If you’re a regular reader you will know that one of my 2016 goals was to increase my net worth $100,000. This was an extremely difficult task for me and my wife, especially when you consider that we don’t own real estate.
However, thanks to some unexpected bonuses and the “Trump Rally” in stocks, we did it!
Of course saving $100,000 and increasing your net worth $100,000 are technically different. In Silicon Valley your house may increase six-figures in a year. But I’d much rather have $100,000 more in VTSAX paying a dividend than in wood and concrete.
The simple math behind saving $100,000 is to make $200,000 and spend $50,000 or less. That’s basically all you have to do. So simple, yet so difficult.
Taxes will vary depending on where you live. In California you will be in the 9% state tax bracket versus 0% in Florida or Texas. A married couple making that combined amount will pay a bit less. A single person making that amount on their own will pay a bit more. And of course I’d highly recommend maxing out your 401(k)s.
Now to be clear, most married couples and singles who make $200,000 don’t spend $50,000; they spend much more. Additionally, we’ve never had a $200,000 W2 year (yet). We’ve also never spent close to $50,000 in a year! This is simply an exercise in possibilities.
Remember, just because you make a lot doesn’t mean you need to spend a lot. We’ve been spending roughly the same amount since 2013, when our household income was less than a third of what it is today. It can be done and it doesn’t have to be painful. Don’t let lifestyle inflation get to you!
If you don’t make a big income and you live in USA, then I recommend you make yourself more valuable. This may mean moving to Silicon Valley, getting better at your craft, improving your sales skills, learning to code, etc. I stumbled into tech sales with zero experience and a history degree. Four years later I’ve averaged a raise every nine months. My wife isn’t even from this country and she’s done very well for herself. We’re smart but we’re not that smart! Remember to show up, negotiate hard and work harder.
After you get your salary up, make sure to automate your saving and investing the best that you can. This is good advice for those with lower incomes as well. Someone in debt may find success automatically transferring money from their bank account as soon as they get paid versus at the end of the month.
Make sure to max out your 401(k)s if they are available to you. A married California couple making a combined $200,000 income will save about $14,000 by maxing out their 401(k)s. The tax savings will help you get to your net worth goals even quicker, not to mention many good companies provide a match of around 3-5%.
When you make a lot and spend a little, the math is easy. Max your 401(k)s, max your Roth IRAs (if eligible) and put the rest in your Vanguard taxable account and bank accounts. Repeat for ten years. With stock market growth you will have an impressive seven-figure portfolio that you can retire on if you wish.