Earning a six-figure income is a significant milestone in anyone’s career. Whether you’ve worked your way up over time or found yourself in a high-paying role, reaching this income level offers many opportunities—but also a few new challenges. Financial success at this level isn’t just about earning more, but also about making the most of what you have and building a foundation for future wealth and security. Here are nine things you must do as soon as your annual income hits the six-figure mark.
1. Reevaluate Your Financial Goals
Hitting the six-figure mark changes your financial landscape significantly. It’s a great time to step back and reevaluate your financial goals. Are your current goals still aligned with your income, lifestyle, and long-term ambitions? Perhaps you can now think bigger, such as purchasing a home, investing in rental properties, or aiming for early retirement.
Action Step:
Take the time to sit down and review your short-term and long-term financial goals. If you haven’t done so already, create or update a detailed financial plan. This plan should include retirement savings, debt repayment, and any major purchases you want to make.
Why It’s Important:
With more income comes the ability to fast-track some of your previous goals or set entirely new ones. Revisiting your financial objectives ensures that your increased earnings are working in your favor and not going to waste.
2. Increase Your Retirement Contributions
One of the best things you can do with a higher income is to funnel more money into your retirement accounts. Whether it’s a 401(k), IRA, or any other tax-advantaged account, increasing your contributions ensures that you’re setting yourself up for financial security in your golden years.
Action Step:
Maximize your retirement contributions. If your employer offers a match on your 401(k) contributions, make sure you’re taking full advantage of it. You may also consider opening an IRA to diversify your retirement savings. If possible, aim to max out these accounts to take advantage of tax benefits.
Why It’s Important:
Retirement savings compound over time, and the earlier you start contributing more, the larger your nest egg will be. Taking full advantage of tax-deferred or tax-free growth opportunities is essential in building long-term wealth.
3. Build an Emergency Fund (or Boost It)
If you don’t already have an emergency fund, now is the time to establish one. If you do, consider increasing its size. A six-figure income can come with lifestyle changes, higher expenses, and bigger responsibilities. An emergency fund should cover 3-6 months’ worth of living expenses, but given your new income level, you may want to aim for more.
Action Step:
Set aside a portion of your income each month to build or grow your emergency fund. Make sure it’s easily accessible, such as in a high-yield savings account.
Why It’s Important:
Having a robust emergency fund gives you peace of mind and financial security in case of unexpected expenses or a sudden loss of income. With higher earnings, the stakes are also higher, and an emergency fund provides a cushion to weather any financial storms.
4. Pay Off High-Interest Debt
High-interest debt, like credit cards or payday loans, can quickly eat away at your income. As soon as you hit six figures, make it a priority to eliminate any high-interest debt. Doing so not only frees up cash for other financial goals but also reduces your financial stress.
Action Step:
If you have any high-interest debt, focus on paying it off as quickly as possible. Consider using strategies like the debt avalanche (focusing on paying off the highest interest debt first) or the debt snowball (paying off smaller debts first to build momentum).
Why It’s Important:
High-interest debt can cost you thousands of dollars over time, and it can prevent you from fully enjoying the benefits of your six-figure salary. By eliminating this debt, you can take control of your finances and start building wealth more effectively.
5. Upgrade Your Insurance Coverage
As your income increases, so do your financial responsibilities. It’s essential to ensure that you have the right insurance coverage to protect yourself, your family, and your assets. Health, life, disability, and home insurance are crucial areas to evaluate. Also, with a higher income, you may want to consider umbrella insurance to provide additional liability coverage.
Action Step:
Review your current insurance policies and consider upgrading where necessary. Ensure that you have adequate life insurance, especially if you have dependents. You may also want to look into disability insurance to protect your income in case you’re unable to work.
Why It’s Important:
Your six-figure income supports your lifestyle, and it’s important to protect that income and your assets. Adequate insurance coverage ensures that an unexpected event won’t derail your financial progress.
6. Create or Update Your Estate Plan
Hitting the six-figure mark is a signal that it’s time to take estate planning seriously. Even if you’re young and healthy, it’s important to have a plan in place that outlines how your assets will be distributed and who will make decisions on your behalf if you become incapacitated.
Action Step:
If you don’t have an estate plan, now is the time to create one. At a minimum, you should have a will, healthcare proxy, and durable power of attorney. If you already have an estate plan, review and update it to reflect your new financial situation.
Why It’s Important:
An estate plan protects your loved ones and ensures that your assets are distributed according to your wishes. With a six-figure income, your estate becomes more significant, making it even more crucial to have a clear plan in place.
7. Start Investing in New Opportunities
With a higher income, you have more disposable cash to invest. This can open the door to new investment opportunities that you might not have considered before. Whether it’s real estate, stocks, bonds, or even a business venture, now is the time to explore how to make your money work harder for you.
Action Step:
Consult with a financial advisor to discuss potential investment opportunities that align with your goals. Consider diversifying your portfolio with different types of investments, such as real estate or index funds.
Why It’s Important:
Investing is one of the most effective ways to build wealth over time. With a six-figure income, you can accelerate your wealth-building efforts by investing in high-potential opportunities that provide returns beyond what traditional savings accounts offer.
8. Avoid Lifestyle Inflation
It’s tempting to upgrade your lifestyle when your income increases, but lifestyle inflation can quickly erode the benefits of earning a six-figure salary. While it’s okay to enjoy the fruits of your labor, it’s important to strike a balance between enjoying your income and saving for the future.
Action Step:
Be mindful of your spending habits and avoid falling into the trap of lifestyle inflation. Set limits on discretionary spending, and make sure you’re still saving and investing a significant portion of your income.
Why It’s Important:
Lifestyle inflation can prevent you from reaching your long-term financial goals. By keeping your spending in check, you’ll be able to save more, invest more, and build wealth faster without compromising your financial future.
9. Work with a Financial Advisor
Reaching a six-figure income can bring new complexities to your financial life. A financial advisor can help you navigate these challenges, optimize your financial plan, and ensure that you’re making the most of your income.
Action Step:
Schedule a consultation with a financial advisor to review your financial situation, goals, and strategies. Look for someone who is a fiduciary and has your best interests in mind.
Why It’s Important:
A financial advisor provides expertise that can help you make informed decisions about your money. As your financial situation becomes more complex, having a trusted professional guide you can be invaluable in making the right moves.
Conclusion
Earning a six-figure income is a major achievement, but it’s also just the beginning of your financial journey. By taking these nine steps—reevaluating your goals, increasing your retirement contributions, building an emergency fund, eliminating debt, upgrading your insurance, creating an estate plan, investing in new opportunities, avoiding lifestyle inflation, and working with a financial advisor—you can make the most of your income and set yourself up for long-term financial success. By managing your six-figure income wisely, you’ll be able to enjoy the lifestyle you’ve earned while securing your financial future for years to come.
