Did you recently add a second comma to your bank balance? Has a recent financial event raised your net worth to the next level? Here’s what to do when your income reaches 7 figures.
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Reaching a 7-figure income is a transformative financial milestone, with new possibilities and complexities. This shift in your financial “normal” demands a strategic, well-thought-out plan to harness the opportunities while navigating the challenges.
Whether this new income milestone is the result of your long-term goals (e.g., from the sale of a business), a windfall transfer of wealth, or a key promotion, you’re probably already wondering how to protect and manage your wealth.
Keep in mind that this article is for informational purposes only and is not a replacement for real-life advice. Consult tax, legal, and accounting professionals before modifying your financial strategies as your income changes.
This article was written to provide insights into a few related factors you may wish to consider, like the intricacies of financial planning to lifestyle adjustments and the profound task of legacy planning.
Estate Strategies for a 7-Figure Income
You may already have an estate strategy in place. However, reaching a new level of wealth may be an excellent time to revisit your approach. More wealth can mean a larger estate and more complex estate issues. For example, it may be time to consider a living trust. You create a living trust while alive and fund it with the assets you choose to transfer therein. The trustee (typically you) has full power to manage these assets. But using a trust involves a complex set of tax rules and regulations. So before moving forward with a trust, consider working with a professional familiar with the relevant rules and regulations.
How to Pace Yourself with New-Found Wealth
Many newly wealthy individuals feel like they are in a rush once they have their money. Now that the world is your oyster, you may be better off waiting for the pearl. This means getting accustomed to your new bank balance before putting the money to use. Don’t jump to quickly to spending or the reverse, hoarding. A few conversations with a financial professional regarding your ambitions may help put things into perspective and help put your money to work for you.
Immediate Considerations When You Hit 7 Figures
Your new wealth will create as many questions as it will opportunities. For example, if you’ve sold your business or are considering leaving your job, you will need to consider health insurance choices for yourself and your household. Other household demands may also warrant consideration, from travel costs to big one-time purchases. You will almost certainly face some unplanned expenses along the way, so be sure that your short-term budget makes an allowance for that.
Strategies for Long-Term Financial Health with a 7-Figure Income
Your risk tolerance will be affected in part by your ongoing day-to-day needs. For example, if you’re considering buying a new home, money may need to be earmarked for all expenses related to that purchase. The risk takes into account not only the home itself but also your overall strategy. The time horizon determines the lengths of time considered for your various expenditures. Some unexpected expenses may happen within a few months, while others can be put off for up to a year.
Congratulations on that second comma becoming a part of your everyday life. It will mean many exciting things for you and your household, some of which you’ve prepared for and others you might not have anticipated. A trusted financial professional in your corner may provide answers to your questions along the way. It’s not easy know what to do when your income reaches 7 figures.
The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult financial, legal or tax professionals for specific information regarding your individual situation.
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Donna understands first hand that life has many transitions. Having been widowed suddenly at age 40, reinventing her career, and blending her current family, she understands these unique needs and can give you clarity for moving forward!
Donna (Sephton) Kendrick, CFP®, CDFA®
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