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Don’t spend more than you earn

If you want to build wealth, you need to live within your means. That starts by taking a good, hard look at your finances. And while that can be uncomfortable, it will give you a better sense of your income versus expenses, so you can stop spending more than you earn — which might mean cutting back on non-essentials or impulse spending.

Most financial planners recommend saving 15% of your income, but if that’s not realistic, save what you can and build from there. If you’re already in debt, you’ll first have to pay it down — consider the snowball or avalanche methods.

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Leverage the power of compounding

Even if you’re living on a low income, you can leverage the power of compounding interest if you start investing early enough. For example, if you start investing just $100 a month when you’re 18, you could end up with $1.57 million when you retire at 67 (assuming a 10% annual return, not accounting for taxes or inflation).

If $100 is too much, even a smaller amount can help generate a decent nest egg — and you can likely increase your contributions as you get older and boost your income.

Contribute to retirement savings programs

Take advantage of any employer-sponsored retirement savings programs like a 401(k), especially if your employer will match at least a portion of your contributions. Plus, you won’t have to pay taxes on that money until you withdraw it in retirement.

If you’re self-employed or don’t have an employer-sponsored retirement plan, you can open your own retirement account at a bank or brokerage. With a traditional investment retirement account (IRA), you’ll pay taxes when you withdraw that money in retirement. With a Roth IRA, you’ll pay income taxes upfront, but withdrawals are tax-free. If you’re in a low income bracket, you may want to consider after-tax accounts like Roth IRAs since you’ll pay less income tax when you’re in a lower income bracket.

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Boost your income

You could also consider working extra hours or overtime at your current job to bring in extra cash, or training in new skill sets that could earn you a higher-paying position. Or you could pick up a side gig, like working for a ride-share — and deposit your earnings directly into a retirement savings account.

Crunch the numbers

If you want to become a millionaire on a low income, you’ll need to come up with a plan and then stick to it. That means paying down debt, living within your means and making a commitment to saving. It also means finding ways to cover any shortfalls, whether that’s working extra hours or getting a side gig. It may make sense to talk to a financial advisor about how you can meet your goals.

Having a lot of money isn’t necessarily the key to financial freedom. There are plenty of former millionaires who’ve had to declare bankruptcy, often because they were living beyond their means — so don’t let a low income stop you from building a seven-figure nest egg.

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About the Author

Vawn Himmelsbach

Vawn Himmelsbach

Freelance Contributor

Vawn Himmelsbach is a journalist who has been covering tech, business and travel for more than two decades. Her work has been published in a variety of publications, including The Globe and Mail, Toronto Star, National Post, CBC News, ITbusiness, CAA Magazine, Zoomer, BOLD Magazine and Travelweek, among others.

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Disclaimer

The content provided on Moneywise is information to help users become financially literate. It is neither tax nor legal advice, is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. Tax, investment and all other decisions should be made, as appropriate, only with guidance from a qualified professional. We make no representation or warranty of any kind, either express or implied, with respect to the data provided, the timeliness thereof, the results to be obtained by the use thereof or any other matter.