Money management tips for high-income earners is a subject not many talks about.
Why does it matter, well everyone has access to put $6,000 a year (in 2022) into a pretax or post-tax IRA. Well, unless you make more than the federal amount that allows that.
If you are married there goes $12,000 in investments you can legally do. But other options like becoming your own bank can become a reality.
I understand for most people have never heard of many of these options before, so let’s dive in and explain how they could work for you.
These ideas are based on my personal experience and opinion and should not be considered professional financial investment advice. Furthermore, the ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional.
- Money management tips for high-income earners
- Savings: Invest in yourself
- Debt: The key to debt management
- Be Your Own Bank: Cash Value Whole Life Insurance
- Retirement: Planning for retirement
- How to Manage your money
- Debt Payoff and Budget
- How The Rich Make Their Money
- Are you living your best life or are you stressed about paying the bills?
- About Dwight Scull
Money management tips for high-income earners
If you’re one of the fortunate few who earn a high income, proper money management is key to ensuring your financial stability and security. Here are a few tips to help you make the most of your money:
Savings: Invest in yourself
High-income earners have the ability to invest in their own education and career development, which can pay off handsomely in the long run.
Debt: The key to debt management
Just because you have a high income doesn’t mean you can’t live within your means. Creating a budget and sticking to it is essential to keeping your finances in order.
Debt Payoff and Budget
If you are stuck in thousands of dollars of debt like I used to be (80k in student loans, more than 10k in credit cards and two car payments, etc.). This can help you.
Learn how to pay off debt – set your money goals and get a plan to get your net worth positive.
We track your income, debt, savings, and investments so that you can reduce debt and grow the other three.
Be Your Own Bank: Cash Value Whole Life Insurance
When it comes to money management, high-income earners have a lot of options. They can choose to invest in stocks, bonds, and other financial products. But one of the best options for high-income earners is to be their own bank.
What is Cash Value Whole Life Insurance
Whole life insurance is one of the best ways for high-income earners to save money. With whole life insurance, you can build up cash value over time that you can access when you need it. And, if you die, your beneficiaries will receive a death benefit.
Whole life insurance is a great way to save for retirement or other long-term goals. You can use the cash value to supplement your retirement income or pay for unexpected expenses. And, because the cash value grows tax-deferred, you can grow your savings faster than with other investment products.
Remember that not all whole life insurance policies are created equal. You will want to look for cash-value whole life insurance where you can overfund the account for 10 years and have the insurance pay for itself after 20 years.
You can borrow the money in cash value for free (no penalties) in 24 to 72 hours. You can, but don’t have to pay the money back. And the money that was withdrawn still earns money. Yeah, read that last part again.
Then if you didn’t pay back the money the bank deducts it from your death benefit to your next of kin.
You can also set these up for your children and grandchildren and overfund the accounts to set up a way of creating generational wealth. I am spending $600 a month for my granddaughter.
They won’t count against any college Pell grants as the life insurance owner would be you and not them.
In addition to that, they are better than an UTMA / UGMA or College Savings Plans because they are 100% tax-free and the money can be used for ANY purpose. The UTMA / UGMA are taxed at the child’s rate when withdrawn and are turned over to the child at 18 or 21 years old depending on the US state you live in.
I don’t know about you, but not many 18-year-olds are financially responsible, and even less so if you have managed to tuck away over a million dollars into that fund.
Slower Accumulation But Guaranteed Rate
Note that the whole life policy will accumulate cash value at a slower rate than investing in the S&P 500, but it is tax-free and would have life insurance attached to it so if something were to happen (God forbid) the policy would pay out hundreds of thousands or even a million dollars.
I owned one of these for my granddaughter when she was 6 months old. She is insured for $525,000 in life insurance and in about 7 years will have over $37,000 guaranteed cash value but could have much more.
Oh I forgot, the insurance company will guarantee a percentage of growth and if that doesn’t happen they will pay money into the account to true up the guarantee on a yearly basis typically.
Use The Money To Make More Money
So I could take this $37,000 to $50,000 and use it for a down payment on a house for her and have her parents pay the bills or I could use it as a rental property to bring her in a secondary income (I would have to pay taxes on it but she could be put on the title for example or the entire property could be put into a trust for her).
There are just so many options with this type of investment and almost no one talks about it.
