I amassed a 6-figure net worth at 22, here are my top tips for success.
Having a large income doesn’t always translate to wealth.
If you make $100,000 a year and spend $110,000 – you will struggle to build wealth. 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 6-figure net by the time I was 22. Keeping in mind, this was accomplished on my own, on an average full-time income. No trust funds, handouts or $100,000 per annum salaries contributed to this.
I’ve written an article on how I saved my first $50,000 at 20. This is 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.
What does net worth mean?
Before I go into my tips, I’d like to define what net worth actually means. In short, net worth is your assets minus your liabilities. To calculate your own net worth, add your assets e.g. home, stocks and minus any debt. You are left with your net worth. Here’s a handy calculator if you’d like to figure out yours.
Everyone calculates their net worth differently. I personally include my super/retirement fund while many people don’t. However, many people include their cars in their net worth and I never have as I believe there is no point including depreciating assets. Do what works for you. Just make sure you are consistent in what you do/don’t include so you can track your progress accurately. Another note, I am Australian. Therefore, this is 6-figures ($100,000) in AUD, not USD.
Enough waffling! Here’s how I built a 6-figure net worth at 22.
1. Being frugal (no matter how much my income increases)
Frugal living is a big part of my life. Although I’m not 22 anymore (I wish!), I practice frugality, regularly. I go the extra mile to save a dollar and buy everything second-hand. 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. This is especially true when you’re surrounded by people with 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.
What is the difference between being frugal and cheap?
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 a while back. 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. My car ran faithfully by my side for years 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 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?.
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 6-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 a large income to build a 6-figure net worth. I can attest to that. Australia really is the lucky country and there are so many opportunities to create wealth from very little.
My next milestone is to become a millionaire in my 30s. 7-figure net worth, I am coming for you! Look out for my update then.