How I built a six-figure net worth on a five-figure salary

When I graduated from college and started my first job, I had no idea what I was doing with my money. I had never really budgeted, didn’t understand how investing worked and had no idea how to build long-term wealth.

Fast-forward just a few years, and I’m now a certified financial planner who has built a six-figure net worth on a relatively modest salary while living in New York City.

It wasn’t an easy journey, and I made many mistakes along the way. However, by staying dedicated and committing myself to learning about money, I was able to take control of my finances and build a solid financial foundation.

Here are the strategies and habits that helped me grow my net worth to over $100,000 by age 26, despite starting with a salary of just $50,000.

I leveraged the power of compound interest

When I graduated from college, I had a small investment account with about $10,000 left over from my college fund. I also had about $2,000 in my savings account from working various jobs during college. It wasn’t much, 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 financial content for a tech startup, where I earned around $50,000. It was through that job that I first started to learn how to manage my money better.

One of the most important steps I took was to start investing early and regularly. I aimed to invest at least 10% of my income — or more. That way, I could start taking advantage of compound interest.

Compound interest is essentially earning interest on your interest. Over time, this can lead to significant growth in your investments. For example, if you invest $10,000 at a 7% annual return, after 30 years, your investment would grow to more than $76,000, without adding another penny.

I built an emergency fund and investment portfolio

I started off investing and saving 10% of my starting salary. This amounted to around $400 per month, which I used to build up an emergency fund of $5,000. It took me about six to seven months to reach this goal, and I kept that money in a high-yield savings account.

Once my emergency fund was established, I directed that $400 monthly into my investment account.

To make the process easier, I automated my savings and investments. A portion of my paycheck automatically went into my investment accounts each month. This helped me stay consistent and removed the temptation to spend that money elsewhere.

I maximized my 401(k) and employer match

I learned that one of the best ways to start building wealth was to utilize my employer’s 401(k) plan and match.

Another key strategy was to take full advantage of my employer’s 401(k) match. Many employers offer to match a percentage of your 401(k) contributions up to a certain amount. This is essentially free money that can significantly boost your retirement savings.

I decided to start contributing 10% of my gross income to my 401(k), which amounted to about $5,000 annually. My employer matched 3% of my contributions, adding an extra $1,500 to my annual retirement savings.

By contributing to my 401(k) and taking advantage of my employer match, I significantly boosted my retirement savings.

By the end of my first year of work, I had contributed around $7,400 to my retirement and investment accounts, plus the $1,500 from my employer match. My net worth had grown to about $20,000.

I practiced budgeting and spending mindfully

While it’s not the most exciting aspect of finances, budgeting has been crucial to building my wealth.

I found ways to save money on everyday expenses, like using public transportation, cooking more at home, and finding low-cost or free activities. This allowed me to redirect that money towards my savings and investments.

I also made sure to create a sustainable budget that worked for me. This involved tracking my income and expenses and allocating my money towards different goals, such as saving for emergencies, investing for retirement, and spending on things that bring me joy (like overpriced gelato from my neighborhood shop).

To me, budgeting doesn’t mean depriving yourself. I included room in my budget for things I enjoyed, such as travel or dining with friends. The key was to do these things in moderation and to be mindful of my spending.

Increasing my contributions with each raise

After my first year, I got a cost-of-living raise and started making $59,000. I bumped up my 401(k) contribution to 11%, which, with my employer match, amounted to $8,260 annually. I continued investing 10% of my monthly gross income into my investment accounts, now $500 per month.

I was contributing around $12,000 to my retirement and investment accounts, plus $1,750 from my employer match. By the end of my second year of work, my net worth had grown to around $40,000.

My net worth grew steadily each year by consistently contributing to my retirement and investment accounts.

Numbers are approximate

Supplementing my income with side hustles

During my second year of work, I also started doing freelance journalism on the side. Any money I made from freelancing, I would put half into savings to cover taxes and pad my emergency fund and the other half into investments. With my freelance income, my gross income for year two was around $63,000.

I got my first major promotion in my third year of work and started making $70,800. I continued contributing 11% to my 401(k) and investing 10% of my gross income each month. I was contributing a little over $14,000 to my retirement and investment accounts, plus $2,100 from my employer match.

I kept up my freelance work, bringing my total gross income to around $75,000. Thanks to my freelancing, I contributed an additional $2,000 yearly to my investments. By the end of my third year, my net worth had grown to about $64,000.

Numbers are approximate

Staying the course

I continued on this streak for my fourth year, contributing the same percentages to my 401(k) and investment accounts and maintaining my freelance work. By the end of my fourth year, my net worth was around $90,000.

At the beginning of my fifth year, I got another promotion, bringing my salary to $85,000. This bumped my net worth over the $100,000 threshold by the middle of the year. I was only 26 years old.

Here’s an approximate breakdown of how my savings and investments grew.

Celebrating milestones, such as reaching a six-figure net worth, helped me stay motivated on my wealth-building journey.

The power of consistency (and compound interest)

Building wealth is a long-term game that requires patience and discipline. Sometimes, I was tempted to splurge on a big purchase or deviate from my financial plan. But by keeping my goals in mind and using a few key strategies, I was able to stay on track.

One way I avoided impulse purchases was by implementing a 24-hour rule. If I saw something I wanted, I would wait 24 hours before buying it. Often, after that time had passed, I would realize that I didn’t need or want the item.

I also worked to better understand my financial behavior. I reflected on why I was tempted to make certain purchases and tried to find alternative ways to meet those needs. For example, if I was tempted to buy something because I was feeling stressed, I would find a free way to relax, like going for a walk or eating ice cream from said neighborhood gelato shop.

Here are some other key things that allowed me to build a six-figure net worth on a five-figure salary:

1. Starting early: By investing in my early 20s, I could take advantage of compound interest. Over time, the returns on my investments began to generate their returns, leading to exponential growth.
2. Being consistent: I contributed to my 401(k) and investment accounts every month without fail. By automating my contributions, I made investing a habit and didn’t allow me to spend that money elsewhere.
3. Increasing my contributions over time: As my income grew, I increased my 401(k) and investment contributions. This ensured that my wealth-building kept pace with my income growth.
4. Diversifying my income: By doing freelance work on the side, I could boost my income and invest even more. Multiple income streams also gave me a sense of financial security — especially during more uncertain economic times.

Tips for building a six-figure net worth

Building a six-figure net worth — especially on a lower salary — is not easy, but it’s possible. It requires discipline, consistency and a long-term mindset.

Though it may require some sacrifice in the present, it’s absolutely worth it. Taking control of your finances early on and making smart decisions with your money can set you up for a lifetime of financial freedom.

Here are a few action steps you can take:

1. Enroll in your employer’s 401(k) plan and contribute at least enough to get the full employer match.
2. Establish a budget and aim to save and invest at least 10% of your income (ideally more!).
3. Build up an emergency fund to cover 3-6 months’ worth of expenses.
4. Consider starting a side hustle to boost your income and invest the extra money.
5. Educate yourself on personal finance and investing through books, podcasts and articles.

Bottom line

Building wealth can be achievable through consistent savings, investing and practicing smart financial habits. But remember, it’s a marathon not a sprint. By staying the course, you, too, can achieve a six-figure net worth, regardless of your starting salary.