If you’re under 40 and earning between $250,000 and $500,000 a year, congratulations are in order! You’re making enough to cover the essentials and then some—building a home (potentially a family), giving back, and treating yourself to an enjoyable lifestyle. But no matter how comfortable your paycheck seems, you may be disappointed by how little you have left each month after paying the bills or how little you have to show for it in your investment accounts.  

While you’re savoring your success, now is the time to establish a financial plan to help you transition from earning wealth to building lasting wealth. Life will likely only get busier as your career advances, and the benefits from compounding interest mean the earlier you start, the better.

So, how do you go from being a high earner to having a high net worth? In this Insight, we’ll break the process into three actionable steps:

Assess and Organize

You can’t change what you don’t measure. That’s why the first step in the process is to look under the hood at your current financial situation. Dig out your bank statements and investment portfolios and see where you are right now. If you don’t like what you’re seeing, consider these actions:

Consolidate Your Finances

  • Retirement Accounts: If you leave an employer, you’ll likely benefit from consolidating that old retirement plan into your new employer’s plan or into an IRA Rollover (or a Roth IRA, if you have after-tax contributions). Consolidating your retirement accounts makes tracking your investments easier and reduces redundancies within your accounts. Additionally, an IRA Rollover will likely provide increased flexibility through more investment options since employer-based plans usually offer a limited selection through the plan sponsor.
  • Brokerage Accounts: Consolidating brokerage accounts can help you establish an appropriate, cohesive asset allocation. It can also prevent trading errors between different accounts (e.g., wash sale trading violations) and reduce the number of forms you need to gather during tax time.   
  • Bank Accounts: Reducing the number of banks and institutions that hold your money can improve cash flow planning and make it simpler to create and manage a budget (see below). However, be mindful of how your cash is held (the yield, the underlying investments, FDIC limits, and any potential fees).

Establish and Maintain a Budget

The most significant advantage for younger investors is time. But just as compound interest can be a powerful ally, fueling investment growth, it can also be a formidable foe if you start running up debt. Establishing a realistic budget is the first step in ensuring time is on your side.

Here’s how to budget effectively:

  • Categorize Expenses: Identify your fixed expenses (housing costs, like rent or mortgage) and variable expenses (discretionary spending, like your daily afternoon cold brew). Similarly, determine what you’re spending on necessities (groceries, utilities) versus desires (clothes, travel).
  • Automate Bill Payments: In addition to saving you time, automating your payments can help you avoid late fees and potential dings to your credit score.
  • Pay Down Debt: An efficient debt paydown strategy could involve prioritizing the highest-interest debt or the smallest debts first.
  • Shorten the Time Interval: Instead of an annual or monthly budget, consider weekly or biweekly (per paycheck) periods. Budgeting for the short term allows you to quickly course-correctbefore you run into the red.
  • Set Spending Guidelines: For example, a general guardrail for housing costs is less than 30% of gross income. If you can keep your rent or mortgage payment beneath that ceiling, you’ll find it easier to keep your budget on track.

How an Advisor Can Help

An advisor can detail and illustrate the financial outlook of your current savings plan and help put a revised plan into action.

Switch to a Growth Mentality

Now that your budget is balanced and you know where every dollar is flowing, it’s time to start building wealth.

These are the building blocks of a successful investment and savings strategy:

