Making Six Figures? Here's How To Invest Wisely

Earning a six-figure salary is a commendable feat, but it also comes with a new set of financial considerations. It is important to remember that reaching a higher income level requires a higher level of planning. Here are some key steps to consider when investing while earning a six-figure income:

1. Maximise Retirement Contributions: It is advisable to contribute as much as possible to your retirement account, especially if your employer offers matching contributions. Alissa Krasner Maizes, a financial planner, recommends prioritising tax-advantaged retirement accounts, such as a Roth IRA, to maximise tax benefits.

2. Eliminate High-Interest Debt: Focus on paying off any high-interest debt, such as student loans or credit card balances. Automating monthly payments beyond the minimum amount can help accelerate debt repayment.

3. Create a Financial Plan: Develop a comprehensive financial plan to ensure your money is well-managed and invested wisely. Utilise free financial tools and wealth management services to track your net worth, plan your savings and investments, and analyse your risk tolerance.

4. Update Your Expense Plan: Evaluate your budget and cut down on unnecessary expenses. This will help amplify your wealth and ensure that your spending aligns with your financial goals.

5. Fund Your Emergency Fund: Building a robust emergency fund is crucial, regardless of your income level. Consider allocating a portion of your six-figure income to a high-yield emergency savings account to cover unexpected expenses.

6. Diversify Your Investments: Diversification is a key component of a solid investment strategy. Consider investing in stocks, bonds, funds, or even real estate to spread your investments across different asset classes and reduce risk.

7. Get Proactive with Tax Planning: Higher income often leads to higher taxes. Understand your marginal tax rate and make informed decisions to reduce your tax burden, both now and in the future.

8. Invest in Yourself: Don't forget to invest in your personal and professional growth. This could include hiring a coach, pursuing further education, or gaining new skills to enhance your career prospects and overall well-being.

9. Avoid Lifestyle Creep: Be mindful of lifestyle creep or expense creep. Create a spending plan that aligns with your financial goals and priorities, ensuring that you save or invest a portion of your income before allocating it to discretionary spending.

10. Seek Professional Advice: Consult a wealth advisor or a certified financial planner to create a tailored financial plan that considers your unique circumstances and goals. They can provide guidance on investment strategies, tax planning, and managing your finances effectively.

Maximise your 401(k)

Making a six-figure income is a commendable feat, but it is important to remember that achieving this level of success comes with a new set of financial responsibilities and considerations. One of the most important things you can do when earning a six-figure income is to maximise your 401(k) plan, a type of retirement savings vehicle offered by many employers. Here are some detailed strategies to help you maximise your 401(k):

Start Early and Contribute Generously

It is recommended to start contributing to your 401(k) as early as possible, ideally from the day you graduate high school until you retire. The minimum contribution should be 10% of your income, with women aiming for 12% if possible. If you are under the age of 50, aim to contribute the maximum allowed amount of $20,500 annually. Those aged 50 and above can contribute up to $27,000 per year.

Take Advantage of Employer Matching

Many employers will match a portion of the money you contribute to your 401(k) plan. This is essentially free money that you don't want to leave on the table. Contribute enough to at least maximise your employer's match. If your company offers a traditional 401(k) plan, your contributions are made pre-tax, reducing your federal taxable income.

Understand Your Investment Options

K) plans typically offer a range of mutual funds with different levels of risk, from conservative to aggressive. When choosing how to invest your money, consider your risk tolerance, age, and the amount you need to retire comfortably. Diversify your investments across various asset types, such as stocks, bonds, and commodities, to capture returns and protect your balance. Avoid funds with high fees, as these can eat into your investment returns over time.

Monitor and Rebalance Your Portfolio

Once you have established your investment portfolio, regularly monitor its performance. Different sectors of the stock market may perform differently, so you may need to rebalance your portfolio by selling some holdings in one area and reinvesting in another to maintain your desired asset allocation. Try to resist the temptation to time the market or trade too frequently. Review your asset allocation periodically, such as once a year, but avoid micromanaging.

Avoid Borrowing from Your 401(k)

While it may be tempting to borrow against your 401(k) assets during tight financial times, doing so can nullify the tax benefits of investing in a defined-benefit plan. You will have to repay the loan with after-tax dollars and may be assessed interest and fees. Additionally, you may be unable to continue contributing to your 401(k) until the loan is paid off.

Roll Over Your 401(k) When Changing Jobs

If you change jobs, consider rolling over the money from your old 401(k) to your new employer's plan or into an IRA to continue its tax-advantaged growth. Be sure to make a direct transfer to avoid tax penalties.

By following these strategies, you can maximise your 401(k) plan and set yourself up for a more comfortable retirement. Remember to seek advice from a financial professional regarding your specific situation.

