It is an enormous achievement to land a six-figure salary in your twenties. You are either in the tech industry, you have worked your way to the top as an electrical instrumentation technician, or you have smashed it in sales. Either way, you have done something that most people have not.
However, there is a twist, and the difference between earning six figures and having six figures is significant.
I have seen too many young high-earners have that great pay disappear each month. The good news? You can create actual wealth now. Let’s break down exactly how.
Watch Out for Lifestyle Inflation
Do you remember when you earned $40,000 and you thought, “If I make $100,000, then I will be set”? Then you arrived there and… you are still broke at the end of the month?
That’s lifestyle inflation. It sneaks up on you.
The motto here: As you get a raise, do not run out and buy everything at the same time. Give yourself a treat, sure. But do not stretch your spending to match your new earnings.
Easy tip: Attempt to live like you did when you earned 30 percent less. The difference should be saved and invested. Your future self will be thanking you.
Max Out Tax-Advantaged Accounts
This is the place where you actually become wealthy.
- Your 401(k): Contribute up to $23,000 annually. When you have an employer match, that is free money. Take it. The tax benefit is justifiable even in the absence of a match.
- Roth IRA: Drop in $7,000 per year. The best part? It grows tax-free forever. And when you retire and withdraw the money, you pay zero taxes.
- HSA (if you are eligible): This one is truly ridiculous. You get a tax deduction when you invest in it, it grows tax-free, and you withdraw it tax-free to spend on medical items. Three tax advantages in a row.
Max these out before you spend money on any other luxuries.
Build an Emergency Fund
Not exciting. I know.
You require 3-6 months of expenses sitting in a High-Yield Savings Account. You will not have to empty your investments or rely on credit cards when life throws you a curveball in the form of job loss, a medical emergency, or a car problem.
Consider it self-insurance.
Invest Like You Mean It
After you have filled up your retirement funds and have a well-established emergency fund, it is time to invest the rest.
Stay basic with index funds. They work, they are cheap, and they are diversified. Never attempt to pick individual stocks unless it is indeed your profession.
Simple portfolio: A stock market fund, an international stock fund, and a little bit in bonds. You are at an age where you can afford to take a bigger risk since you have decades before your money needs to multiply.
Establish automated investments. This transfers money directly into investments every month straight from your paycheck. You won’t even miss it.
Get a Financial Advisor
Full disclosure: Financial planning for young professionals is a game changer.
An advisor is a professional who assists with your taxes, investments, and big life moves. You want to find a person who is a fiduciary and fee-only—in other words, there is a legal requirement that they must act in your best interest.
Yes, you’ll pay them. However, a good advisor tends to save you more than they will cost.
Consider (Possibly) Buying Property
Homeownership is not a fit for everyone, and you should not rush it.
However, if you plan on staying put for 5 or more years and the numbers make sense, buying can create wealth. Meet with mortgage brokers companies to know what is available to you and get pre-approved prior to beginning the process of house hunting.
Note: Purchase a house that you can afford. You do not want to spread yourself too thin and not be able to save or enjoy life.
Protect What You’ve Built
Get these locked down:
- Disability insurance: Your greatest asset is your ability to earn a paycheck. Protect it.
- Life insurance: Get term life insurance in case anyone is depending on your income.
- Health insurance: Hospital bills can ruin you. Don’t skimp here.
See what your employer has to offer, and fill in any missing gaps.
Quit Comparing Yourself to Others
This is aggravated by social media, yet it has always been the case.
Your friends are driving luxury cars, sharing vacation photos, and living large, so to speak. What you do not see is that most of them are either going into debt or compromising their future to look good today.
Focus on your goals. Real wealth is not built overnight.
Keep Investing in Yourself
Your career is your greatest asset during your twenties.
Take courses. Get certifications. Network. Learn new skills. This can be the difference between earning $100,000 and $150,000 in the future, which is usually determined by what you spend on yourself today.
Bottom Line
It is a huge privilege to earn six figures in your twenties. The question is: what will you do with it?
Max out retirement accounts. Live below your means. Invest aggressively. Build a safety net. Get professional help. Keep long-term objectives in mind.
These are not complex tactics. They need discipline, though.
Get this right, and you will not only make good money in your twenties—you will secure a lifetime of financial freedom.
