The 3 key money moves to make during your peak earning years

Your late thirties are often when you start earning the big bucks—or at least enough bucks. Gone are the days when you had to grocery shop with a calculator or pay for gas with couch-cushion change. You have entered your peak-earning years, reaching a new level of financial ease and security—which can make it very easy to unintentionally increase your spending.

But getting to your peak-earning years is an excellent time to focus on putting your money to work for you, rather than just letting it change your lifestyle. Here are some of the best money moves to make as you approach the peak of Mount Income.

Keep an eye on your debt-to-income ratio

Lenders use your debt-to-income (DTI) ratio as one of the major factors for deciding whether to extend you a loan. This ratio is the percentage of your gross monthly income that you pay toward your debt.

For example, let’s say you have a gross monthly income of $8,000 and you pay $1,400 per month for your mortgage, $725 per month for your car loan, $325 per month for your student loan, and $150 per month for your minimum credit card payments, for total monthly debt payments of $2,600. ($1,400 + $725 + $325 + $150 = $2,600)

To calculate your DTI ratio, you would divide your monthly debt payments from your monthly gross income:

$2,600 ÷ $8,000 = 0.325

This means your DTI ratio is 32.5%.

Ideal DTI

The higher your percentage, the more lenders are likely to perceive you as a risky borrower. That’s because borrowers with higher DTI ratios are more likely to default, and lenders generally prefer borrowers with a DTI less than 36%. A good rule of thumb is that anyone paying a mortgage should aim for a DTI of 36% or less, while those without a mortgage should aim for a 15% to 20% DTI.

The DTI ratio is a helpful metric because it is income-neutral. Someone earning $50,000 per year could have a lower debt-to-income ratio than someone who is earning $300,000 annually.

This is why it’s a good idea to keep track of your DTI, especially as you reach your peak-earning years and get more opportunities to borrow. As your income increases, your access to credit also typically increases, which can make lifestyle inflation happen without you even noticing it.

Calculating this number will help you better understand if you are overleveraged. If you do have a higher DTI, you can increase your income or pay off some debt to lower this number. In either case, consider investing the money you free up from your monthly debt payments.

Maximize your tax-deferred retirement contributions

Uncle Sam wants you . . . to set money aside for retirement. Which is why tax-deferred retirement vehicles like traditional IRAs and 401(k) plans give you an incentive to contribute. You contribute pretax dollars to these types of retirement plans which lowers your taxable income for the year. The money grows tax-free until you are ready to withdraw it in retirement.

As of 2024, the maximum annual contribution for a 401(k) plan is $23,000 for anyone under the age of 50, and $30,000 for anyone 50+, while IRAs have an under-50 contribution limit of $7,000, and a limit of $8,000 for anyone older than 50.

Sending 23 big ones to your 401(k) plan and another $7 grand to your IRA every year is out of reach for most young professionals and can still be a stretch for those just hitting their earnings peak. But doing your best to maximize your tax-deferred contributions as your income reaches new heights will help you both during the next tax season and once you hit retirement.

A good way to maximize your retirement contributions is to increase the amount you send to retirement each time you get a pay bump. You won’t miss the money since you’re already used to living on the previous salary—and you’ll ensure the long-term health of your retirement accounts.

Keep your assets covered

Once you have reached your high-earning years, you have more to lose than you did when all your furniture came from either Ikea or the side of the road. That’s why it’s important to make sure you have enough insurance to cover the fruits of your labor.

To start, your high-earning years are a prime time to explore umbrella insurance—a type of personal liability policy that offers coverage beyond the limits of home or auto insurance. This could protect you in case someone sues you for damages.

From there, take another look at your homeowners insurance policy. Will it cover rebuilding your home if disaster were to strike? And don’t just think about your dwelling coverage. Keep in mind the cost of repairing or replacing your personal property, too, especially if you have not looked at your policy since you started collecting expensive camera equipment or jewelry.

Review your auto insurance coverage as well, to make sure you have high enough coverage levels to protect you in the event of a serious accident. You may also want to consider adding additional coverages, such as uninsured motorist insurance, to protect you financially from someone else’s actions.

And it’s always a good idea to review your life insurance and disability insurance levels when your income goes up. Make sure your current level of insurance is enough to take care of you or your family, even after an increase in income.

How to feel like a million bucks

Having a higher income really does make life a lot easier—and you can keep the comfort going well into the future with some savvy money management. Specifically, while you’re enjoying bigger paychecks, keep your debt-to-income ratio low, your tax-advantaged retirement plan contributions high, and your insurance coverages just right.

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