all right if you're a high- income earner this video is for you so let's jump right into it the number one place to invest your money as a high income earner cash or sometimes called an emergency fund whatever you like to call it I firmly believe that we all need to hold a good amount of liquid cash at all times unplanned stuff happens all the time your kid chips his to during the weekend soccer game your car hits a curb and you need to replace your tire your computer dies on you and you need a new one today when you have enough cash these incidents become minor inconveniences rather than life altering events and I personally don't obsess too much about what I my cash for me the priority is liquidity I want to be able to access it easily and quickly without having to jump through loopholes thus while high interest CDs are nice they are't my number one pick when it comes to holding my cash given they often have penalties for pulling out the money early I prefer a simple checking and savings account in my bank and if I can get additional interest great but it's not a deal breaker also the amount that you want to hold should align with your risk tolerance and recurring expenses I personally like to hold up to 12 months of expenses you can also have 6 months or even 3 months if you're in a stable career and have a higher risk tolerance the key is to build up a healthy level of cash before you start investing your money anywhere else the number two place to invest your money as a high income earner investing in your 41k up to the employer match employer match is essentially free money for example let's say you make an annual salary of $100,000 and your company matches your 41k contribution up to 4% this means that when you contribute $44,000 into your 41k your company will match you dollar for dollar another $4,000 into your 41k your $4,000 just became $88,000 without you having to do anything a 100% instantaneously additionally you're able to reduce your taxes you owe the government by lowering your taxable income by $4,000 investing up to 41k employer match is really a no-brainer if you're not contributing to a 41k at least to the match stop this video right now go and do that before you move on to the next point the number three place to invest your money as a high income earner participating in your company's Employee Stock purchase plan akapp an employee stock purchase plan is a company-run program in which participating employees can purchase Company stock directly at a discount counted price most typically being about 15% discount employees contribute to the plan through a payroll deductions which build up between the offering date and the purchase date and at the purchase date the company uses the employees accumulated funds to purchase stock in the company on behalf of the participating employees similar to the 41k match a 15% discount is like receiving free money where can you receive an automatic 15% discount on anything and if there's no restriction on when you can sell your ESP stock then there's a minimal risk if you sell your shares immediately you get to basically pocket the 15% discount A good rule of th with ESP is after you sell your company stocks which you bought at a 15% discount immediately reinvest into a broad market index fund here are a few benefits of this strategy one you get to take advantage of the 15% discount two you stay invested in the market you're not spending that extra money and third your investment is not tied to the performance of a single company ESP is not something that is available to everyone so if your company does offer it make sure to take advantage of it real quick if you like all the steps that I'm covering in this video you might like my onepage companion PDF guide think of it like a quick Chi that you can reference to remind yourself of the order of investing I'm covering this video I always learn better when I can not only hear things but see them visually as well so if you like a free copy this PDF please go to the link I'll have in the description below the number four place to invest your money as a high income earner paying down high interest debt think of auto loans student loans and credit card debt there's no good reason to carry High interest debt from one month to the other when you're paying interest on these debts you're making someone else rich not yourself so before moving on to other Investments I recommend tackling these debt as quickly as possible and because I like Simplicity I like head-on Brute Force approach when it comes to paying down debt list out all your debt and start tackling them one at a time you can use either the debt snowball method or the Avalanche method to be frank either will work fine it's really a personal preference the number five place to invest your money as a high income earner go back to your 41k and now Max it out if you're a high income earner contributing to a tax deferred retirement account like the 401K during your Peak earning years is the best tax deduction you can get you get an upfront tax deduction tax protected growth for the duration of investment and usually an Arbitrage between the tax rate you save during contributing and the tax rate you pay upon withdrawal it's bigger than almost any other tax deductions you can qualify for and unlike charitable donations or mortgage interest you still have the money at the end of the day in 2024 the contribution limit for anybody under the age of 50 is $23,000 if you're age 50 or older the contribution limit is $30,500 7,500 extra the number six Place invest your money as a high income earner maxing out your HSA health savings account if you and your family are in good health you might want to consider selecting a high deductible healthcare plan AKA hdhp for your health insurance a high deductible healthcare plan as the name implies is a type of health insurance plan that features a higher deductible than traditional insurance plans this plan not only has a lower premium compared to a traditional plan you're able to open up something called the health savings account also known as the HSA in the financial Independence World many people call the HSA the ultra secret early retirement account let me explain why HSA is often marketed simply as a tax advantage savings account where you can contribute funds to pay for qualified medical expenses however what is often not discussed is a Triple Tax Benefit when you contribute to an HSA your contributions are tax deductible so tax benefit going in then the money in your HSA can grow taxfree finally if you have qualified medical expenses you can withdraw your money taxfree Triple Tax Benefit tax benefit going in taxfree growth and taxfree withdrawal and there's no time cap to HSA which means you can hold on to your medical receipts 10 years ago if you want to withdraw taxfree money today or 10 years from now you can the contribution limit for 202 is 4150 for self only coverage and 8,300 for family plans bottom line if you're eligible don't miss out on this really great account that will not only reduce your taxes but increase your net worth as well the number seventh place invest your money as a high income earner take advantage of the backd door Roth IRA Roth IRAs are great you pay taxes on your contribution however growth and withdrawals are taxfree but if you're a high income earner there's a good chance you're not eligible to contribute directly into a Roth IRA in 2024 if you're Mary finding joury combined income exceeds $230,000 you're ineligible to make direct Roth IRA contribution but no worries even if your income level exceeds the allowable amount to qualify you can still use the back door Roth strategy to contribute