Eliminate high-interest debt

Earning a six-figure salary is a commendable achievement, but it also necessitates prudent financial management. One of the initial steps you should take is to eliminate any high-interest debt. This includes credit card balances, student loans, and other debts with exorbitant interest rates. Here are some detailed and instructive guidelines to help you eliminate high-interest debt:

Identify Your High-Interest Debt

Start by identifying your high-interest debt. Generally, credit cards, private student loans, and payday loans carry some of the highest interest rates. Compare the interest rates of your various debts to determine which ones are significantly higher than the average federal student loan or mortgage rate. These are the debts you should prioritize paying off first.

Understand the Impact of High-Interest Debt

High-interest debt can be detrimental to your financial health due to the high cost of carrying it. The longer you leave it unpaid, the faster the debt accumulates, especially with daily compounding interest. Therefore, it's crucial to address high-interest debt as soon as possible to prevent it from growing out of control.

Create a Plan

To effectively eliminate your high-interest debt, create a comprehensive plan. Start by calculating the total amount of debt you owe, including the interest rates and minimum monthly payments for each. There are tools like Undebt.it that can assist you in organizing and tracking your debt. Additionally, consider using a budgeting app, such as You Need a Budget (YNAB), to help you manage your spending and allocate more funds towards debt repayment.

Refinance High-Interest Debt

If possible, consider refinancing your high-interest debt to obtain a lower interest rate. For example, if you have private student loans with high interest rates, look into refinancing with lenders like SoFi®, Earnest, or ELFI. By refinancing, you may be able to secure a lower interest rate and set a new repayment term that suits your financial situation.

Utilize Balance Transfer Credit Cards

Balance transfer credit cards can be a strategic way to eliminate credit card debt. These cards allow you to transfer your unpaid balance to a new card with an introductory period of up to 21 months of interest-free payments. During this period, you can focus on repaying the principal amount without accruing additional interest. Just be sure to have a plan to pay off the entire balance before the introductory period ends to avoid the card's standard APR.

Prioritize Debt Repayment

Make debt repayment a priority by automating your monthly payments beyond the minimum amount due. Start with your highest-interest debt and work your way down. There are two popular strategies you can consider: the debt snowball method, which focuses on paying off the smallest debts first, and the debt avalanche method, which targets debts with the highest interest rates first. The latter method will provide the most savings in the long run.

Increase Your Income

If possible, consider increasing your income through side hustles or additional sources of revenue. This can help you allocate more funds towards debt repayment and accelerate your progress. For example, you could take on freelance work, start a blog, or bartend a few nights a week to boost your income.

Seek Additional Savings Opportunities

Look for other opportunities to save money and accelerate debt repayment. For instance, some student loan companies offer small discounts on interest rates if you set up autopay. Additionally, take advantage of cashback rewards on credit cards and cashback apps for grocery shopping or other purchases. These small savings can add up over time.

Maintain a Balanced Approach

While eliminating high-interest debt is crucial, it's also important to maintain a balanced approach to your financial goals. You don't need to put every spare penny towards debt repayment. Continue to enjoy occasional meals out or concerts, and allocate funds towards other financial priorities, such as retirement savings or investments. This will help you stay motivated and maintain a healthy relationship with money.

Create a financial plan

Once you start earning a six-figure salary, it is important to create a financial plan to ensure you continue to build wealth and maintain good financial health. Here are some steps to help you create a financial plan:

• Assess your financial situation: Start by understanding your current financial position. Calculate your net worth by listing your assets (e.g., savings, investments, property) and liabilities (e.g., debts, loans). This will give you a clear picture of your financial health and help you identify areas for improvement.
• Define your financial goals: What do you want to achieve financially? Do you want to save for a house, retire early, or invest in the stock market? Setting clear and specific financial goals will give you a sense of direction and help you stay motivated.
• Create a budget: Analysing your income and expenses is crucial to creating a budget that works for you. Categorise your spending to understand where your money is going, and identify areas where you can cut back. Ensure your income exceeds your expenses, and consider using budgeting tools or apps to help you stay on track.
• Prioritise paying off high-interest debt: Focus on clearing any high-interest debt, such as credit card balances or student loans. Automating monthly payments beyond the minimum amount will help you eliminate these debts faster.
• Maximise retirement savings: Contribute as much as you can to your retirement account, at least enough to get your employer's match. If you're under 50, aim to contribute the maximum allowed by law ($20,500 as of 2022) to your 401(k). If you're over 50, you can contribute up to $27,000.
• Build an emergency fund: Aim to save three to six months' worth of living expenses in a high-yield savings account. This will provide a financial cushion in case of unexpected expenses, such as medical bills or car repairs.
• Consider investing: If you have extra income after maximising your retirement contributions and building an emergency fund, consider investing in a brokerage account, stocks, or other investment opportunities. Diversifying your investments across different asset classes and industries can help reduce risk.
• Seek professional advice: Consult a financial advisor or wealth manager to review your financial plan and provide tailored advice. They can help you navigate more complex investment strategies and ensure your plan aligns with your short-term and long-term goals.

