How To Build Wealth on an Average Salary

What Does It Mean to Build Wealth?

Before diving into those principles, it’s helpful to clarify what “wealthy” really means. While it’s often portrayed as having either a high income or a very large bank account, wealth itself is more accurately measured by the difference between the two; how much you earn minus how much you spend, year after year.

There’s an actor making $500,000 per year who spends (and I’m not exaggerating) $499,000 per year on living expenses and travel and there’s another actor who makes “only” $100,000 but saves and invests $20,000 per year. Over a forty-year career, the second actor will come out far ahead of the first due solely to their decisions about spending versus income.

Understanding wealth in this way can help reframe your approach to building it, since it puts less emphasis on “How can I make more money?” which may or may not be within your control and more on “How can I earn more than I spend?” which is almost always in your control.

Fundamental Wealth-Building Principles

1: Your Savings Rate Is More Important Than Your Income Level

One of the best predictors of financial outcome is your savings rate, or how much of your income you save and invest each month rather than spend. Someone earning $50k and saving $10k per year will often end up wealthier than someone earning $150k but only saving $7.5k per year due to the higher percentage of income they’re saving (+20% versus +5%) and compounding over time.

2: If Your Income Increases, Avoid Increasing Expenses Proportionally

Many people earn raise-over-time but their lifestyles grow at the same rate, leaving little extra money to save each year. By keeping spending constant as your income grows, you can significantly boost your effective savings rate without requiring a dramatic lifestyle change.

3: Make Saving and Investing Automatic

Ideally, every month you’ll allocate away your savings contributions into investments and retirement accounts before you ever spend your money, ensuring that you can’t unintentionally spend what you plan to save. You can often set this up automatically through payroll or direct deposit so that it happens without any effort on your part.

4: Save as Much as Possible in Tax-Advantaged Accounts

IRA and 401(k) accounts allow your investments to grow either tax-free or tax-deferred, meaning you get to keep more of your returns each year. Make sure you’re maxing out any tax-advantaged contributions each year, especially if your employer offers a matching contribution on your retirement accounts.

5: Eliminate High Interest Debt as Soon as Possible

Making regular payments on high-interest debt (particularly credit cards) works against your wealth-building efforts by earning negative returns. Paying down debts with higher interest rates will often yield better returns than investments, making it one of the best places to prioritize your spending.

6: Invest Early and Reinvest Dividends

Investing earlier gives your investments more time to grow, but it also allows you to earn dividends on your initial investment that can then be automatically reinvested to purchase more shares. This compounding “growth on your growth” can significantly enhance your earnings at relatively little cost or effort.

7: Invest More if Your Income Increases

While keeping your spending constant is a great way to build wealth, if your income increases substantially and you have room in your budget, you should invest the additional money rather than continuing to save at your previous rate. (See 2 for why you shouldn’t increase your spending.)

8: Don’t Risk What You’ve Earned by Going without Insurance

An uninsured mistake or illness can undo years of saving and investing almost instantly. Make sure you have enough insurance (health, home/renters, disability, car) to protect your wealth from unforeseen circumstances.

Example of Building Wealth on an Average Salary : How Two People with Similar Incomes Can Build Very Different Levels of Wealth

Let’s say you have two people with roughly comparable incomes over a thirty-year career. Person #1 invests 15% of their income each month into retirement starting in their mid-20’s, uses automatic contributions to make that happen, and keeps their spending relatively constant as their pay grows over time. Person #2 occasionally invests some portion of their income but spends most of their raises and dips into credit card debt from time to time when money is tight.

Three decades down the line, person #1 will have come out far ahead of person #2 due to their greater effective savings rate, longer period of compounding growth on their investments, and lack of high-interest debt. Their income was roughly the same but their wealth-building habits were not.

Common Myths About Building Wealth : You Have to Earn a Six-Figure Salary to Start Building Wealth

Your income matters less than your spending habits and ability to invest at a steady rate. Start small if you need to, but starting your investments now always beats waiting a few years until you get that raise.

Myth: Wealthy People Are Rich Because They Won the Lottery

While some people do become wealthy because of luck, a far greater number worked jobs that didn’t require advanced degrees and built wealth slowly over time. Most wealthy people you know likely fell into this category.

Myth: I Should Focus on Making More Money Before I Worry About Saving

You’ll likely earn more money over your lifetime if you learn to save money first. Without that habit, it’s all too easy to spend each new dollar you earn before giving yourself the chance to save it.

Building Wealth From Scratch Building Wealth From Scratch: How to Get Started With Minimal Savings

If you find yourself with little to no savings, start with these steps.

Don’t worry about investing until you have a small emergency fund in place. It should cover a few months of expenses so you don’t need to rely on debt when something unexpected comes up.

Aggressively pay off debt with the highest interest rates.

Make sure you’re contributing enough to capture your employer’s full retirement match.

Set up automatic contributions to your investment accounts.

Gradually increase how much you save each month as your income grows or expenses drop. Don’t proportionally increase your spending as you earn more! (See #2)

Make sure you have enough insurance so that one accident or illness can’t set you back significantly.

Frequently Asked Questions About Building Wealth

How much should I save each month to build wealth?

A common rule of thumb is at least 15–20% of income going towards investments and savings, but if that feels unrealistic start with what you can afford and grow your savings rate over time.

Can I build wealth if I don’t make very much money?

Yes, but it will probably take longer than someone with a higher income saving the same percentage. You’ll also need to keep your expenses as low as possible.

Does where I live impact my ability to save and build wealth?

Absolutely. Someone living in a low-cost area can often save a much larger percentage of their income than someone with an identical salary living in a high-cost metropolitan area.

Is there a timeline I should expect for building wealth?

Every situation is different, but expect wealth building on a modest salary to be a long-term endeavor. There are no shortcuts to building wealth slowly but safely.

Conclusion

There’s no magic wealth-building trick that only applies to people who earn million-dollar salaries. By understanding basic wealth-building principles and starting as early as possible, anyone with an income can build wealth over time.