960. Laura explains which money habits create more financial freedom, stability, and wealth, even when you’re not a high earner.
960. Laura explains which money habits create more financial freedom, stability, and wealth, even when you’re not a high earner.
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Welcome back to episode 960 of Money Girl–I appreciate you downloading the show! I'm Laura Adams, an award-winning author, on-camera spokesperson, female money speaker, and founder of The Money Stack, my Substack newsletter. Subscribers automatically receive my Money Success Toolkit, which includes the exact templates I use to manage my finances.
You can learn more, ask questions, and sign up for the Money Stack at LauraDAdams.com. Or leave a voice message with your question or comment by calling 302-364-0308. I'd love to feature your question on Finance Friday, our weekly Q&A, bonus edition of the show!
Net worth is the value of your assets minus your liabilities. Here’s a simple example: If you have a home and retirement accounts worth $500,000, and a mortgage and credit card debt worth $350,000, your true wealth is the difference, $150,000.
The higher your net worth or wealth, the more choices you have, such as starting a business, relocating to a new city, quitting a job you don’t like, retiring early, or leaving a legacy to charities or loved ones.
If you want to build wealth faster, despite having a modest or average income, today’s show is for you. I’ll review habits for creating more financial freedom and stability that give you control over your future, even when you’re not a high earner.
6 habits to boost your net worth on a modest income
Often, it’s challenging to see how setting aside small amounts of money can lead to a substantial net worth, such as $1 million or more. It can be mind-boggling to hear that investing $400 per month starting at age 25, with a 7% average return, would result in over $1 million by age 65.
I think most 25-year-olds would guess that they’d have to invest much more to end up a millionaire. The reality is that you can easily create a seven-figure net worth by regularly investing a modest amount over a long period.
When you alter my example to investing $500 a month, the same person could start their retirement with $1.32 million. Alternatively, they could retire early, at age 60, with $1 million in investments.
While you don’t need a high income to become wealthy over time, you do need wise money habits. Your financial choices allow you to increase or decrease your net worth. Here are six ways you can build more wealth, even with modest earnings.
1. Build investing into your spending plan.
Since few people relish creating or sticking to a budget, I recommend creating a spending plan instead. It’s a subtle difference, but it explains the purpose, which is deciding how you’ll spend money to support your goals before you even receive it.
Without a spending plan, it’s way too easy to overspend in certain categories and leave others unfunded. For instance, if you’re spending too much on discretionary purchases like entertainment, subscription services, and dining out, you probably won’t have much or anything left to save or invest.
I recommend prioritizing funding your goals and then ensuring you can live comfortably on the remainder of your income. For instance, contributing at least 10% to 15% of your gross income for retirement should be a non-negotiable part of your spending plan. If you need more emergency funds, you could also save a percentage of your income or a flat amount monthly until you reach an acceptable goal.
By using a “pay yourself first” method, you treat savings and investments like a bill that you must pay yourself every month, no different than rent or utility bills. As you see those financial buckets grow, you might begin to love saving just as much as spending. Knowing that your future is funded first, you’ll make financial choices that align with that reality.
An excellent way to incorporate investing into your spending plan is to make it an automated habit. For instance, you can set up recurring transfers from your checking account to your savings and retirement accounts, such as an individual retirement account (IRA).
Note that if you participate in a workplace retirement plan, like a 401(k), your contributions are always automated because they must be deducted from your paychecks.
2. Get rid of high-rate debt.
If you feel like you don’t have enough income to “pay yourself first,” take a look at your debt. Often, having high-interest credit cards and loans can make it difficult to regularly save and build wealth.
For instance, if you invest with an average return of 7% but are paying credit cards at over 20% interest, you’re wiping out any investment gains. Plus, eliminating balances on expensive cards frees up more money that you can use to save and invest for faster progress.
There are different ways to create a debt payoff plan, but I recommend the avalanche method, where you pay down debt in order of highest to lowest interest rate. That gives you the most interest savings, which can be used to pay off debt faster.
