What high earners should do to manage their wealth and save time

In his latest personal finance column for CTVNews.ca, Christopher Liew has advice for high earners who should consider wealth and time management strategies to create even greater financial freedom for themselves (Getty Images / Yudram_TA)

Do you earn upwards of six figures or more?

For high earners, solely focusing on budgeting may not be the most effective strategy. As income levels rise, the principles of personal finance evolve.

High earners often find that their time and energy are better invested in broader financial strategies rather than getting caught up in the minutiae of budgeting daily expenses.

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Instead, many high earners could benefit by shifting towards strategic investments, wealth management, and financial automation to create greater financial freedom.

What defines a high-earner

A high-income earner is generally considered to be a person earning in the top 95th percentile or more for their age range. According to Statistics Canada, this is what the top 95th percentile earns by age as of 2021, after tax:

• 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

If you fall into a lower income bracket or simply find yourself struggling to keep up with month-to-month expenses, you may find more benefit in budgeting and keeping track of your expenses.

Once you identify areas where you’re overspending, you can begin cutting back and reallocating funds to pay off debt or start building your savings.

For high earners, though, I recommend a slightly different strategy. While budgeting shouldn’t be neglected altogether, Canada’s higher-income earners may benefit more from strategic investment strategies designed to compound their wealth over time.

Beyond basic budgeting

While basic budgeting offers a framework for managing everyday expenses, high earners should elevate their financial strategies and focus on maximizing returns from their resources.

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This involves engaging in active wealth management as opposed to simple budget adherence. It means setting up systems that manage large-scale investments, estate planning, and tax strategies that can significantly impact overall wealth accumulation.

Time versus money

Once you hit a higher income bracket, time often becomes more valuable than money.

Traditional budgeting can become time-consuming and may only make a marginal difference compared to the difference you’d see if you invested the same amount of energy into finding new outlets to invest in.

By using financial tools and services that streamline or automate money management, you’ll free up time to pursue bigger and better opportunities.

Strategic investment

High earners have access to a wide array of investment opportunities that can yield significant returns over time. Here are some of the more popular investment strategies to consider:

• Real estate: Investing in commercial properties, land, or even real estate investment trusts (REITs)
• Stock market: Build a diversified portfolio of dividend-paying stocks or invest in exchange-traded funds (ETFs) that yield consistent profits over time
• Private equity: Invest directly in private companies for higher potential returns
• Guaranteed Investment Certificate: Purchase a GIC from banks that offer a guaranteed return on your investment over a set period of time

Each of these investment avenues offers unique advantages and levels of risk. One of the most intelligent investment strategies is to spread your risk by balancing high-risk/high-reward investments with lower-risk/lower-reward investments, depending on your risk tolerance.

Wealth management strategies

Even the most intelligent investors often employ skilled financial advisors to get a second opinion or streamline their wealth management. These professionals provide personalized advice tailored to individual financial situations and goals.

In some cases, it’s often wise to employ experts in different areas (i.e., real estate investment and stock market investment).

One of the most valuable services that financial advisors can provide is periodic portfolio audits. They can comb through your portfolio and make adjustments to minimize your risk exposure while maximizing your long-term profits.

If you go this route, try to look for fee-for-service planners, as they only charge a one-time fee for their services.

Tax optimization

Canada has a progressive tax system, meaning that the more income a person makes, the higher the percentage of tax they’ll pay. Lower-income earners are taxed at a lower rate compared to higher-income earners. You can see a full breakdown of Canada’s income tax brackets on the CRA’s website.

While those who earn a higher income are taxed at a higher rate, they’re also given opportunities to reduce their tax liability by investing in their retirement, their communities, and taking advantage of legal tax breaks.

Tax optimization involves several strategies:

• 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 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

Planning your estate

Lastly, one characteristic of the wealthy is that they know how to optimize their estate planning so that their wealth stays in their family. The best way to do this is to work with a skilled estate planner to create and eventually execute your will.

For many, though, the first step is to increase their income so they can get to the point where they can begin comfortably investing.

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Christopher Liew is a CFA Charterholder and former financial advisor. He writes personal finance tips for thousands of daily Canadian readers on his Wealth Awesome website.

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