Financial high-achievers' four major financial hurdles - and a single straightforward solution to overcome them
Wealthy households with one major breadwinner and high levels of debt are exposed to a range of financial risks that could jeopardize their financial resilience, according to recent reports. These risks include over-reliance on a single income source, high debt repayments relative to income, exposure to expensive variable rate debt, insufficient insurance coverage, and vulnerability to economic shifts such as job market downturns.
One of the most pressing concerns for these families is the reliance on a single breadwinner. With less financial flexibility, these households are more vulnerable if the breadwinner loses their job or faces disability. Wealthier households often carry higher absolute and relative levels of debt, with a significant share tied to variable interest rates, increasing costs with market rate rises.
Many higher-earning families lack adequate insurance to cover debt repayment or loss of income, compounding the risks from heavy borrowing. Essential housing costs and lifestyle expenses are significantly higher than average, further squeezing budgets. Changes such as a cooling white-collar job market and fewer high-paying job openings make it harder for these families to recover from income shocks or find new employment if the breadwinner loses their job.
To mitigate these risks, experts suggest several solutions. Improving insurance coverage is crucial, with adequate life, disability, and income protection insurance safeguarding the family’s financial wellbeing in case of income loss. Reducing and managing debt is also essential, prioritizing the paydown of expensive high-interest or variable-rate debt to lower monthly repayment burdens and exposure to rising rates.
Diversifying income sources is another important strategy. Developing secondary income streams or ensuring the non-breadwinner also contributes financially can reduce dependence on one income. Controlling spending and budgeting can improve cash flow and savings, while building emergency savings provides a buffer for unexpected expenses and temporary income loss, reducing reliance on borrowing.
Planning for tax impacts is also essential for higher earners, who pay significant tax. Higher earners who pay significant tax should plan for upcoming tax increases to avoid surprises and strain on finances.
Critical illness cover is arguably even more important than life insurance, as it can help cover ongoing bills, make lifestyle adjustments, and provide time to recover without financial panic. Among the highest earners, 71% rely on a single major breadwinner, and among high earners with children, 49% do not have enough life insurance. A lump sum payout from critical illness insurance can be a valuable asset in these situations.
Protecting the income of the main breadwinner is crucial for the financial stability of an entire high-earning household. With the top earners a significant target for tax rises in the upcoming Autumn Budget, it is more important than ever for these families to take steps to improve their financial resilience. By focusing on risk management through insurance, debt reduction, diversified income, spending discipline, and savings, high-earning families can protect themselves against income shocks and economic changes.
- Personal-finance management is crucial for wealthier households, especially those with a single breadwinner, to mitigate financial risks and maintain resilience.
- High debt levels, particularly those with variable interest rates, can increase costs and ‘jeopardize’ the financial resilience of wealthy households.
- To enhance their financial stability, wealthier families should consider diversifying their income sources and developing secondary income streams.
- Critical illness insurance, in addition to life insurance, can be a valuable asset for wealthy households, as it can provide financial support in times of illness or disability for the main breadwinner.
