Every now and then, new categories pop up in the personal finance world. HENRYs, or High Earners Not Rich Yet, are individuals or households who earn substantial incomes but have yet to accumulate significant wealth. Despite their high earnings, many HENRYs feel stuck in a perpetual cycle of working hard. When I first came across this term, I realized my partner and I are totally HENRYs. That led me to think, why HENRYs often stay poor despite their high income, and how does one stop being a HENRY and be a HEAR (high income, already rich)?
Who are HENRYs?
HENRYs are individuals or households who earn substantial incomes but have not yet accumulated significant wealth. While there is no strict income threshold, HENRYs typically fall within the range of $250,000 to $500,000 per year.
HENRYs often work in professions such as doctors, lawyers, executives, and tech professionals. These high-earning careers require specialized skills, extensive education, and considerable responsibilities.
While HENRY’s can live anywhere in the world, most HENRYs often live in high cost of living areas. That’s why most HENRY’s reside in urban areas, particularly in major cities with thriving job markets. These locations offer lucrative employment opportunities and access to a vibrant lifestyle. Yet they also come with a high cost of living that can further challenge HENRYs’ ability to accumulate wealth.
Why HENRYs Stay Poor Despite High Income
HENRYs Are Often Time Poor
HENRYs often have highly demanding jobs that require long hours and intense dedication. For example, finance professionals, particularly those working in large investment banks like JPMorgan or Goldman Sachs, work an average of 60-over 100 hours per week.
They often rely on convenience services, such as ordering takeout or hiring help, to manage their busy lives. These services come at a cost, eating into their disposable income and limiting their ability to save.
HENRY’s High Cost of Living
Many HENRYs reside in urban areas, drawn by the lucrative job opportunities available. However, these cities often come with a high cost of living. Expenses such as housing, transportation, and childcare can consume a significant portion of their income, leaving little room for saving or investing.
To rent a 3 bedroom home in San Francisco in Inner Sunset, a family oriented neighborhood, one will need to fork out around $5,500 per month. 
According to Equifax, 78% of HENRY’s own their home and 88% of them own single family dwellings. In San Francisco, an average single family home is going at $1.6mm as of May 2023.
HENRY’s Often Have A Debt Burden
HENRYs may find themselves burdened by student loans, mortgages, and other debts. The need to manage these obligations can further limit their ability to save or invest for the future. With interest rates going at a recent highs, even higher percentage of the disposable income from the HENRYs are going to paying off debts.
HENRY’s Have Illiquid Assets
HENRYs often have a portion of their income or assets tied up in illiquid investments, such as startup equity or company stocks. This is particularly common in the Bay Area, where I live. Many friends are “paper rich” from being founders or early employees at unicorn startups. For some, their fully vested stocks are now worth low 7 figures to 8 figures. The recent market downturn has made it more difficult to find buyers in the secondary market.
While these assets may hold potential for significant returns, they lack liquidity, making it difficult for HENRYs to access that wealth.
HENRY’s Are Busy Keeping Up with the Joneses
HENRYs often face social and peer pressure to maintain a certain lifestyle. I recall in my investment banking days, the lifestyle is all about work hard, play harder. It’s not uncommon to have frequent weekend ski-trips or beach getaways, international vacations multiple times a year and dining at high-end restaurants.
As HENRY’s progress into starting families with young children, these evolve into expensive country club memberships, private school tuition, extracurricular activities for the children. These can quickly drain their financial resources. The desire to keep up with their affluent peers can hinder their progress towards building wealth.
Transitioning from HENRY to HEAR (High Earner Already Rich)
Liquidity Events
HENRYs can benefit from liquidity events such as IPOs, company sales, or secondary sales of company equity. These events can unlock substantial wealth and accelerate their journey towards financial prosperity. This is often not 100% within the control of HENRY, which is why I put it first for aspirational purposes. Who doesn’t like to dream of a big payday?
Investing in Real Estate
HENRYs can leverage their high income and unique access to credit to invest in real estate over time. Mortgage lenders usually look at the annual household income and debt-to-income ratio for how much credit one is qualified for. HENRY’s can gain access to lines of credits that allow them to purchase real estate for investment purposes. Real estate can serve as both an appreciating asset and a source of rental income, providing a path to wealth accumulation. Check out this blog post for a primer on using real estate to grow wealth while living in an expensive city.
Climbing the Ladder or Starting a Business
Careers are the most valuable asset for HENRYs. They have either studied for many years degrees or pursued a demanding job (or both!) to get to where they are. Hence, the job market rewards them with handsome pay.
The best way for HENRYs to accelerate their wealth is to advance in their careers or start their own businesses. That can offer HENRYs opportunities to capture more significant financial upside. For lawyers, consultants or bankers, it could mean becoming a partner in a firm. For doctors, it can be about establishing a private practice. For tech professionals, it could mean starting their own consulting firm, or even a startup. The bottom line is to find ways to deepen your expertise in the field and capture the upside of the business’s success.
Building Equity
On a related note from the above, HENRYs can explore avenues to build equity by advising or investing in early stage companies or entrepreneurs. For HENRYs, due to their social networks, they often get access to unique investment opportunities in startups, alternative investment vehicles etc. Allocating a small portion (<5% personally) to these moonshots can be a profitable move. This allows them to leverage their experience, network, and capital to potentially generate substantial returns.
Avoid Lifestyle Creep
The benefit of being a HENRY is that income can grow exponentially in the mid-senior stage of a career. As income grows, aim to save more than the income growth. Always make it easy to save. Set a goal to save a set amount each year and try to fund that in the early half of the year.
What is No Longer HENRY?
Defining “rich” can be subjective, and as HENRYs progress in their financial journey, they may wonder when they transition from being HENRYs to a more affluent status. Let’s explore different definitions and benchmarks of wealth.
Traditional FIRE Definition
One common benchmark is the Financial Independence, Retire Early (FIRE) movement. According to this approach, individuals are considered “rich” when their invested assets can sustain an annual spending rate of 4% or more. For example, a HENRY could be spending $200,000 per year for their lifestyle, then having $5mm invested assets would be considered FIRE ready. This concept focuses on achieving financial independence, where passive income covers living expenses.
Financial Samurai’s Perspective
Financial Samurai, a prominent financial blogger, proposes a new threshold: $10 million. With rising costs and increased expectations, the idea is that $1 million no longer guarantees long-term financial security for retirement.
Ultimately, the definition of no longer being a HENRY may vary based on personal circumstances, lifestyle choices, and geographical location.
Escaping the Rat Race When Status Is Addicting
HENRYs, or High Earners Not Rich Yet, represent a unique group of individuals or households who earn significant incomes but face challenges in building substantial wealth.
By investing in real estate, leveraging liquidity events, climbing the career ladder or starting a business, and building equity, HENRYs can pave their path to becoming High Earners Already Rich (HEAR).
One of the largest hurdles to a truly RICH life for some HENRYs I know is actually the status game that’s so addicting. Many HENRYs are naturally competitive which led them to their successes. And the high spending is a way to keep up with peers (ie the competition). I say that with a lot of empathy because personally I feel that way even though my partner and I have tried to cut down on a lot of peripheral spending!
For HENRYs, it is about trading off current gratifications for future prosperity. It is not easy to see a future without a multi 6 figure income. Transitioning from HENRY to HEAR requires commitment, discipline, and a long-term perspective.
Readers, what are your thoughts on the topic of HENRY finance? If you are a HENRY, how do you plan on escaping the rat race eventually?
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