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Ultra-High-Net-Worth Earning Power

Ultra-High-Net-Worth Earning Power

March 28, 2023

Understanding Your Earning Power

Particularly for high-net-worth (HNW) and ultra-high-net-worth (UHNW) individuals, when you begin to evaluate and understand the scope of your earning power, you will take a giant step toward that next million. 

When most people think of their wealth, they think in terms of their net worth. What do you see when you close your eyes and think of your wealth?

What is the first thing that comes to mind? Your home? Your 401K? Perhaps some rental properties? If you own a business, I'm sure that also crossed your mind.

But let's break this down to a more fundamental level. What about the income you made last year? Did that ever factor into the equation when you were considering your wealth? Do you know how much you made last year?

For business owners, you would be surprised how many clients I've asked this question to over the years who need to figure out how much they earned the previous year. If you've already built significant wealth, consider this year's projected salary merely the icing on the cake. But with some thought and introspection, you will see that your annual income projection is much more than that.

Ultra-High Net Worth Earning Power

A problem well stated is a problem half-solved. -Charles Kettering, American Inventor

Earning your first few million dollars of net worth took a lot of hard work. I've never met a millionaire that said, " When I look back on how I built my wealth, it was easy."

Building wealth is hard. Building wealth takes a tremendous amount of detailed work and effort. And the more wealth you make, the more complexities come along with it.

And this is one of the reasons most people need to improve on evaluating and managing the nuances of their earned income every year. They have put so much energy into the wealth-building process that they have yet to consider how they got there.

When a person steps back objectively and examines their wealth, one thing that should stand out from the beginning of this introspection is how much they have been earning every year and how much they have been squirreling away. Some individuals need help with this concept.

No doubt you have worked very hard to amass your wealth. Undoubtedly, you are frugal and know how to leverage your earning power to some degree. But since you can't always control the ROI on your investments, it's essential to fully grasp your earning power potential to ramp up your wealth-building momentum.

We need to control the controllable. This is especially the case if you earn a high income. At the beginning of the year, you should know what you will make to the penny. No excuses.
"But I get paid with a bonus every year, and I never know how much it will be, " you might say.

My answer to that would be that you should have a reasonably accurate guesstimate of how much that bonus might be. Then you can plan around that. But you start the year with a written game plan, which begins with your projected annual income at the very top of the program.

Why Your Earning Power is Important

Mastering your income projections every year is vital for many reasons. But the top two reasons are:

  • It will allow you to evaluate your monthly cash flow more closely—which creates financial health in numerous ways (confidence, peace of mind, lifestyle, setting expectations)

  • It will allow you to force yourself to save money more aggressively, which will help you accrue more wealth in a shorter timeframe.


How much of your income do you save a year? How committed are you to building up multiple sources of passive income streams?

Using your gross income from the previous year as a basis, what percentage did you sock set aside for wealth building? Did you save 20%? 30%? 40% 50%?

We are trying to control the controllable. Your earning power is not a new hedge fund, it is not an angel startup, and it is not a commercial real estate endeavor that may or may not pan out. We are working with givens here for the most part. That's the fun part about mastering your earning power.

Your income may come from just one source. Let's say, for example, your employer. This income would be considered W2 income. But you may also have real estate assets that generate some profit yearly. Real estate income is regarded as 1099 income. If you have income from investments that are non-retirement accounts, this would also be 1099 income. Other income could be sporadic, like income from the sale of a property, a gift from a parent, or an inheritance. The point here is that your total income should be tallied each year regardless of its origin.

Let's say last year, you earned $450,000 from various sources. Some examples might include the following:

  • income from an employer
  • rental property income
  • capital gains income from investments
  • income from a business
  • income from a windfall ( gifts, inheritance, sale of an asset)
  • sale of business

Pay Caesar First

Before you make your next million, you will have to pay taxes.

I often hear people complain that they can't save money because their taxes are so high, which is not true. Generally speaking, the more taxes you pay, the more money you make. If you find saving even as a high-income earner difficult, it's probably due to your lifestyle rather than the government's power and needs to tax. You may need a budget if you make a good income and don't understand where your money goes. Budgeting and mastering cash flow can help more than just about anything when it comes to increasing savings. For help understanding the importance of the budget, see my blog post on this topic. Be Smart: Why Everyone Needs a Budget

Tax implications are unique. If you live in Paris, France (home of the Eiffel Tower), you may have an effective tax rate of 50%. If you live in Paris, TN (home of the world's biggest fish fry), you may have an effective tax rate of 30%. The more income you earn, the more pain involved in paying your taxes. However, pay you must.

For this reason, we will spend just a short amount of time examining some tax basics and getting them out in the open, so we can get back to leveraging what's available after paying your taxes.

For this example, we will assume that you live in Paris, TN. We will also assume a 30% effective tax rate. If your income is $450,000 a year, 30% would be $130,000. If we subtract $130,000 from $450,000, we get $320,000.

