Getting a six-figure salary is a good achievement. It is the result of your hard work and effort. But when you get this money, you often wonder what to do with the extra money. If you use your money wisely from now on, this wealth can give you freedom. Just invest in good places, save a little, use tax-advantaged accounts, and learn easy ways to use your new salary in a better way.
Max Out Your 401(k)
A retirement account like your 401(k) can be the foundation for building your long-term wealth. You can contribute six-figure salary as much as you want each year, up to the IRS’s limit based on your age. When you reach your full limit, it’s called maxing out. Many people just put their money in their bank account, which is a free benefit, and then stop.
But those who earn more can save even more. Now the question is, why put the full amount in a 401(k)? First, the money you put in a dividend-paying plan is deposited before taxes, meaning it pays very little tax on your current income. Second, the retirement savings are automatically invested, which helps your profits grow over time.
In addition, regular savings create discipline because this money is automatically deducted from your paycheck. Think of your 401(k) account as a way of paying yourself for the future. These numbers can give you financial peace of mind for years to come.
As financial expert Kevin Kortsman says, starting early gives your money time to grow for decades. When your money earns interest, that interest also earns more interest, so your savings continue to grow over time.
Open and Max Out an IRA for Six-Figure Salary
Now that you’re earning a six-figure salary, you have the opportunity to save more for retirement, even more than the IRS does for a 401k. In that case, you can use an individual account. The benefit is that it will allow you to save more upfront and often offer more investment options than work-plus plans, such as a 401(k). If your income is within certain limits, a Roth IRA is a great option. You contribute money after paying taxes, and there are no taxes on the funds you withdraw in retirement. Adding an IRA to your 401 (k) gives you more tax benefits and strengthens your diamond planning, as Kevin Coutts says.
If you use Roth accounts early in your career, you can deposit money that has already been taxed. The big advantage is that when you retire, you can withdraw your deposited money and the profits on it completely tax-free.
Use a High-Yield Savings Account for Six-Figure Salary
When you start earning six-figure salary, the extra money stays in your regular savings account. You don’t get any interest on the interest. In such a case, you can also save in a high-yield savings account. It puts your spare money to work for you without any risk. A high-yield savings account is also usually used for an emergency fund. You can use it for big goals in your life, such as buying a house or paying for a wedding. This account is especially beneficial during periods of high interest rates, but even if interest rates are low, it also gives you the opportunity to keep your money in a safe, flexible and profitable way.
IMPORTANT
Even a modest salary can be worth more than a million dollars by retirement if invested wisely.
Add a CD to Lock in Savings for Six-Figure Salary
A certificate of deposit is best for money that you don’t need right now and want to keep safe. Unlike a savings account, in a CD you have to lock up your money for a short period of time, such as three months, nine months, or a year. The longer the period, the higher the interest you get. Often, CD accounts have a penalty for withdrawing money before the specified time. This prevents you from using the money for unnecessary expenses.
Open a Brokerage Account for Six-Figure Salary
Once you’ve saved for retirement, opening a brokerage account is a great way to grow your money. There are no limits or penalties. You can invest your capital in stock funds. Just remember that you have to pay taxes on it. If you invest for a long time, the tax is very low. First, build an emergency fund and save for retirement, and then invest in a brokerage account. An easy way is to do dollar cost averaging, which means investing a small amount every month, whether the market is up or down. This keeps the profits even over time.
Principles To Keep in Mind
| Principle | Explanation | Key Advice |
| Avoid Lifestyle Creep | Don’t spend more just because you earn more. It reduces savings. | Keep expenses low even when income grows. |
| Automate Your Savings | Automatic saving helps money grow. | Save a set amount every month. |
| Keep Debt in Check | Too much debt cuts your savings. | Spend only what you earn. |
| Diversify | Putting money in different places reduces risk. | Keep money in different accounts. |
The Bottom Line
Earning a six-figure salary is an achievement, but the real achievement is when you use it wisely. If you save wisely, you will be able to easily turn your income into sustainable financial security.
