3 Things You Need To Do If You Make Over $100k

Breaking the six-figure barrier is a significant achievement. It signals financial stability and opens doors to new possibilities. However, with more income comes more responsibility. Just as you leveled up your earning potential, you need to level up your financial strategy. Here are three crucial things you need to do when you start making over $100k:

1. Get Serious About Taxes (and Maybe a Professional)

Congratulations, you’re now likely in a higher tax bracket. Ignoring this fact can lead to a nasty surprise come tax season. You need to actively manage your tax burden to avoid overpaying and maximize your after-tax income.

• Re-evaluate your withholding: Now’s the time to update your W-4 form with your employer. Ensure you’re withholding enough to cover your tax liability. The IRS’s online withholding calculator (easily found with a quick Google search) is a fantastic tool to help you estimate this.
• Maximize tax-advantaged accounts: Contribute the maximum amount to your 401(k), IRA (traditional or Roth, depending on your situation), and HSA (if eligible). These contributions can lower your taxable income and provide long-term savings.
• Explore deductions and credits: Now that you’re earning more, you might be eligible for different deductions and credits than you were before. Research potential deductions related to your home (mortgage interest, property taxes), charitable donations, business expenses (if applicable), and more.
• Consider a tax professional: This is especially important if you’re self-employed, have complex investment strategies, or are just feeling overwhelmed. A qualified CPA or tax advisor can help you navigate the complexities of the tax code, identify potential savings opportunities, and ensure you’re compliant. The cost of a professional can easily pay for itself in tax savings and peace of mind.

2. Automate Your Savings and Investments

With a higher income, you have a greater opportunity to build wealth. The key is to make saving and investing automatic, so it becomes a habit rather than a chore.

• Set up automatic transfers: Schedule regular transfers from your checking account to your savings and investment accounts. This “pay yourself first” approach ensures you consistently allocate funds to your financial goals.
• Increase your retirement contributions: Aim to contribute at least 15% of your income to retirement. If your employer offers a match on your 401(k), make sure you’re contributing enough to receive the full match. Consider bumping up your contribution percentage every year, even by just 1%, to steadily increase your savings rate.
• Diversify your investments: Don’t put all your eggs in one basket. Diversify your investments across different asset classes (stocks, bonds, real estate, etc.) to reduce risk and potentially increase returns over the long term. Consider using low-cost index funds or ETFs for broad market exposure.
• Re-evaluate your asset allocation: As your income and investment portfolio grow, it’s crucial to periodically review and adjust your asset allocation to ensure it aligns with your risk tolerance and financial goals.

3. Reassess Your Lifestyle and Spending Habits

Making over $100k doesn’t automatically mean you should drastically increase your spending. It’s an opportunity to be intentional about your lifestyle and avoid lifestyle inflation.

• Track your expenses: Understand where your money is going. Use budgeting apps, spreadsheets, or even good old-fashioned pen and paper to track your income and expenses.
• Create a budget: Develop a budget that aligns with your financial goals. Prioritize saving and investing, and then allocate funds for necessary expenses, discretionary spending, and debt repayment.
• Be mindful of lifestyle creep: Avoid the temptation to upgrade everything just because you can afford it. Prioritize experiences and purchases that truly add value to your life, rather than chasing status symbols or keeping up with the Joneses.
• Pay down high-interest debt: Use your increased income to aggressively pay down high-interest debt, such as credit card debt or personal loans. This will free up more cash flow in the long run and reduce your overall financial burden.
• Review your insurance needs: Ensure you have adequate insurance coverage to protect yourself and your assets. Consider increasing your liability insurance, purchasing umbrella insurance, or reassessing your life insurance needs.

Earning over $100k is a fantastic achievement, but it’s only the beginning of your financial journey. By taking these three steps – managing your taxes, automating your savings, and reassessing your lifestyle – you can build a solid financial foundation, achieve your long-term goals, and enjoy the benefits of your hard-earned success.

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