Many people strive to earn at least six figures a year, believing such an amount is necessary for building financial stability or even becoming wealthy. While making $100,000 or more is certainly an admirable goal, one that can make this dream more attainable, it’s not necessarily a requirement for becoming rich.
There are actually quite a few ways to build wealth on a lower salary, whether you’re single and live alone or you’re supporting a family. Even if you live in a more expensive neighborhood, this goal isn’t out of reach just because you earn $99,999 or less.
If you don’t make six figures, don’t fret. Here are some ways to become wealthy even so.
Invest in Skill Development
Investing in skills is a great way to improve your earning potential and build toward a more financially sustainable future. Keep in mind that earning potential doesn’t have to be active income — it can be much more passive or investment-focused.
Sebastian Jania, the owner of Ontario Property Buyers, suggested learning about private capital.
“If one learns skills such as raising private capital, their personal income will have a minimal impact on the amount of wealth that they’re able to build,” Jania said. “By learning to raise private capital and then having the skills to deploy that into vehicles such as private businesses or real estate, one is able to become rich even if they don’t earn over $100,000 a year.”
The same goes for families living on five-figure incomes.
“For someone with a family who wants to become wealthy on a five-figure salary, the above advice should be applied even more,” Jania continued. “On top of this, people in this group need to spend some time thinking about cost control in order to keep their costs down so that they have the money to invest in a course or a program that can help them raise capital or increase their skills that they can make more money.”
Save as Much as Possible and Eliminate Debt
While your income plays a key role in your ability to generate wealth and build financial stability, it’s just part of the bigger picture. Perhaps more important is your ability to save money and pay off debt. After all, even some people who earn six figures still struggle financially.
“For singles not earning $100,000 [or more], consider adopting a robust savings habit,” said Jeff Rose, CFP and founder of Good Financial Cents. Rose referred to a recent survey that indicated 21% of Americans don’t save any of their annual income, “so even small savings can set you apart.”
If you’re supporting a family, you’ll need to do a bit of strategic planning as well. This could entail creating a strict — but realistic — budget, paying off debt and establishing substantial savings.
“Building wealth for a family on a five-figure salary involves strategic planning and budgeting,” Rose said. “Focusing on reducing high-interest debt and creating an emergency fund are foundational steps. The U.S. Bureau of Economic Analysis reports a 4.1% personal saving rate as of April 2023. Aiming to save beyond this, particularly through tax-advantaged accounts like 529 plans or HSAs, can offer financial stability and alleviate monetary anxiety.”
As for your debts, prioritize paying any high-interest loans off as quickly as possible to reduce how much you’re spending in interest.
“If you have existing debts, reevaluate them and focus on paying back the loans with a higher interest rate first,” said Sigita Kotlere, CEO at nectaro. “Loans with double-digit interest rates, personal loans [and] credit card loans can eat up potentially free money that you could invest. When costly debt repayment is managed, you will have more money for savings and investments.”
Save Before You Spend
Having a budget is essential, but so is prioritizing your savings. That’s why you should have a category in your budget that also includes savings.
“The formula for accumulating wealth is no different for someone who makes more than $100,000 and someone who makes less than $100,000,” said Dr. Robert Johnson, professor of finance at Heider College of Business at Creighton University.
“One should not simply budget and track expenses, but one should budget for savings,” Johnson said. “If one truly wants to make savings a priority, it cannot be a residual — what is left over. It should be a line item on your budget. You don’t successfully build wealth by simply taking what you have left after all your expenses. We accomplish what we prioritize. Prioritize savings and invest those savings.”
Build Smart Money Habits and Be Disciplined
If you want to become wealthy, you’ll need to exercise some financial discipline. The less money you make, the greater your discipline should be.
“As your financial situation changes, so do your spending habits,” Kotlere said. “Increased incomes often lead to [the] desire to improve one’s existing lifestyle by buying better, more expensive products, treating yourself more often and indulging in luxuries that were not an option before.
“It is totally fine to treat yourself occasionally, but overall it can distract you from [your] long-term goal. That’s why maintaining spending discipline is crucial for you to become wealthier in the long term. Avoid lifestyle inflation and live frugally to save and invest more.”
Set some clear short- and long-term financial goals, too. This can help you figure out where you want to be and how to get there.
Saving is one way to start building financial security, but investing can help you become rich, regardless of your salary. It’s not a quick solution, so be prepared for it to take time and patience.
“Achieving true financial security and wealth is done not by simply saving, but by both saving and investing,” Johnson said. “Because of compounding [interest], time is the greatest advantage of investing. It is important that people embrace investing and not simply saving. That is, the money you save needs to be invested in assets that will grow over time.”
When investing, it’s important to evaluate your risk tolerance, but you also might need to take some risks.
“The biggest mistake many people make in investing is not taking enough risk,” Johnson said. “Unfortunately, many people are overly conservative with their asset allocation, particularly in their retirement accounts. The surest way to build true long-term wealth for retirement is to invest in the stock market.”
Low-risk investments include money market funds, savings accounts and Treasury bills. But according to Johnson, it’s better to invest in assets that will keep up with inflation and grow more substantially — like stocks.
“For the vast majority of people, particularly those who are early in their working lives, the recipe is simple,” Johnson said. “Invest those savings in a low-fee, diversified equity index fund and continue to invest consistently whether the market is up, down or sideways. Dollar-cost averaging into an index mutual fund or ETF is a terrific lifelong strategy.”
Live Below Your Means
As you build wealth through a variety of means, try to avoid spending more money just because you have it. For both your own sake and that of your family, if you have one, live below your means.
“The most common story you hear of those who become rich is that they learned to live below their means,” said Jim Penna, senior manager of retirement services and investment strategy at VectorVest Inc. “Inflation is tough enough; avoid lifestyle inflation. … [This] in turn leads to understanding how to budget your earnings so you can save a good portion of your earnings.”
Practice Cost Control
Similar to budgeting and living below your means is the necessity of practicing cost control, especially if you have a family or live in an expensive area. But don’t stop there; you’ll also be better off exploring other areas that can help you accumulate more wealth or increase your income.
“It’s definitely possible to become wealthy when making less than $100,000 a year if you live in an expensive city,” Jania said. “For people in this group, again, it’s important to apply cost control to everyday expenses and also find an avenue that one wants to pursue to be able to make more money to then reinvest it and grow one’s wealth.”
Choose Cheaper Alternatives While Building Wealth
When you’re living on a tighter budget or are supporting a family, you may need to get a little creative to build wealth.
Diana Howard, the financial expert at CouponBirds, had a few suggestions for how to achieve this — particularly for those living in major cities:
- Take advantage of employee benefits
- Switch to more economical telecom and transportation plans
- Cook at home
- Use free or low-cost community resources to improve your education and lower your cost of living
- Use price comparison tools
- Buy generic
- Use public transit or ridesharing services (in lieu of owning your own vehicle)
While these methods won’t make you rich, they can free up some room in your budget so you can save and invest more in long-term wealth-building opportunities.
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