With a net income of $320,000, here are the results for various saving ratios

if you saved 10% last year, you saved $32,000
if you saved 20% last year, you saved $64,000
if you saved 30% last year, you saved $96,000
if you saved 40% last year, you saved $128,000
if you saved 50% last year, you saved $160,000

I know a lot of individuals and families who save 20% to 30% or more every year. 20% to 30% is a reasonable savings rate. But I have also met more than you know who saved 40% or more. 40% is a significant savings rate. While this is rare, I have seen it more times than I can count. It's usually someone who is debt free and in their prime earning years.

However, I know one family who saved 40% while their kids were young, and they were not even mid-career. So keep an open mind and be willing to challenge yourself. Building wealth exponentially is not easy, and being flexible and open to change is an essential early step. I stress this to illuminate some things.

  • It's imperative to understand precisely how much money you make every year.
  • It's imperative to understand what percentage of your income you are saving and be aggressive about getting to that next million.
Leveraging Your Earnings for that Next Million

Now let's do a hypothetical. While some people reading may be in their 30s, others may be in their early 60s or anywhere in between. At this point, age is irrelevant. Let's just focus on the math. Once you read through these examples, you can extrapolate how this will apply to your specific situation. You may even want to share the results with your financial professional.

But in our hypothetical, we want to explore the power of leveraging your earnings based on goals. For simplicity's sake, let's assume you have two big goals. Your first goal is to have a large downpayment for a multimillion-dollar commercial rental property. Your second goal is to own a share in a private jet for business and leisure travel.

You will need to set up two sinking funds to reach your goals. These two big goals will have a time horizon of 120 months. In the first example of this hypothetical, we will assume that you are only saving 20% of your income. In the second hypothetical, we will assume you are saving 40%. A lower savings rate of 20% means you are not saving up to your potential. If the two goals mentioned above (or any other goal you may have) are important to you, you can always take steps to increase this frugality.

20% Savings Rate Based on a Net of $320,000

For this first example, we will assume a rate of return of 6%. While this return may be below stock market averages, we know that most people do not earn 6% in the market statistically. This unfortunate reality is based primarily on a person's lack of disciplined behavior during economic uncertainty. While many high-net-worth individuals know that they should never sell an investment when it's down, I have met many high-net-worth individuals who have not only done this once but on multiple occasions. And while it does preserve capital for a short time if you sell during a fall, it curtails the growth of an investment dramatically as markets eventually correct.

That being said, we will assume this investor has more discipline than most, and they can earn 6% per year on average for both goals. Since 20% of $320,000 is $64,000 a year, we will begin our savings plans with $32,000 annually in two separate buckets. Let's see how we would do based on earning 6% per year over both time frames.

Based on a modest savings of 20% per year, you would amass $436,902 for your commercial real estate goal and another $436,902 for your partial private jet ownership.

But we can do better. For someone in this wealth bracket or higher, saving only 20% is not good business. It's just average. You need to be able to live on less in order to save more. While saving more is not easy, it's a pay me now or pay me later thing. It is leverage. If you want to build wealth, it's more about holding back and storing away than spending for today. Let's look at what might happen if we get serious about saving.

40% Savings Rate Based on a net of $320,000

What if you could stretch yourself to save 40% of your net income? What kind of difference would this make in reaching your long-term goals? How might your outcome be different if you could save $128,000 per year or $64,000 each in two separate buckets?


As you can see, leveraging more of your earnings into your savings would have made you $843,571 for EACH of your goals.

Over these time frames and with inflation, more than these amounts may be needed to reach 100% of your goals. But that's not the point of the exercise. The point of this exercise is for you to conceptualize how critical your earning and saving power are.

A massive difference exists between saving 20% versus 40% of your income. And it should be easy for any household to live on a net of $160,000 yearly after taxes. This can be argued, of course, and is subject to your opinion. But in my experience, many wealthy people have learned to live comfortably and save 40% of their net income per year. And they do this by living a gratifying life, taking memory-filled vacations with their family, and living in beautiful homes.

Lessons for the Ultra-High Net Worth

If you are a high-net-worth or ultra-high-net-worth earner in the top 1% you earn $823,763 per year or more. If you are in the top .01% percent, you earn $3,212,486 or more.* If you are a high-net-worth or ultra-high-net-worth individual earning upwards of $800,000 per year, imagine the difference in doubling or tripling your savings rate to reach your personal goals.

*Investopedia: How Much Income Puts You in the Top1%, 5%, 10%?

What Will You Do with Your Next Raise?

Your income should increase every year. According to, the average pay increase from 1960 until 2022 was 6.2%.

So, the individual or family earning $823,763 yearly should make 6.2% more the following year. This 6.2% would equate to an increase of $51,073. Then, $54,240 the year after that, Due to the laws of compounding, this figure will also increase exponentially over the years, providing much more cash flow and savings ability.

