Making 6 Figures
