9 Rules of Thumb for ‘High Earners, Not Rich Yet’

For Lauren and Matt, the solution is simple: focus on a few key financial rules of thumb. These guidelines can serve as a framework for managing money and building wealth, even with a packed schedule.

1. Pay Yourself First

Rule of Thumb: Save at least 20% of your income before spending a dime.

Lauren and Matt realized that waiting until the end of the month to save wasn’t working. Instead, they automated savings, directing a portion of their income into retirement accounts, a house fund, and emergency reserves. By saving first, they could spend guilt-free, knowing their future was secure.

2. Protect Your Income

Rule of Thumb: Have disability insurance that covers at least 60–80% of your income.

Many young professionals overlook disability insurance, assuming nothing will disrupt their careers. But Lauren and Matt learned that their employer’s group plan capped coverage at a modest monthly maximum, far less than what they’d need. They opted to supplement it with individual disability insurance, ensuring their income—and lifestyle—would be protected in the event of an illness or accident.

3. Life Insurance: More Than You Think You Need

Rule of Thumb: If you have dependents or plan to, get 10–15 times your annual income in term life insurance.

While Lauren and Matt didn’t yet have kids, they knew it was part of their future plan. They secured affordable term life insurance policies, providing peace of mind that their future family would be cared for in the event of the unexpected.

4. Max Out Tax-Advantaged Accounts

Rule of Thumb: Take full advantage of 401(k) plans, IRAs, and Roth IRAs to build wealth tax-efficiently.

Lauren and Matt made it a priority to contribute the maximum allowable amount to their 401(k)s, leveraging employer matches where available. They also funded Roth IRAs to diversify their tax strategies, giving them flexibility in retirement.

5. Tackle Debt Strategically

Rule of Thumb: Pay down high-interest debt first while keeping student loans manageable.

Lauren and Matt made a plan to aggressively pay off their credit card balances while sticking to a manageable payment schedule for their student loans. By prioritizing high-interest debt, they freed up cash to save and invest.

6. Build Cash Reserves

Rule of Thumb: Save 3–6 months of expenses for emergencies and additional cash for specific goals like a home down payment.

The couple set aside enough money to cover emergencies, giving them confidence in their financial future. They also opened a separate savings account dedicated to their future home’s down payment, contributing to it monthly.

7. Plan for Housing Affordability

Rule of Thumb: Keep your total monthly housing expenses—mortgage, taxes, and insurance—under 30% of your gross income.

Lauren and Matt began researching homes in neighborhoods they loved, but they stayed realistic. By sticking to the 30% rule, they ensured they wouldn’t overextend themselves financially, leaving room for savings, fun, and unexpected costs.

8. Invest for the Long-Term

Rule of Thumb: Allocate the majority of your portfolio to equities to maximize growth potential over time.

With decades to go before retirement, Lauren and Matt committed to investing heavily in equities. They set up monthly contributions to their 401(k)s and IRAs, knowing that time in the market, not timing the market, was their best ally.

9. Enjoy Life, But Stay Grounded

Rule of Thumb: Budget for the fun stuff without compromising your financial priorities.

Lauren and Matt didn’t want to give up their social life or occasional vacations, but they budgeted these expenses around their savings and debt payoff goals. By prioritizing their financial health, they found a balance between enjoying today and securing tomorrow.

The Bottom Line

For busy professionals like Lauren and Matt, knowing where to start can be half the battle. These simple rules of thumb create a foundation for financial security without requiring hours of effort.

By paying themselves first, conserving their income, planning for the future, and investing wisely, Lauren and Matt are well on their way to turning their “High Earners, Not Rich Yet” status into true wealth and financial independence.

If you’re a HENRY looking for guidance, remember: the key to success isn’t just earning more—it’s using what you earn to build a life of security and opportunity. The earlier you start, the greater the rewards.