Having a large income doesn’t always translate to wealth.
If you make $100,000 a year and spend $110,000 – you will never get on top of your finances and always be stuck living paycheck to paycheck. While your income is an important component, what is even more vital are your money habits. I’ve shared 3 key money habits that have helped me build a six-figure net worth in my 20s while earning a low/average income.
I’ve written an article on how I saved my first $50,000 at 20 where I discuss how I actually saved the money using budgeting and fixing spending issues. This article will delve more into lifetime habits that I’ve developed to keep creating wealth.
1. Being frugal (no matter how much my income increases)
I go the extra mile to save a dollar. When I made $7 an hour, I remember just how much money $5 or $10 was – and I remind myself this regularly, so I don’t forget it. When you start working full-time with a salary, it is so easy to get desensitised to spending money especially when you’re surrounded by older co-workers with much more expensive lifestyles. I have to actively remind myself that I shouldn’t be spending money the way people around me do, but rather what works for me.
That being said, it is about balance. The line between frugal and cheap is very fine and can be hard to perfect. Being overly cheap can cost you your health, personal relationships or even more money in the long-run so spend when you need to. I needed $5,000+ of dental work last year so I just sucked it up and paid because my teeth are more valuable than my investment portfolio. However, I don’t need $60 eyelash extensions a month when I can just use $2.80 ones from Daiso.
2. Avoiding debt like the plague
It’s hard to avoid debt these days – I personally needed to take out a sizeable HECS student loan debt to cover my degree. However, I have tried really, really hard to avoid it. The idea of taking out debt for an asset that does not increase in value causes me pain. For example, when buying my first car (which I needed urgently for work), my dad advised me to spend at least $10,000 to get a semi-decent car and not to bother with anything cheaper. However, this was more than my entire savings.
Instead of getting a loan, I ignored my Dad’s advice (sorry) and bought an 11-year-old car for $6,000 out of my savings with 170k kms on the clock. I had it checked out by a mechanic who advised me that the engine could run for another 10 years. Nearly four years later, my car is still faithfully by my side with no issues and no car loan. You can also have a read of my article of why I’ll never buy a new car.
When I first started investing, I loved it. I was so into it, I was creating net worth spreadsheets that were projecting the next 30 years of portfolio gains – you get the picture. However, I’ve been on this journey for five years and it definitely isn’t as exciting after a while. I have definitely had periods where I’ve been unmotivated (being made redundant as the peak of a global pandemic, anyone?) and don’t feel like budgeting or managing my money.
While these periods are normal, the most important aspect is that I always found my feet and continued to work towards my goals – for years. This consistency is what helped keep up my financial habits and helped my portfolio grow. My advice is to never give up towards reaching your money goals!
And, that’s it! These are 3 key habits that I have implemented for years to build a six-figure net worth in my 20s. I acknowledge this isn’t possible for everyone and did require my substantial privilege such as living in a first-world country, being mentally and physically healthy as well as having no dependants. That being said, you don’t need to have inherited money, have a rich family/partner or make $70,000+ a year to build wealth – I can attest to that. Australia really is the lucky country and there are so many opportunities to create wealth from very little.