From Paycheck to Prosperity: 3 Vital Steps To Build Wealth No Matter Your Salary
Written by
Stacy Sare Cohen
Edited by
Amber Barkley
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Retirement planning articles are filled with myths about building wealth, saying, “You have to be born into money to become a millionaire” and “Only people with high salaries can build real wealth.” But in reality, your salary has little to do with growing wealth, and even people with modest incomes can build a comfortable retirement.
CFP Michael Rodriguez at Equanimity Wealth said, “Building wealth doesn’t require a six-figure income; it requires a plan, consistency, and time.”
Here are three vital steps to wealth on any salary. Hint: It’s not diversification, called the holy grail of investing by Tony Robbins.
Establish a Monthly Budget — And Stick to It
The first step to wealth management is knowing what’s coming in and what’s going out.
Write down your earnings and recurring expenses in a notebook or a budgeting app. Don’t forget income from part-time work, side hustles and any rental income.
Some examples of recurring bills include the following:
- Mortgage or rent
- Utilities
- Regular home maintenance
- Car payments
- Cable or streaming services
- Cell phone bills
- Credit card payments
- Property taxes
- Homeowners or renters insurance
- Transportation: gas, tolls and regular vehicle maintenance
The 50/30/20 Framework
Rodriguez said he uses a strategy called the 50/30/20 framework as a starting point for all his clients — whether they earn a salary of $40,000 or $400,000. It’s a simple framework that is easy to apply.
With this budgeting method, you put 50% of your income toward needs, 30% toward wants and 20% into savings.
If your needs require more than 50% of your income, you can adjust the percentages to fit your expenses. The important thing is to use a solid framework to give yourself clarity as to what you’re using your money for — and where you might need to cut back on spending.
Tackle Debt
Paying down debt, especially high-interest balances, can be one of the fastest ways to grow wealth. The less you spend on interest, the more you can put toward savings and investments.
Start by tackling credit cards and other high-rate debt, and aim to pay off your mortgage or car loan before retirement. If you’re holding a mortgage with a high rate, refinancing when rates drop could free up even more cash to build long-term wealth.
Start Investing Early and Consistently
Long-term investments build wealth over time, even when starting small. Rodriguez recommends investing early, even if you can only invest $50 a month.
He suggested investing in “tax-advantaged accounts like a 401(k), Roth IRA and Health Savings Account (HSA), if available, and aiming for low-cost index funds that give you broad market exposure.”
Seek an Investment Professional
Once you become an investor, there are steps you can take to protect your nest egg, according to the U.S. Securities and Exchange Commission.
It can be a good idea to work with a financial advisor or other investment professional to make sure you’re investing your money in the best ways, but always research the professional you’re considering working with before you give them any of your money.
You can look up investment advisors on Investor.gov to ensure they are licensed and registered. Another thing you can do is look them up on LinkedIn and the Better Business Bureau to review their business and employment history.
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Sources
- Michael Rodriguez, Equanimity Wealth
- Investor.gov, “Build Wealth Over Time Through Saving and Investing.”
