The Expert Podcast

Here's a great article on Business Insider, which by the way is an excellent source of news. If you click it a couple of times a week, you'll get some good insight. They talk about how it's a terrible time to be a Henry. What is a Henry? Well, it's not someone's name, and this is something we've talked about many, many times on this channel: it's almost impossible to earn and save your way to being rich. Think about that. Most people want to work a job, make a lot of money, save up, and be rich in retirement. It's very difficult to do because of the math, and that's what this article is talking about.

What does Henry stand for? Henry stands for high earner, not rich yet. Clever, right? High earner, not rich yet. And according to Business Insider, it's a terrible time to be that. We're going to do some math here in a minute to prove why trying to save and earn your way into richness, retirement, and wealth is very difficult, if not impossible. It doesn't mean you shouldn't try to make a lot of money. It doesn't mean you shouldn't save and be frugal, but it means that you probably have another, easier pathway to wealth than saving your way to it.

The bullet point of the article is: Americans who are high earners, not rich yet, are not doing so hot. Their wage and job growth is slower than lower earners. Piling on debt—that's a poison pill right there. Childcare costs are soaring. They're turning to cheaper brands and not feeling financially well off. So here's the key: wage and job growth is slower. It's going to get even worse because, as companies turn to AI and automation, you're going to find that high earners are going to be the first ones to get cut.

So, what's the math? All right, let's look at our favorite basic calculator. Look, you don't need a lot of fancy analytical tools to figure this stuff out. Let's use as an example somebody who's 45 years old—not really that old, not really that young. Let's say 40, let's say a little younger. And you make $150,000 a year, which is pretty high income, right? You may make more, you may make less, but 150 is in the top few percent of income earners. So let's say your high income, high earner, $150,000 a year, right? So right off the bat, and granted, if you make less than this, the math is even going to be worse. So, help me out. $150,000 a year, and you're going to keep about 70% of that after taxes. So you can multiply it times 7, that gives you $105,000 a year that you get to keep. That's great. How much is that per month? Divided by 12, so you make $8,750 a month. Okay, that seems like a lot. So you get $8,750 a month. A typical high earner is probably going to live in a house that either rents or has a mortgage of probably just shy of $3,000. So let's take off $2,800. That leaves you with about $6,000 left over. You probably got a couple of car payments, maybe of $1,000 between the two. Leaves you with—I'm sorry, I did 100—leaves you with about $5,000. You're going to have your normal utilities, um, heat, light, electricity, fuel for your car. Let's take another $800 off of that, leaves you with about $4,000. And then you're going to have, you know, your food, groceries, eating out, that kind of thing. Conservatively, let's say another $800 is probably more than that. Leaves you with just roughly $3,000 a month.

So you're 40 years old. At what age do you want to retire? So let's say you want to retire at age 60, which most people want to retire before that. So $3,350 a month, you're going to multiply that times 12 months, that gives you $40,000 a year. If you're 40 now, you want to retire at age 60, that's 20 years, 20 years. So you multiply that times 20, that gives you $800,000. Seems like a lot of money, and it probably will grow because of interest and appreciation to over a million dollars. So you might say, "Well, gee, I'm going to have a million dollars. Aren't I rich? Aren't I wealthy?" Well, probably, but if you're now 60 and you take that million dollars, let's put in a million dollars, a million, and how long are you going to live for? Let's say you're going to live to be age 80. You probably live past that. So that's another 20 years. You take a million, divided by 20 years, that gives you $50,000 a year to live on. You've been making 150, and plus, there'll be inflation by then. Is that going to be enough to live on for 20 years? Probably not, right? So the math doesn't work. How are you going to get enough to live on? Well, there are two things you need to do. Well, you can do whatever you want, but two things that will help you get to that comfortable retirement point: one is having an income that survives beyond your retirement, the other is building something of value that's worth more than your savings. What are, what is one thing that does both of those? A business.

If you create your own business, even if it's on the side while you're working at your primary job, you can build a business that maybe is worth a few million dollars. Most of the time, a company, a business, is worth about one and a half to two years' worth of revenue. So if you build up a company that is a million-dollar business a year in revenue, then you have something that's worth a couple of million in retirement. How much is a million dollars a year in revenue? Divided by 12 months, that means you need to sell about $80,000 a month in revenue. Sounds like a lot of money. Divided by 26 business days, that's $3,000 a day in sales. If you find a business that you can sell about $3,000 a day, you now have something that in retirement might be worth 2 million plus. You might get to keep some of that revenue, even if it's only $4,000 or $5,000 a month. Right now, you have that revenue continuing in your retirement. You have that business value. You can sell or sell part of it. Add that onto the $50,000 you get from depleting your savings. Now you have a retirement.

So think about what that might be. It could be anything. You know, there are companies that sell pens that make millions of dollars. There are companies that sell, I don't know, what this is, some little bag that makes millions of dollars. It's something that you would want to do again. You don't want to get into something you don't like to do. You don't want to have it interfere with your primary job until it is worth doing. But building up a small business, a one- or two-million-dollar business, is considered small, is a way that you can fortify and magnify your potential savings in retirement. Just do the math. Look, we're not telling you what to do, but just don't expect that if you save a couple of thousand a month in your 401K, that's going to be something that will give you a secure retirement. As they say, Henry's high income, not rich yet, and some of these, um, might be Henry's, high income, never rich ever, right? So think about what you might do to augment your savings so you have a comfortable and even maybe a little bit luxurious retirement. Trying to survive on $50,000 a year, that's less than a thousand a week, right? When you've been making three times that in your job, plus you're going to have more expenses because of healthcare, plus you're going to have inflation, is probably not the best course of action. Earlier you start, the better, both for savings and for building a business, because it may take five or 10 years to build up a business that big.