4 Ways To Get Rich Earning Just $50K a Year
Written by
Heather Altamirano
Edited by
Molly Sullivan
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With inflation and high housing costs, it may seem like the odds are stacked against you when it comes to trying to save, but with proper planning, you can come out ahead — even with a mediocre paycheck.
“Apart from the fortunate few who get rich through sheer luck, such as a Powerball winner who strikes gold with a chance of 1 in 300 million, there are more reliable scenarios for getting ‘rich’ while earning $50,000 a year,” Mike Laske, wealth management advisor with Greenleaf Trust, told GOBankingRates.
Use the 3 ‘Levers’ for Generating Wealth
Laske offered three levers that work together to help you build wealth.
- Savings: “Saving $835 a month will reduce your take-home pay by $10,000 each year. If you can live on $40,000 instead of $50,000, you could set the foundation for becoming a millionaire.”
- Compounding: “Over long time periods, the volatile fluctuations of investments tend to smooth out and generate more reliable, steady returns. With a diversified portfolio of high-quality stocks and bonds, you could expect to earn a 7% annualized return on your savings over the long run.”
- Time (Years): “To receive the full benefit of compounding, you must be willing to save for a long time period, such as 30 years. It’s about time in the market, not timing the market.”
Laske noted that you can customize this strategy.
“You could, theoretically, adjust these levers to suit your lifestyle and manage the trade-offs. Perhaps you could save more and reduce the time required to become a millionaire,” Laske said.
Lastly, Laske stated, “It is worth noting that while you can control all three levers, the compounding factor carries some uncertainty with it. The past performance of an investment portfolio earning 7% doesn’t guarantee the same 7% rate of return in the future.”
Open a High-Yield Savings Account
Saving money is the first step to getting rich, but how you save makes a difference.
Michael Norber, financial portfolio advisor with The Snyder/Balducci Group, recommended taking advantage of historically high interest rates by keeping your money in a high-yield savings account. Unlike a traditional savings account, which typically yields about 0.50% interest, a high-yield account can earn 4.50% to 5% on top of your principal.
“If you sock away 10% of your income, you’ll save $5,000, and the bank will give you $250 (5% of $5,000) extra per year for holding cash with them.”
Invest In Treasury Bills
Another way to build wealth on just $50,000 a year is through Treasury bills — low-risk bonds backed by the U.S. government, Norber explained. Whereas high-yield savings accounts have variable rates that could drop over time, a Treasury bill’s rate is locked in the day the investor purchases it.
If you buy $10,000 worth of a Treasury bill earning 5.50% interest for six months, at the end of those six months you will receive your $10,000 principal plus $550 in interest (5.50% of $10,000), regardless of whether or not federal interest rates have dropped.
“Given the current rate environment, where we expect the Federal Reserve to decrease rates over the next 12 months, Treasurys are a very useful resource for investors looking to maximize the high interest rates they get today for cash they don’t expect to need in the next year,” Norber said.
Take Advantage of Dollar Cost Averaging
Norber suggested dollar cost averaging for people willing to take a risk for potentially greater returns over the long term.
As Norber explained it, you implement this strategy by investing a set amount of money — say, $500 or $1,000 — on a regular basis, buying stocks that have positive future outlooks and also pay dividends, which you reinvest.
By investing on a set schedule, you buy more shares when prices are low and fewer shares when prices are high, which reduces the average price you pay per share. And by reinvesting the dividends, you also use compounding to boost your portfolio’s overall growth potential even if some of your shares depreciate.
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