When I graduated from college and started my first job, I had no idea what to do with my money. I had never created a budget, didn't understand how investing worked, and had no idea how to build long-term wealth.
Fast forward a few years and I'm now a Certified Financial Planner who has built a six-figure net worth while living in New York City and on a relatively modest salary.
It wasn't an easy journey and I made many mistakes along the way, but my diligence in learning about money enabled me to take control of my finances and build a strong financial foundation.
Here are the strategies and habits that helped me increase my net worth to over $100,000 by the age of 26, despite starting out with just a $50,000 salary.
Harnessing the power of compound interest
When I graduated from college, I had opened a small investment account with about $10,000 left over from my college fund. I also had about $2,000 in a savings account that I had saved up from working various jobs while in college. It wasn't a lot, but it was a start. I knew that to build real wealth, I had to be intentional with my money and make every dollar count.
My first job out of college was writing finance content for a tech startup, where I made about $50,000. It was through that job that I first began to learn how to manage my money better.
One of the most important steps I took was to start investing regularly early on. I aimed to invest at least 10 percent of my income, if not more, so I could take advantage of the benefits of compound interest.
Compound interest is essentially interest on interest. Over time, your investment can grow substantially. For example, if you invest $10,000 at a 7 percent annual return, after 30 years your investment will grow to more than $76,000 without you having to put in a cent more.
I built an emergency fund and an investment portfolio.
I started by investing and saving 10 percent of my first paycheck. This came to about $400 per month, which I used to build up a $5,000 emergency fund. It took me about 6-7 months to achieve this goal, and I kept the money in a high-yield savings account.
Once I had my emergency fund set aside, I transferred that $400 each month into my investment account.
To make the process easier, I automated my savings and investments: Every month, a portion of my paycheck was automatically deposited into an investment account. This helped me stay consistent and eliminated the temptation to spend that money on other things.
I maxed out my 401(k) and employer contributions.
I've found that one of the best ways to start building assets is through my employer's 401(k) plan and matching.
Another key strategy was to make the most of my employer's 401(k) match. Many employers offer to match up to a certain percentage of your 401(k) contributions. This is essentially free money, and it can significantly boost your retirement savings.
I decided to contribute 10 percent of my gross salary to my 401(k), which amounts to about $5,000 per year. My employer matched that contribution by 3 percent, adding another $1,500 to my annual retirement savings.
By contributing to a 401(k) and taking advantage of employer contributions, I was able to significantly increase my retirement savings.
By the end of my first year on the job, I had saved up about $7,400 in retirement and investment accounts, plus another $1,500 in employer contributions, and my net worth had grown to about $20,000.
I practiced budgeting and spending prudently.
Although not the most exciting aspect of finances, budgeting has been crucial in building my wealth.
I found ways to save money on everyday expenses, like taking public transportation, cooking at home more, and finding low-cost or free activities, which allowed me to redirect that money towards savings and investments.
I also made sure to create a sustainable budget that worked for me, which involves tracking my income and expenses and allocating money toward different goals, like saving for emergencies, investing for retirement, and spending on things that bring me joy (like that expensive gelato from the local store).
For me, budgeting doesn't mean sacrificing. I also built in budgets for things I enjoy, like traveling and dining out with friends. The key is to do these things in moderation and be mindful of how much I spend.
Increase your contributions with each pay increase
After the first year, my cost of living increased and my annual salary rose to $59,000. I increased my 401(k) contribution to 11 percent, which combined with my employer's contribution brought my salary to $8,260 per year. I continued to invest 10 percent of my monthly gross income into my investment account and am now investing $500 per month.
I had put about $12,000 aside in retirement and investment accounts, plus another $1,750 in employer contributions, and by the end of my second year on the job, my net worth had grown to about $40,000.
By consistently contributing to retirement and investment accounts, my net worth has steadily increased each year.
| Year | salary | 401(k) contributions | Employer Matching | Total annual donations |
|---|---|---|---|---|
| 1 | $50,000 | $5,000 | $1,500 | $6,500 |
| 2 | $59,000 | $6,490 | $1,770 | $8,260 |
| 3 | $70,800 | $7,788 | $2,214 | $9,912 |
| Four | $70,800 | $7,788 | $2,214 | $9,912 |
| Five | $85,000 | $9,350 | $2,550 | $11,900 |
The figures are approximate.
