Earning £100,000 or more a year puts you in a fortunate financial position. You've worked hard to build your career, you've got a good income coming in every month, and you're probably enjoying a lifestyle that reflects that.
But here's something I often see when working with higher earners. A good salary doesn't necessarily mean you've got a good financial plan.
You might have a lovely home, expensive holidays, children to support, a sizeable mortgage and a decent amount going into your pension every month. The trouble is, a lot of that lifestyle depends on your salary continuing. And although you're earning more than you did five or ten years ago, you might not feel much more financially secure.
So, what should you be thinking about?
- How much of your lifestyle depends on your income?
As your earnings increase, it's quite natural for your lifestyle to grow alongside them. Perhaps you've moved into a bigger house, taken on school fees or simply got used to having more disposable income.
There's absolutely nothing wrong with enjoying the money you earn. But it's worth asking yourself what would happen if that income suddenly stopped.
How long could you realistically maintain your mortgage payments, household expenses and other commitments without your salary?
This is why I place so much importance on income protection when we're building a financial plan.
You might already have life insurance or critical illness cover, but these provide different types of protection. Income protection is designed to replace part of your earnings if illness or injury prevents you from working, subject to the terms of the policy.
And if you've arranged your cover several years ago, when your income and commitments were much lower, it's worth checking whether it's still appropriate.
2. Are you making the most of your income from a tax perspective?
Once you're earning over £100,000, tax planning becomes particularly important.
In England, your Personal Allowance starts to reduce when your adjusted net income exceeds £100,000, and you lose £1 of allowance for every £2 above that threshold.
This creates an effective 60% marginal income tax rate on earnings within the taper range, before National Insurance.
Depending on your circumstances, making pension contributions could help reduce your adjusted net income, potentially restoring some of your Personal Allowance while building your retirement savings.
Of course, there are pension contribution limits and other considerations, particularly if you're already making substantial contributions or receiving bonuses.
The point is that how you structure your finances can make quite a difference to how much of your income you actually keep.
3. Are your pensions and investments working towards something?
It's quite common for higher earners to have accumulated several pensions from previous employers, alongside ISAs, cash savings and perhaps other investments.
But when was the last time you looked at everything together?
You might have a substantial pension pot, but do you know whether it's enough to allow you to retire at 60, or perhaps reduce your working hours in your 50s?
And what about the money you're saving and investing outside your pension?
ISAs can be useful for building accessible, tax-efficient investments, while pensions offer their own tax advantages but generally restrict when you can access the money.
Where you hold your savings and investments should reflect what you want the money to do, when you'll need it and your tax position.
This is where financial planning becomes particularly valuable. We can look at your pensions, investments and other assets together, then use cashflow forecasting to understand what they could realistically provide for you in the future.
Because having £500,000 in pensions and investments is one thing. Knowing what that money could allow you to do with your life is quite another.
4. Does your mortgage still fit your plans?
For many higher earners, their home is one of their biggest assets, but the mortgage is also one of their biggest financial commitments.
As your income increases, you may find yourself with more options.
You could overpay your mortgage, increase your pension contributions or invest more towards your longer-term goals.
Which is best?
That depends on your mortgage rate, your tax position, your existing savings and, importantly, what you're trying to achieve.
If your goal is to retire at 60, for example, you might want to know whether it's better to prioritise paying off your mortgage or building investments that could help fund those early retirement years.
Looking at these decisions together can help you make much better use of the money you're earning today.
Your income is a starting point. What are you building with it?
If you're earning £100,000 or more, you've got a fantastic opportunity to build financial security for yourself and your family.
But it's worth thinking beyond your monthly salary.
Could you maintain your lifestyle if you couldn't work? Are you using the tax allowances available to you? Do you know when you could realistically afford to retire? And are you making financial decisions that support the life you actually want?
These are the sorts of questions we work through with our clients at Willow Tree Financial Services.
The aim is to make sure that all the different parts of your finances are working together, so that the money you're earning now gives you more choices and financial freedom in the future.
Free financial planning guide for people earning £100k+
If you're earning over £100,000, I've put together a free guide covering some of the important financial planning considerations for higher earners, including pensions, tax efficiency, investments, mortgages and protecting your family.
Download your free guide here and see whether there are opportunities you might be missing.
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At Willow Tree Financial Services, we offer personalised advice on Financial Planning, Mortgages, Investments, Pensions, Personal & Business Protection, and Wills, Trusts & Estate Planning, all tailored to your individual goals and circumstances.
Call us on 01323 436680, get in touch here, or book an appointment here to get started.
We’re based in Polegate, East Sussex, and support clients across the South East and beyond.
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Willow Tree Financial Services is a trading style of Rachael Panteney who is an appointed representative of Quilter Financial Services Limited, which is authorised and regulated by the Financial Conduct Authority.
Advice on Cash held on deposits, Cashflow Modelling is not regulated by the Financial Conduct Authority
Will writing is not part of the Quilter Financial Planning offering, and is offered in our own right by referral only, Quilter Financial Planning accepts no responsibility for this part of our business.
