How to Grow Your Net Worth When You Don't Make a Lot of Money

Here's a post I found detailing the author's success in increasing her net worth this past year. The bottom line story: she increased her net worth by 12K when she only makes 21K a year. Here's how she did it:

1.) I looked for additional income streams (+ $3,675.77)
2.) I re-balanced my 401(k) (+ $1,148.00)
3.) I opened high yield savings accounts and CDs. ($495.82)
4.) I started a ROTH IRA (+$306.87)
5.) I embraced frugality and tracked my spending.

She says she "can’t quantify how much I saved through watching the small purchases, but the little things do add up." Well, let me take a guess at how much they added up to.

If her net worth went up by $12,346.85 and she can account for $5,626.46 from the items above, doesn't that mean that $6,720.39 came from spending less than she earned (in other words, controlling her spending)?

Whatever the actual number, this story illustrates a truth we cover here over and over: if you spend less than you earn, even with a small income, you can make financial progress. And sometimes, like in this example, the financial progress is pretty significant (in that her net worth went up more than most people who make $50k per year -- at least that's what I'm guessing.)

For more thoughts on this subject, see these posts:

• How to Get Rich on $20k a Year

• It's Still Not What You Make, It's What You Spend

• My Best Financial Advice: Spend Less than You Earn

Comments

[FMF]

J Baba --

If you're looking for your question, I unpublished it (and the response with it) as it was off topic. I'll re-post it the week of December 10 and you can look for answers then/there.

[The Bob]

Her achievements are admirable but her emergency savings account is lacking severely.

She should have at the very least a couple of grand in there before attempting to get a Roth IRA. Why not simply put more into the probably employer matched 401K versus starting the IRA? Maybe she was maxed but I highly doubt it.

Anyway, aside from that blunder she did an amazing job. I will be doing the same starting in January for a twelve month experiment. Everyone around me thinks I am crazy.

So I am crazy and getting wealthier by the day. :)

[beastlike]

The Bob - She can always pull money out of the Roth if need be!

[Kevin]

If she really needs the money, she can tap the principal of her Roth. As long as she doesn't touch earnings, it will come out tax-free. Not the best route, but a possibility.

Bob - what exactly is your experiment? I'm curious.

[MMJ]

She has earned $360 in her savings and CD accounts. I assume these could be used for emergency use. Even at a good 5% yield, that means her emergency savings is at $7200. That seems like a good number in relation to her 21K salary. I have a long long way to go to get that kingd of ratio.

[justin]

Gah, if she increased her income $3,675.77 a year then she didn't make 21K, she made 24,675.77.