The graphs look even better if we factor in the average pay increase. But why get lost in the weeds? My goal in writing this is that you can buy into the concept.

One of the biggest problems in financial planning and wealth management is that too many people get lost in the weeds. Fundamental concepts are easy to understand, but as we try to grasp the minutia that makes up the concept, many of us get dazed and confused. This attention to detail can cause analysis paralysis, and that is the pariah of executing a good plan.

I encourage you not to get lost in the details. Unless you're majoring in economics, you don't need a deep knowledge of every financial topic under the stars. What you need is a basic conceptual understanding of numerous topics. You want to know more than enough to be dangerous, but not so much that your learnings often lead to due financial burnout, analysis paralysis, and frustration.

The 80/20 Law of Raises

Early in my career, a client called and said, "I got a raise; what should I do with the extra money?" I didn't have a specific formula for my answer. It depends on the circumstances of the individual or couple involved.

Were they meeting all of their saving goals, or were they falling short? Should they save 100% of their raise in a retirement account, fund a vacation or remodel their home? These are genuinely valid questions, and your circumstances are critical to consider whenever you get a raise.

But at my firm Inspire Financial Planning, I believe in processes and formulas. Viewed through a process or formula, a raise can be optimally leveraged.

After receiving numerous calls over the years regarding the question of raises, and after much trial and error, I have determined that the 80/20 Law of Raises is probably the optimum mix of work (investing) and play (Maui). I say "probably" because you can bend it, but you must do your best to stick with the formula because formulas work more often than not.

What I mean by all of this is that if you earn a raise of $50,000 per year, I would "play" with 20% of it and make the other 80% go to work. "Playing with 20% means that if you want to go to Vegas and party, remodel the living room, or take the kids on a cruise—do so. But make darn sure you save that 80% for that next million.

This formula has transformed many of my clients' lives over the years. First, it gives them a plan. And most people, deep down, want a plan. The 80/20 rule is the most straightforward concept I teach and one of the best wealth-building tactics in the bundle.

Saving 80% of money you never had should be easy. If your wife, husband, or partner is somewhat of a spendthrift, it also creates a fail-safe for you. When you get a raise, they can "play" with the 20%. But the 80% goes to work towards that next million in savings. Trust me when I tell you; this works.

The Tale of Two Horses

Every couple has a bean counter and a dreamer in the relationship. While one spouse views everything through the lens of a calculator, the other is too busy dreaming up the next vacation to pay any attention to what the bean counter is thinking. And if you are the bean counter, don't pat yourself on the back just yet. The dreamer is essential too. With the dreamer, your plans may have wings. They will only be as inspiring with the dreamer's input. Yet without the bean counting from the jump, financial plans will take much longer to materialize, if they ever materialize at all. That's the beauty of relationships. It takes two.

Many dreamers cringe at the 80/20 Law of Raises philosophy. I understand that because I am the dreamer in my relationship with my wonderful wife. But I have learned over the years that I need my partner. I need her wisdom, I need her intuition, and I need her bean counting to achieve my goals. And together, using formulas such as this, our lives have turned out all the better.

So, if you hate the idea of committing some of your raise to savings every year, all I can tell you is this. Try implementing the 80/20 Law of Raises for your subsequent two raises. Change tactics if it doesn't work or if it doesn't bring you and your spouse closer together than ever before.

"One of the most vital horses in the world is the Belgian draft horse. Competitions are often held to see which horse can pull the most.

One Belgian can pull 8,000 pounds. The weird thing is if you put two Belgian horses in the harness who are strangers to each other, they can pull 20,000 – 24,000 pounds together. Two can pull not twice as much as one but three times as much as one. This example represents the power of synergy.

However, if the two horses are raised and trained together, they learn to pull and think as one. The trained, and therefore unified, pair can pull 30,000 – 32,000 pounds, almost four times as much as a single horse."

Earning Power Summary

When people come to me for advice, they usually look for something I have access to that they don't. They believe that there may be some Wall Street secrets that I possess to get them to the next level. Some even think I have a crystal ball (more on that later). But the truth is, wealth building is more straightforward than all that.

Know what you earn. Save as much as you possibly can. And have a plan for the raises, inheritances, and windfalls you will eventually get by using a tried and tested formula that works.

Professional Guidance from a Wealth Advisor

Sometimes you need a guide. If this all sounds like it's a bit much to master, it could be. Or it could be if you go at it on your own. You are welcome to try any of the strategies or tactics mentioned above. And if you are very disciplined and an ardent student of finance, you can do a lot on your own.

But if you need extra help, feel free to reach out and speak with a private wealth advisor at Inspire Financial Planning. Working with a financial professional can help simplify concepts that are difficult to understand and even harder to execute. Working with a wealth management firm is undoubtedly something to consider as we explore how to reach the next million.