  • An Investment Policy Statement: A misaligned investment strategy might result in heavily concentrated stock positions (without sound reasoning), outsized sector weightings, or an overall asset allocation mismatched with goals. To help you succeed, a financial advisor can help you draft an appropriate Investment Policy Statement documenting your risk tolerance and targeting an asset allocation aligned with your financial goals, such as buying a home, retiring early, paying for education costs, or all of these.
  • An Emergency Fund: To prevent a budget implosion in case of unexpected costs or job loss, you should aim to keep ~3-6 months’ expenses in a savings account or money market fund. 
  • Retirement Savings: For long-term security, pay yourself first. If you have an employer-sponsored retirement plan, contribute at least enough to take advantage of any employer match. (It’s essentially free money!) Aim to increase contributions over time as your income grows to “max out” your salary deferrals ($23,500 for 2025 under 50 years old). If your plan has a Roth option, consider it. While the contributions are not tax-deductible upfront, a Roth could be beneficial due to the compounding of long-term, tax-free growth.
  • Roth IRA vs. Traditional IRA: Depending on your income and tax situation, Roth IRAs can be a valuable tool for tax-free growth, while traditional IRAs may provide immediate tax benefits. Subject to certain income limitations and phase-outs, the maximum contribution is $7,000 for Roth IRA and Traditional IRA contributions. If you are beyond the income limits, you might consider a ‘backdoor’ Roth contribution or Roth conversions. Please consult your tax advisor before making these contributions.
  • Additional ‘Goal-Based’ Savings: Once retirement plans are maxed out, consider allocating a portion of your income into a brokerage account for further investment. A checking account might not be the most appropriate landing spot for additional savings when it comes to achieving your financial goals. 

How an Advisor Can Help

An advisor can help by codifying the proper Investment Policy Statement, selecting the appropriate investment vehicles, and managing risk and return. While you are focused on your personal and professional life, an advisor has the mindshare to monitor these investments and ensure they are appropriately reviewed, rebalanced (tax-efficiently), and working together.

Keep More of What You Earn

Tax planning is crucial for maximizing savings and building wealth, and improper tax management can break a plan.

Some ways to incorporate tax planning into your wealth-building strategy might include:

  • Tax-Efficient Investing and Asset Location: This could include holding securities for longer than one year for more favorable long-term capital gains treatment (0%, 15%, or 20%), municipal bonds for tax-free income, and effectively managing mutual fund distributions. It also involves the strategic location of assets based on tax treatment, income, and growth potential (e.g., placing some higher-growth assets in a Roth IRA).
  • Tax-Loss Harvesting: No one wants their investments to lose value but when they do, it’s an opportunity for tax planning and rebalancing your portfolio. Tax loss harvesting involves selling securities for a realized capital loss to offset taxable capital gains. If your capital losses exceed capital gains, you may also use up to $3,000 to reduce your ordinary income, with any losses over and above carried forward into future years.  
  • Tax-Advantaged Vehicles: Since you are in a high-income tax bracket, deferring income through maximizing vehicles, such as pre-tax retirement plans (or a SEP IRA if you are self-employed), deferred compensation plans, and Health Savings Accounts (HSAs), can help you reduce your current tax liability and build for the future. If you are on track to be in a higher tax bracket later in life, making after-tax / Roth 401(k) contributions might benefit you as part of your tax strategy.
  • Charitable Contributions: If you are charitably inclined, making larger charitable contributions in one given year could allow you to surpass the standard deduction threshold and reduce your taxable income through itemizing your deductions. One strategy to consider is establishing a donor-advised fund (DAF), which provides an upfront tax deduction but lets you give to nonprofits over time.
  • Withholdings and Tax Payments: If you have significant tax liabilities, you might want to reevaluate your withholdings. This is especially true if a substantial portion of your compensation is equity (ISOs, NSOs, RSUs) or commission-based. If you are self-employed, you might need to increase your estimated tax payments throughout the year.

How an Advisor Can Help

In conjunction with your accountant, your advisor can review your tax return and determine certain short and long-term planning opportunities, both within your investment portfolios (e.g., tax-loss harvesting) and cash flow plan (e.g., Roth contributions).

Note: Consult your financial and tax advisors prior to implementing any specific tax-planning strategies.

Putting It All Together

When it comes to building enduring wealth, the most important step in the process is to start it. Gather statements for your investments and bank accounts. Review your employer’s retirement plan options. If you are recently married, discuss your shared goals and the financial worries that keep you up at night. Then, consider giving us a call.

At Cerity Partners, we are independent advisors and fiduciaries, so we don’t earn commissions by selling products. Instead, we’re paid to provide objective, sincere advice. We also offer a full spectrum of coordinated wealth management services. From financial planning, tax preparation, and investment management to family office and business owner advisory services, we cover every aspect of your financial well-being no matter how your needs evolve.

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