If you’re only making minimum payments on credit cards, push yourself to stop making new charges and to send progressively higher payments each month. Getting your high-rate debt under control is essential for building a high net worth.
However, debt with relatively low interest rates that typically come with money-saving tax deductions should be paid off last. They include mortgages, home equity lines of credit or equity loans, and student loans. Only pay off these debts early after you’ve eliminated high-rate debts, have plenty of emergency funds, and regularly invest at least 10% of your income for retirement.
RELATED: Conquer debt–how nonprofit credit counseling works
3. Fight lifestyle inflation.
If you’ve been living on a low or modest income and suddenly start earning more, it can be tempting to inflate or upgrade your lifestyle. You might believe that you deserve a better car, a bigger home, or a long-overdue and expensive vacation; I’ve been there!
A wise finance professor once told me that the secret to building wealth is to earn more but never spend more. Simple, right? The bottom line is that even when you can afford to spend more, it won’t necessarily increase your net worth. Wealth comes from keeping more of what you earn, no matter how much or little you make.
Always remember that inflating your lifestyle will typically prevent you from building wealth in the long run. Instead of buying fancier furniture or a new car, consider saving and investing more when you have excess discretionary income.
I’m not saying to never enjoy a luxury here or there; life is about balance, not deprivation. However, allocating all or most of a raise or windfall toward your financial future can ultimately lead to feeling the most fulfilled and secure in the long run.
4. Make simple investments.
Building wealth isn't about picking the next hot stock or spending all your time watching the financial markets. As I’ve mentioned, it's about the habit of regularly setting aside money so the growth in the markets yields moderate returns over the long run.
I recommend setting up automated contributions to a retirement account (such as a 401(k) or IRA) that gets allocated into low-cost, broad-market index funds or ETFs. For instance, most accounts offer a fund that tracks the performance of the S&P 500, which is an excellent choice for most investors with a long time horizon.
Known as indexing, investing in one or more index funds provides instant diversification with historically strong returns. Consistent, modest contributions can grow surprisingly large over time.
LISTEN ALSO: How can I become a confident investor?
5. Maximize tax-advantaged accounts.
I’ve mentioned that using tax-advantaged accounts, such as retirement accounts, is a wise choice. They offer built-in tax benefits that save money in the current or future tax years. That can add thousands or tens of thousands of dollars to your balance if you take advantage of them.
If your employer offers a workplace retirement account, such as a 401(k), 403(b), or 457 plan, be sure to participate. For 2025, you can contribute up to $23,500 or $31,000 if you’re over 50. However, you can always start with a small contribution and gradually increase it year by year, eventually maximizing it.
Additionally, many employers provide matching funds to encourage participation. Always contribute enough to receive a full match when possible. Those free additional funds can significantly supercharge your wealth-building efforts. They offer an instant 100% return on your investment before any market growth occurs.
There are other tax-advantaged accounts you might consider–such as a health savings account (HSA), flexible savings account (FSA), and 529 college savings plan–depending on your goals and financial situation.
6. Track your progress.
It’s easy to fall into bad money habits or lose the motivation to achieve your financial goals if you don’t track your progress. Having all your assets and liabilities documented in one place is really helpful.
I closely track my net worth using my Personal Financial Statement (PFS) template, which is a free download when you subscribe to my newsletter, The Money Stack.
Observing changes to your net worth over time enables you to make more informed financial decisions. Plus, even modest gains reinforce good money habits and help you stay focused on your long-term goals.
That's all for now. I'll talk to you soon. Until then, here's to living a richer life!
Money Girl is a Quick and Dirty Tips podcast, and I want to thank our fantastic team! Steve Riekeberg audio-engineers the show. Holly Hutchings is our director of podcasts, Morgan Christianson is our advertising operations specialist, Rebekah Sebastian is our marketing and publicity manager, and Nathaniel Hoopes is our marketing contractor.