9 Ways To Become Rich on a Low Income

Having a low income is not the best building block for creating wealth, but it shouldn’t be an impediment either.

With proper planning and diligence, many retirees end up with a seven-figure nest egg even after working their whole careers on a modest income.

Once you adopt the mindset of saving and investing, you might be surprised at how you’re able to build wealth with a low income. Here are some tips to get you started.

You may think that living within your means has nothing to do with building wealth, but it’s actually a fundamental step.

One of the primary reasons that Americans, in general, are behind on their savings is that they have to divert a significant amount of their cash flow to servicing debt.

If you can avoid piling on credit card debt by spending less than what you earn, you’re already ahead of the game when it comes to saving.

Another secret to building a long-term nest egg is that starting early is at least as important if not even more important than earning a higher salary.

If you can start investing as early as age 18, tucking away just $100 per month could net you over $1.5 million by full retirement age of 67 if you earn a 10% annual return. If you don’t start investing until age 40, you’ll instead need to sock away $950 per month, or nearly 10 times as much money.

The bottom line is that even on a small salary you can leverage the power of compound returns to generate a sizable nest egg.

Even if you can’t start socking away $100 per month at age 18, contributing even the smallest amounts can help lift you toward your goals. Even a $25 monthly contribution starting at age 18 could still generate about $400,000 given the above parameters.

Assuming you’ll be able to increase that contribution as your salary grows throughout your career, you could still reach a lofty figure by the time you retire.

Even with the best intentions, it can be hard to remember to contribute consistently to your investment accounts. Life has a way of throwing up obstacles to the hard work of saving and investing, from unforeseen financial emergencies to plain old human nature. By automating your contributions, you take all of these variables out of the equation, including emotion.

After a while, you might not even notice the contributions you are making monthly as you grow accustomed to not seeing them in your bank account — and that’s a good thing. Anything you can do to make saving more painless is a good step forward.

Although there are plenty of options for where to put your money, you’ll get even further ahead if you make smart choices.

For example, one of your first priorities should be to contribute as much as possible to your 401(k) plan, if one is offered by your company. Your money will grow tax-deferred until you withdraw it, and your company will likely match at least a portion of your contributions. This could be the closest you would ever get to free money.

With a 401(k), you may also be able to choose between pretax contributions, which reduce your current tax liability, or after-tax contributions, on which you won’t have to pay tax at the time of withdrawal. If you have a tax or financial advisor, ask for their assistance in choosing between various pre- and after-tax accounts, such as Roth IRAs.

And stash your emergency fund in an online savings account, not one at your local big-name bank. You’ll likely earn up to 10 times as much in interest by choosing an online, high-yield savings account.

Even if you’re on a low-paying career path, there are steps you can take to increase your income. Talk to your employer about how you can get ahead into higher-paying opportunities and position yourself for workplace bonuses and raises.

If you have the time, pick up a side gig so you can pull in a few extra hundred bucks per month. This is money that you can deposit directly into your investment accounts.

Income is only one side of the equation when it comes to building wealth. You’ll also have to keep a sharp eye out for unnecessary discretionary purchases.

These are expenses that aren’t absolutely essential to your survival, like food and rent. For example, eating out is a common discretionary expense that can decimate your budget. So too is that random shopping trip you may take just to “clear your head” or “reward yourself.”

While no one can completely eliminate nonessential expenses, the more you can avoid, the more money you’ll have to direct toward your savings accounts.

As you advance in your career, you’re likely to enjoy a steadily increasing salary over time. Most people tend to earn more when they are 50 than when they are 20, for example, even if you still remain in a low income bracket.

If you want to continue building wealth, try not to fall prey to “lifestyle creep,” which refers to the tendency to increase spending along with rising income. If you get a $5,000 annual raise, for example, it’s easy to fall into the trap of buying a newer car, moving to a bigger home or starting to take expensive trips, perhaps feeling that you deserve it.

While you certainly deserve to enjoy the fruits of your hard work, if your priority is to build long-term wealth, you’ll have to keep these splurges to a minimum. If you keep increasing your spending to match your income, you’ll be missing out on an opportunity to grow your nest egg.

One compromise is to perhaps invest $4,000 of your $5,000 raise and use the remaining $1,000 to enjoy yourself.

Buying a home is often thought of as an option only for the wealthy, but the truth is that the homeownership rate in the U.S. was 65.9% in the last quarter of 2022, a percentage that has been fairly consistent over the years. This means that nearly two-thirds of Americans own a home, including many that are in the lower income brackets.

If you can save enough for a down payment, your mortgage payment might actually be lower than what you are paying in rent, and homeownership has been a path to wealth for many Americans.

Plus, homeownership gives you some financial flexibility, including tax benefits, the ability to leverage your home equity and the potential for rental income if you are out of town. This may not be your first step toward creating wealth, but over time, it can be one of your best if you buy in the right area.

Laura Beck contributed to the reporting for this article.

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