Wealth Management Tips for High Earners: How to Save Time and Maximize Your Finances
For high earners, traditional budgeting may not be the most effective financial strategy. As income levels rise, the principles of personal finance evolve.
High earners often find their time and energy are better spent on broader financial strategies rather than focusing on daily expense budgeting. Shifting towards strategic investments, wealth management, and financial automation can create greater financial freedom.
Defining a High Earner
A high-income earner typically falls into the top 95th percentile or higher for their age group. According to Statistics Canada, the top 95th percentile earns by age, after tax, as of 2021:
- Ages 20 – 24: $50,000 or more
- Ages 25 – 29: $76,000 or more
- Ages 30 – 34: $94,000 or more
- Ages 35 – 39: $108,000 or more
- Ages 40 – 44: $118,000 or more
- Ages 45 – 49: $126,000 or more
- Ages 50 – 54: $128,000 or more
If you fall into this category, you’re statistically considered a high-income earner.
Redefining Financial Priorities
For those in lower income brackets or struggling with monthly expenses, budgeting and tracking expenses can be beneficial. Identifying areas of overspending can help allocate funds to pay off debt or build savings.
However, high earners should focus more on strategic investment strategies designed to compound their wealth over time, while still maintaining some basic budgeting practices.
Beyond Basic Budgeting
High earners should elevate their financial strategies to maximize returns. This involves active wealth management, large-scale investments, estate planning, and tax strategies that significantly impact overall wealth accumulation.
Time Versus Money
For high earners, time often becomes more valuable than money. Traditional budgeting can be time-consuming and might offer only marginal benefits compared to investing time in finding new investment opportunities. Utilizing financial tools and services to streamline or automate money management can free up time for pursuing larger opportunities.
Strategic Investments
High earners have access to various investment opportunities that can yield significant returns. Some popular investment strategies include:
- Real Estate: Investing in commercial properties, land, or real estate investment trusts (REITs)
- Stock Market: Building a diversified portfolio of dividend-paying stocks or investing in exchange-traded funds (ETFs)
- Private Equity: Investing directly in private companies for higher potential returns
- Guaranteed Investment Certificate (GIC): Purchasing a GIC from banks for a guaranteed return over a set period
Balancing high-risk/high-reward investments with lower-risk/lower-reward investments is a smart strategy, depending on your risk tolerance.
Wealth Management Strategies
Many intelligent investors employ skilled financial advisors for a second opinion or to streamline their wealth management. Financial advisors provide personalized advice tailored to individual financial situations and goals. Periodic portfolio audits by advisors can help minimize risk exposure while maximizing long-term profits. Fee-for-service planners, who charge a one-time fee for their services, can be a wise choice.
Tax Optimization
Canada’s progressive tax system means higher income results in a higher tax rate. However, high earners can reduce their tax liability by investing in retirement, their communities, and taking advantage of legal tax breaks. Tax optimization strategies include:
- Deferral Techniques: Utilizing retirement accounts and other tax-deferral options to reduce taxable income
- Income Splitting: Distributing income among family members in lower tax brackets to reduce the overall tax burden
- Investment in Tax-Efficient Vehicles: Choosing investments that offer tax advantages, such as RRSP retirement accounts or claiming deductions on business or real estate investments
Estate Planning
Wealthy individuals often optimize their estate planning to ensure their wealth stays within their family. Working with a skilled estate planner to create and execute a will is crucial. Increasing income to a level where comfortable investing becomes possible is often the first step for many.
By focusing on these broader financial strategies, high earners can maximize their wealth and save time.
