Money 101: Understanding and managing a 7-figure income

Introduction to seven figures

When referring to "seven figures," this typically means an annual salary that falls between $1,000,000 and $9,999,999. This income bracket places individuals and families in a distinct financial category, generally associated with significant wealth accumulation and financial success. Such income levels are rare, with only about 0.3% of Americans earning a million dollars or more per year​.

Tax considerations

The IRS outlines detailed tax brackets and rates that apply progressively, meaning only the portion of income exceeding each bracket's threshold is taxed at the higher rate. For example, as of 2023, the top tax rate of 37% applies only to incomes over $578,125 for single filers​. It is crucial for high earners to accurately manage their tax withholdings to avoid underpayment penalties and optimize their tax liabilities​.

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Budgeting with a Seven-Figure Income

Income Breakdown

For an individual earning a seven-figure income, let's assume a monthly income of $90,000. This breaks down as follows:

• Weekly: $20,769 (assuming a 4.33-week month)

• Biweekly: $41,538

• Monthly: $90,000

Essential Monthly Budget Categories

Using the 50/30/20 budget rule, here's how someone with this income might allocate their monthly earnings:

• Needs (50%): $45,000, which might include mortgage, utilities, insurance, and basic living expenses.

• Wants (30%): $27,000, used for dining out, entertainment, vacations, or luxury purchases.

• Savings (20%): $18,000, allocated towards retirement accounts, investment portfolios, or saving for future financial goals.

Savings and investment strategies

Individuals in this income bracket might focus on maximizing their savings rate, taking advantage of tax-advantaged investment opportunities, and consulting with financial advisors to ensure optimal asset allocation and risk management.

Tools and applications for financial management

Financial management tools like Mint, YNAB (You Need A Budget), and Personal Capital (now Empower) are effective for individuals of any income level to track spending patterns, monitor investments, and set long-term financial goals.

Case study

Consider a family with an income of $90,000 monthly. A feasible budget could look like this:

• Housing and utilities: 30% ($27,000)

• Savings and investments: 20% ($18,000)

• Daily necessities: 15% ($13,500)

• Children's education: 10% ($9,000)

• Discretionary spending: 25% ($22,500)

Strategic financial planning for a 7-figure income

Like with any income level, managing a seven-figure income wisely involves understanding your savings, tax, and investment opportunities while balancing your financial needs and responsibilities. Effective tax management and budgeting, along with strategic financial planning are all important ways to maintain and grow wealth sustainably. 

Seven figures is a lot of money. Educating yourself and your family on smart money management can help secure your family's future and pass on valuable knowledge to your kids, teaching them the importance of financial planning and responsibility. 

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This blog post is provided "as is" and should not be relied upon as a substitute for professional advice. Some content in this post may have been created using artificial intelligence; however, every blog post is reviewed by at least two human editors.