to a Roth IRA you would make a non-deductible contribution for the maximum liable amount into a traditional IRA for 2024 this will be $7,000 if you're younger than 50 and $8,000 if you're 50 and older then you would convert your traditional IRA into a Roth IRA this is generally a taxable event in which you pay ordinary income tax on the amount that you convert into the Roth IRA however all the earnings and growth in the Roth IRA after conversion will be taxfree after theying in the account for 5 years now as you can guess there's a lot of nuances with this strategy given you have to follow specific steps to ensure compliance so if you want to learn more about this strategy I recommend you check out my video in the backdoor Roth IRA strategy which I'll have in the link in the description below the number eight place to invest your money as a high income earner take advantage of the mega backdor Roth the back door Roth Ira's bigger cousin this is a strategy that allows High income earners to take after tax dollar they contribute to their 41k and Ru them into a Roth IRA with this strategy you're essentially contributing more money to a Roth IRA than the annual contribution limit now to be transparent this isn't something that everyone can do because you have to meet few conditions one you have to have a 41k plan that allows after tax contributions two you're not eligible to contribute to a ro Ira because of your high income and three you've already maxed out your traditional 41k contributions you can't make the after tax contributions require for a mega back door Roth until you reach your 41k employee contribution limit as you can guess similar to a back door WTH Ira the strategy requires that you follow very specific steps and to be frank it can be quite complicated because of its many moving Parts however if your employer 41k plan allows for a mega back door rough consult your plan documents to better understand the rules and features to see if this is something you want to take advantage of the number nine place to invest your money as a high income earner a 5 to9 education savings plan if you have children or nephews or nieces you want to support a 529 education savings plan is basically like a Roth IRA but for Education expenses contributions are made on an after tax basis but growth is not subject to federal tax and often times state tax as well when used for qualified education expenses 5 to9 plans do not have annual contribution limits however contributions to a 5 to9 plan are considered a completed gifts for federal tax purposes and in 20124 up to $18,000 per donor per beneficiary qualifies for annual give tax exclusion just a quick personal perspective on this I do have 5 to9 plans for my kids but I only contribute a moderate amount I personally believe that education is one of those things that for Creative there are tons of different more coste effective ways to fund it my wife's Nursing education is a great example when she was in undergrad she was able to find a hospital willing to pay for her bachelor's if she was committed to working there after she completed her degree and with her master's degree her employer was also willing to pay 100% for the degree if she was willing to continue working and commit to another 3 years afterwards now was this easy of course not however to her it was worth saving hundreds of thousands of dollars in tuition in the long run I believe that passing on to our children the values of hard work and Ingenuity is much more important than a fully funded 529 account all right enough of my soapbox talk let's move on to the next investment item the number 10 place to invest your money as a high income earner taxable brokerage account once you have maxed out all your tax advantage options that we covered so far you can start investing additional money into a regular taxable investment account of course all invested with a simple broad market index fund my personal favorite is the Vanguard Total stock market index fund also known as vtsax I talked to a lot of people who are just learning about the stock market and are excited to jump right in but one of the most common mistakes I see many them making is that they start by opening up taxable Brokers accounts before they have maxed out all their tax advantage accounts in my opinion this should be the last priority since you don't get any tax advantage when you use a taxable account the tax drag from using a taxable account instead of a tax advantage account like a 401k can be significant especially when you compounded over decades tax advantages like tax deductions allow more of your money to get to work for you sooner in the market and therefore greater growth in the long run why pay more in taxes than you need to however once you max out all your tax advantage account that we talked about so far your toxo account can play an important role in Bridging the Gap between regular retirement and early retirement just don't get so eager to fund it before all the other accounts that we discussed here so far the number 11 place to invest your money as a high income earner investing in real estate Dr Jordan gromet aka dog talks about in his book taking stock the importance of adding more legs to our dining room table the dining room table representing our financial plan and each leg representing a source of income or an investment when your financial plan is based on only one source of income like a W2 wage you're like a flamingo standing on one leg and a big risk with this plan is that with one single blow you can easily topple over the two-legged plan is slightly better you're adding investing your 401K Roth IRA and brokerage investment account to your W2 job however we can make it more sturdy by adding real estate to the mix now there are a few ways to approach real estate you can buy and own individual rental properties and rent them out for additional cash flow the strategy not only brings an extra cash but your money is Diversified within a different asset class this is a strategy that my wife and I have taken because we like the idea of having additional streams of income now if you don't want to do any work of actually owning rentals yourself you can buy Reit Real Estate Investment Trust a Reit is a company that owns operates and finances income generating real estate and they operate like a Mutual Fund mutual funds allow us to buy publicly traded companies without buying individual stocks in the same way Reit allow us to tap into real estate Investments without having to actually buy manage and finance any properties ourselves if you want a specific fund I recommend you consider the Vanguard real estate Index Fund also known as VG SLX if you want ETF version vangard real estate ETF AKA V and Q regardless of your approach direct roow at investing or Reit having additional diversity will only add more stability to your dining room table the number two Place invest your money as a high income earner paying down low interest debt this could be a home mortgage or any other debt that might have less than 3 to 5% interest rate this may not be the most financially optimal move many people will argue why pay off a 3% mortgage when you can invest that money in the stock market and get greater return however those people are not you there is no such thing as the best financial decision only what is best for you so if having absolutely no debt gives you peace of mind then don't let others hold you back pay off all your low interest debt and live the ultimate debt-free life thank you guys for watching the line of debt if you want to learn more about why I personally abhor debt please check out my video here until next time all the best