Remember, creating a financial plan is an ongoing process. Regularly review and adjust your plan as your income grows, your goals change, or your life circumstances evolve.

Invest in yourself

Earning a six-figure salary is a great achievement, but it's important to remember that your education doesn't stop when you start making more money. In fact, investing in yourself and your personal growth can be one of the best investments you make. Here are some ways to do that:

• Hire a coach or take classes: Consider hiring a life or professional coach to help you achieve your goals and reach your full potential. Alternatively, you could take classes or pursue a new professional designation to enhance your skills and knowledge.
• Travel and gain experiences: Travelling and gaining new experiences can be a great way to invest in yourself. It can help you grow as a person, learn about new cultures, and gain valuable perspectives that can benefit you in both your personal and professional life.
• Volunteer and give back: Volunteering and giving back to your community is not only rewarding, but it can also help you develop new skills and connections. Find a cause you believe in and look for ways to contribute your time, talent, or treasury.
• Build your online presence: In today's digital age, having an online presence is crucial. Consider building a personal website or blog to showcase your expertise and connect with others in your industry. This can also be a source of passive income if you monetise it through advertising or affiliate marketing.
• Network and build relationships: Networking is a great way to invest in yourself and your career. Attend industry events, join professional organisations, and build relationships with people in your field. These connections can open doors to new opportunities, mentorship, and collaboration.
• Practice self-care: Taking care of yourself is important for your overall well-being and can help you stay focused and productive. This includes getting enough sleep, exercising regularly, eating a healthy diet, and finding healthy ways to manage stress.

Remember, investing in yourself is a lifelong journey. It's about constantly learning, growing, and working towards becoming the best version of yourself. By prioritising your personal and professional development, you'll not only improve your career prospects but also your overall quality of life.

Consider real estate

If you're earning a six-figure salary, you might be wondering how to invest your money. While there are many options to consider, investing in real estate is a great way to build wealth. Here are some detailed tips on how to approach this:

Diversify Your Income Streams

It's important to have multiple sources of income to protect yourself from unforeseen circumstances. While selling properties can be your primary income stream, you can also offer other services such as property tax appeals, property management, and credit repair for buyers. Additionally, consider monetizing a real estate blog or investing in rental properties to generate passive income.

Focus on Building Relationships

Nurturing relationships with past and current clients is crucial. Stay in touch with them through email, text messages, social media, or even dinner invitations. By doing so, you can generate more leads, close more deals, and make more money. Remember, relationships are key to success in the real estate business.

Outsource and Build a Team

To free up your time and focus on income-generating tasks, consider outsourcing as much work as possible to virtual assistants or freelancers. This can include social media management, transaction coordination, and administrative tasks. Additionally, build a strong team of professionals, including other real estate agents, loan officers, title companies, and home inspectors. This will help you streamline the closing process and better serve your clients.

Get Educated on Real Estate Investing

Understanding the ins and outs of real estate investing is crucial to making informed decisions when buying and selling properties. Educate yourself through books, online courses, seminars, and local meetups. This knowledge will also enable you to work with real estate investors and potentially invest in real estate yourself, bringing you closer to that six-figure income goal.

Develop Systems and Automate

Automation is key to scaling your business. Develop systems to streamline tasks such as lead generation, email marketing, and social media management. You can also outsource these tasks to professionals who can help you increase efficiency and productivity.

Start with a Niche

When starting out, focus on a specific niche within the real estate market. This could be commercial real estate, residential real estate, property management, or investment properties. By specializing, you can become an expert in your field, develop a loyal client base, and create specialized products and services.

Always Be Networking

Networking is essential for generating new business opportunities. Attend networking events, local Chamber of Commerce meetings, and industry functions to meet potential clients and referrers. Join online networking groups and participate in social media communities to expand your reach. The more people you connect with, the more opportunities you'll create.

Offer a Service That Fills a Need

Instead of focusing solely on closing deals, shift your mindset to providing value to your clients. Identify a need in the market and develop a service to meet that need. By offering something unique and valuable, you'll attract more clients and gain a competitive advantage.

Invest in Yourself

To be successful in real estate, you need to continuously invest in yourself. This includes taking care of your physical and mental health, as well as your personal and professional development. Eat healthily, exercise, get enough sleep, and commit to learning new skills. Attend seminars, read books, and consider working with a coach to help you grow as an individual and better serve your clients.

Leverage Referrals

Referrals are the lifeblood of a successful real estate business. Provide exceptional service to your clients, and they will be more likely to refer you to their friends and family. Build a referral network with real estate agents in other cities or states, and don't forget to leverage your existing network of connections as well.

Remember, investing in real estate requires dedication and hard work, but by following these tips, you'll be well on your way to achieving your financial goals.

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