15 Ways to Build Wealth on a Modest Salary
Building wealth when you have a modest salary can seem like a challenge. You already have numerous financial responsibilities, and piling savings and investing on top of that might not seem possible at first glance.
But there are plenty of easy ways to start building your wealth with the extra cash that you do have. Not only are these ways easy to begin, but they are just as easy to stick to long-term.
We picked the following 15 ways to build wealth on a modest salary to help you create financial stability over time. You can start most of these in a few minutes after reading the list, motivating you to keep pushing ahead.
1. Take Advantage of Compounding Interest
I like to remind everyone that saving isn't an effective way to build wealth over the long term. Investing is always the better option because it offers a higher rate of return and will give you the support you need to secure your financial future.
But I don't discount the power of saving altogether. High-yield savings accounts, money market accounts, and even smaller investment vehicles like CDs and bonds can help you unlock the power of compounding interest to make money on your principal amount and the interest you earn over time.
2. Focus on Debt Repayment So It's Out of Your Way
Debt can be a major obstacle to building wealth, especially when living on a modest salary. That's why debt repayment is a critical part of building wealth. Interest rates will prevent any gains from impacting your net worth if you're not chipping away at debt.
The best way to approach debt repayment is by taking an honest look at how much debt you owe, then creating a repayment plan by selecting a strategy that works for you and sticking to it (debt snowball method, debt avalanche method, etc.).
As long as you pay more than the minimum and keep overspending, you'll be sure to get rid of that debt soon.
3. Pay Yourself First and Automatically
Do you pay yourself first when you do get paid? It's something I wasn't aware of and that I needed to be doing. It's also something that seemed antithetical to the zero-based budgeting method I was previously using.
By paying yourself first, you automatically have money that you can stash away before you start working on other areas of your budget. The reason why many people don't see that much leftover to use for wealth-building activities is because they wait until they're all out of money. Automate the process and set aside a certain amount each month for growth.
4. Work Your Way Up With Investments
You don't have to go all-in on investments at first. You're likely even barred from some investment options like real estate. Instead, take things slow and steady as you learn more about different investment vehicles. Start with CDs and bonds, then move on to stocks, ETFs and mutual funds, and so on.
This will allow you to grow wealth while also building your financial education, which will be essential to making the right money moves in the future.
5. Invest in Opportunities That Allow You to Upskill
As someone who immerses themselves in personal finances, I'm surprised to see how little it's mentioned that you need to upskill to take your modest salary to one that offers more investing power.
Your modest salary only stays that way if there is no upward trajectory in your career. Taking advantage of available educational opportunities and asking for greater responsibility will likely help you move up so that you have a larger salary.
6. Live Below Your Means
We've all seen the studies about how many people with higher incomes seem to struggle financially. But you might be surprised to learn that it doesn't seem to be changing much. Even recent reports state that around 48 percent of those making over $100,000 live paycheck to paycheck.
In some cases, this may be caused by lifestyle creep. The ever-growing costs of moving further into urban environments and trying to keep up with coworkers can limit how much you have to grow wealth.
Live below your means as much as possible. Don't limit yourself too much, but don't start spending more to the point where any progress is wiped out by an equal increase in your budget.
7. Ask About Benefits at Work
Does your employer offer employee matching with your 401k? Do they have several different retirement packages to choose from?
While pensions are often a thing of the past, 401k matching is still (fairly) alive and well. Ask about benefits at work and see what your employer may be willing to offer to help you get a head start on a better future.
8. Coupon, Coupon, Coupon
Wealth building on a modest salary isn't possible without saving money and/or boosting your income. When it comes to the former, I'll be the first to say that looking for coupons and promotions can be life-changing.
We're surrounded by deals all the time, and there are plenty of cash-back rewards offered by banks as well as apps that will help us find available promo codes. Just take care to do your research, so you know you're getting a deal and not being tricked into buying something that's advertised as “on sale.”
9. Use Credit Sparingly
Credit is a tool. If you use it correctly, you build your credit score. If you use it incorrectly, you can end up in debt, like 50% of American cardholders.
If you must use your credit card, use it for expenses that you're capable of paying off the following month. Otherwise, it could jeopardize your wealth-building goals.
Also, pay attention to cash-back opportunities when you use them to take advantage of that small cash infusion.
10. Be Smart About Taxes
Tax season is something most people aren't joyous about. It becomes even less exciting when you tend to get little money back.
Taxes can cut into your wealth building if you end up paying more than you absolutely need to. Taking the time to learn more about how taxes work and which deductions you can claim will help you save more of your hard-earned money. If all else fails, see a tax expert so they can help you get more or deduct more during tax season.
11. Don't Commit to Financial Responsibilities That Stretch You Too Thin
Major life events like buying your first home are investments, and they will likely serve you financially as property tends to gain value over time. But is now really the right time?
Too many people take on the responsibility they feel like they should because they have to. But if you commit and can't actually manage it, you could end up dealing with a severe financial blow.
When making money moves, think about if it's the right time and what could go wrong if you aren't up to the challenge. It's better to wait until you're in a better financial position than to commit too early and wind up working backward.
12. Create a Budget for Fun
One of the most helpful financial tips I've learned over the years is to budget for fun. A lot of people don't budget for fun or think that they can't use any of their modest salary on it.
This type of restrictive behavior will do more damage than good. Set aside some of your cash to do or buy things you enjoy. There's no use in working so hard to build a better life for yourself if you're miserable every step of the way.
13. Find a Second Income Stream
Most people today have some type of side hustle going. The rising prices of various essential goods and services have demanded it, which may continue into the future.
To bolster your modest salary, look for a second income stream. If you have extra time, consider something like a part-time job or a small business that can easily be automated. If you have less time, you could also try tackling side projects for those in your neighborhood.
14. Chase Account Bonuses
Do you ever see those advertisements where you can make a certain amount of money if you open an account with a bank and keep a set amount there for a specific period?
Those are very much real, and people make thousands a year doing it. Use the cash you have saved to see if you can take advantage of these promotions and grow your wealth with this strategy. Then, move the cash over to the next account!
15. Don't Get Discouraged
Some people think they start too late or aren't making as much progress and give up altogether. Don't make this mistake.
Keep at it and do what you can. Every move matters, even if it's not as big as you'd like it to be. The most important thing is to start building good money habits, as they will help you for the rest of your life.