Supplement your income with a side job
In my second year of employment, I started freelancing as a journalist on the side. I saved half of what I made from freelancing to pay taxes and build an emergency fund, and invested the other half. With my freelance income, my total income in my second year was about $63,000.
In my third year on the job, I got my first big promotion and started making $70,800 a year. I continued to contribute 11 percent to my 401(k) and invest 10 percent of my gross income each month. I had a little over $14,000 saved up in retirement and investment accounts, plus another $2,100 in employer contributions.
I continued freelancing and my total income was about $75,000. Freelancing allowed me to put an extra $2,000 into investments each year. By the end of the third year, my net worth had grown to about $64,000.
| Year | salary | Freelance income | Total Revenue |
|---|---|---|---|
| 1 | $50,000 | $0 | $50,000 |
| 2 | $59,000 | $4,000 | $63,000 |
| 3 | $70,800 | $4,000 | $74,800 |
| Four | $70,800 | $5,000 | $75,800 |
| Five | $85,000 | $5,000 | $90,000 |
The figures are approximate.
Stay on the path
I continued this pattern into my fourth year, contributing the same percentage to my 401(k) and investment accounts, and continuing to do freelance work. By the end of that fourth year, my net worth was about $90,000.
At the start of my fifth year, I got promoted again, to a salary of $85,000, which brought my net worth over the $100,000 threshold by mid-year. I was only 26 years old.
Here's a rough breakdown of how my savings and investments have grown:
| Year | Starting Net Worth | contribution | Increased investment amount (estimate) | Final net worth |
|---|---|---|---|---|
| 1 | $12,000 | $11,500 | $1,600 | $25,000 |
| 2 | $25,000 | $16,250 | $3,300 | $44,550 |
| 3 | $44,550 | $18,250 | $4,400 | $67,200 |
| Four | $67,200 | $18,250 | $6,000 | $91,400 |
| Five | $91,400 | $19,550 | $7,750 | $118,700 |
Celebrating milestones, like reaching a six-figure net worth, has helped me stay motivated on my wealth-building journey.
The power of consistency (and compound interest)
Building wealth is a long-term commitment that requires patience and discipline. At times, I was tempted to splurge on big purchases or deviate from my financial plan. But keeping my goal in mind and adopting a few key strategies helped me stay on track.
One of the ways I avoid impulse buying has been by implementing the 24-hour rule: When I see something I want, I wait 24 hours before buying it. Often, after that time has passed, I realize I don't need or want the item.
I also tried to understand my financial behavior better. I reflected on why I was tempted to make certain purchases and tried to find alternative ways to satisfy those needs. For example, if I was stressed and wanted to buy something, I would look for free ways to relax, like going for a walk or getting an ice cream at my local gelato shop.
Here are the main reasons why I was able to build a six-figure net worth on a five-figure salary:
- Start earlyInvesting in your early twenties allowed you to benefit from compound interest. Over time, your investment income began to generate revenue, leading to exponential growth.
- Be consistent: I was contributing to my 401(k) and investment accounts every month without fail. By automating my contributions, I made investing a habit and stopped spending the money on other things.
- Increase your contributions over timeAs my income increased, I increased my 401(k) and investment contributions, allowing my assets to grow in line with my income.
- Diversifying income sources: Doing freelance work on the side has allowed me to earn an additional income and invest more. Having multiple sources of income has also given me a sense of financial security, especially during times of economic uncertainty.
Tips for building a six-figure net worth
Building a six-figure net worth isn't easy, especially on a low salary, but it's not impossible — it takes discipline, consistency, and a long-term mindset.
It might require some sacrifices in the moment, but it's absolutely worth it. Taking control of your finances early on and making smart money decisions can set you up for lifelong financial freedom.
Here are some actions you can take:
- Join your employer's 401(k) plan and contribute enough to receive the minimum amount your employer will fully contribute.
- Set a budget and aim to save and invest at least 10 percent of your income (ideally more).
- Prepare an emergency fund that can cover three to six months of expenses.
- Consider starting a side hustle to boost your income and invest any extra money you have.
- Learn about personal finance and investing through books, podcasts, and articles.
Conclusion
Building wealth requires consistent savings, investments, and practicing smart financial habits. But remember, it's a marathon, not a sprint. If you stick with it, you too can achieve a six-figure net worth, regardless of your starting salary.