How The Rich Make Their Money
Have you ever wondered how the rich make their money?
Well they start by working a traditional job (well 80%+ do) and then they build assets over time until they are wealthy.
There are different types of assets that literally anyone can get into. Some are very active. Some are 100% passive. Most are what I call passive-ish. Lots of work at the beginning and then almost none later.
Click here to read From passive to active income.
Retirement: Planning for retirement
It’s never too early to start saving for retirement, and high-income earners have the ability to set aside more money each month toward their future nest egg.
You need three retirement legs: pre-tax, post-tax, and passive.
Pre-Tax Retirement Options
Pre-tax is typically in a 401k and IRA. Assuming it was all put in a traditional account then all this money will be taxed as you take it out.
You can do an IRA Conversion Ladder to move a traditional IRA into a Roth IRA. This moves the money slowly over years from pre-tax to post-tax funds. In reading over the rules you will probably want an accountant and financial advisor to help you with this.
One wrong move can cost you 50% in taxes!!!
But what if you make too much money to invest legally in an IRA?
Backdoor ira for high-income earners
As a high earner, you have unique money management challenges. You may be tempted to spend lavishly or make impulse purchases. But with proper money management, you can enjoy your wealth while still saving for the future.
One way to save for retirement is to open a backdoor IRA. This is an IRA that is funded with after-tax dollars. The advantage of a backdoor IRA is that it allows you to save more for retirement than traditional IRAs and 401(k)s.
If you are a high earner, consider opening a backdoor IRA. With proper money management, you can enjoy your wealth while still saving for the future.
You will want to consult with a financial advisor and accountant to properly set these up. One wrong move can cost you 50% in taxes!!!
Post-Tax Retirement Options
If you invested in a Roth IRA or Roth 401k then any money in the Roth is after-tax money. Also, any money you have in a cash value whole life policy is tax-free and can be used for any reason.
This is why I recommend contacting a financial advisor that specializes in cash value whole life policies.
Passive Income Retirement Options
Any type of business that is still generating income for you, as well as, a pension, social security, rent from cash-flowing rental properties, royalties, etc.
These are things that will take a while to build but can mean the difference between a healthy retirement and running out of money.
If you would like to learn more about a great way to build up a business without having to hire employees that is work, but not all of the work of creating, selling, and supporting a product check out this free video training on the best ways to make money online, and no it isn’t multilevel marketing or taking surveys. It is a quick video about how affiliate marketing works and can be found here.
Are you living your best life or are you stressed about paying the bills?
In this quick 2-page PDF, I cover 5 ways you can get your financial life back on track.
I used to live paycheck to paycheck and after years of paying off debt and maximizing my investments I am now able to save and invest more than 45% of my wife and I’s gross pay.
This allows me to live comfortably (not a crazy rich person) and sleep better at night. If you want this let me know where I can send it to you below.
How to Manage your money
You have just read money management tips for high-income earners and found out that you need three buckets of retirement income.
What most people with an IRA and 401k or similar retirement account have.
What you have if you invested in a Roth IRA or Roth 401k. You already paid taxes on this money and it can be withdrawn early without penalty. Only the gains on that money are taxed before you are a certain age unless you invested it in a cash-value whole life insurance policy.
Wow, you read a lot to get here. Can you do me a favor, please? Can you leave a comment if this was helpful to you or if I missed something? Alternatively, it would help me out a lot if you shared this content with those that might need to see it. Thanks, you are the best!
What you could have if you have a side hustle or business you own that can bring you income during retirement. It could be consulting, creating products, or doing affiliate marketing.
About Dwight Scull
I have been married to my wonderful wife, Rebecca, who puts up with me since 1999. I am a proud father to my Gen Z, son, and daughter-in-law. Grandfather to my favorite granddaughter who was born in 2021.
I lost my mom, father-in-law, and 12 others in 2013 and was DEEPLY in debt. I started reading and watching all the financial info I could find.
I chipped away at my debt and went from a negative $105k net worth having one home paid off, no credit card debt, and saving/investing 45%+ of my gross salary.
I used these daily habits to lose 100 pounds and keep it off.
I believe that you can overcome any challenge you face if you just take small daily actions and be consistent with them. It is how you will be financially successful.
Join my free Facebook group to get a ton of free resources to help you get out of debt, learn how to invest your money and work toward having the option of retiring early.