Your Salary Won't Make You Wealthy

Your Salary Won't Make You Wealthy

September 23, 2021
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In today’s day and age, for the average person, it is extremely difficult to become wealthy based solely off their salary. The perception of making six figures when you are in your 20’s and 30’s sounds great. But then you look at the costs that typically come into play: rent/mortgage, student loans, food/transportation, travel/leisure, etc. That is why I have become a firm believer in the saying ‘It’s not how much money you make but how much money you can keep’.

Sure, anyone can become a millionaire. But it comes down to consistent monthly/quarterly contributions, rate of return, and how long you are able to save. For example, if you save $1,000/month, for 30 years, and get an average rate of return of 6%, you will accumulate $1,004,515.

Or if you max out your 401(k) contribution, which is $19,500 per year, for 30 years, with a 6% return, you will accumulate $1,541,634. A recent article posted by Vise.com shows that it takes 25 years using the average investor returns over the past 30-years to accumulate $2 million.

Some people might expect those numbers to be larger and usually, just over a million is not enough for someone to enjoy a lifelong retirement the way they want to.

So how can one become wealthy from their salary? One way is to avoid the lifestyle creep. When people receive a pay raise, they will typically buy a new car, a house, or just go out and celebrate with family and friends. But what if you put that pay raise or bonus into the market? Sure, it’s not the sexy thing to do. But it could make all the difference.

Now, I’m not proposing that you turn into an extremely conservative spender and save everything you make. Frankly, you should spend your money! There is nothing worse than being anxious or feeling like you can’t spend money. Michael Batnick, from Ritholtz Wealth Management LLC, recently posted an article on ‘How You Feel About Money’, great read.

But accumulating capital can be one of the hardest things to do. There are only so many hours in the day and salaried employees usually have to wait for a pay raise in order to bring in more money. Which is why it’s vital that you get your money to work for you instead of you working for your money.

A lot of success stories come back to alternative investments or receiving equity within your company. Getting involved in real estate transactions and being able to house hack or getting involved in rental properties can potentially bring in some additional income.

Also, what is becoming increasingly popular, is employees being offered stock options from their employer. Employees are then able to benefit from their company’s performance and hopefully cash out as the share price increases.

Whatever your situation may be, understand that it will normally take more than just your salary earnings to accumulate great wealth.


Disclosure: This material is for general information only and is not intended to provide specific advice or recommendations for any individual.