Small steps, big results: building wealth on any income

Income is often equated with wealth. We see high earners living lavishly and assume they must be wealthy, while those with lower incomes are presumed to be struggling financially.

However, the truth is far more nuanced. Your income might set a baseline, but it's your financial habits that determine how much wealth you build.

Two friends living different lives

Consider the example of Sam and Sam’s bestie. Sam earns R35 000 a month but feels much poorer than her bestie who earns R100 000 a month.

But digging a little deeper, Sam realises that her bestie has student debt that she needs to pay off, a vehicle loan with a massive balloon payment and a credit card with an eye-watering outstanding balance.

Sam’s bestie also confides in Sam that she hasn’t started saving for retirement and she does not have any assets to her name.

Her Instagram posts give the impression that Sam’s bestie is living a life of luxury, but in actual fact, this is all funded by debt.

Sam, in contrast, has diligently saved 15 percent of every pay cheque since she started working, and has also maxed out her tax-free savings account limits every year.

Sam is, in every sense of the word, much wealthier than her bestie who earns almost three times as much!

What you do with money counts

Here's why focusing on what you do with your income, rather than just the amount you earn, is the key to building a secure financial future:

The Power of Saving

Regardless of your income, the ability to save consistently is key. Even small amounts saved regularly can accumulate significantly over time, thanks to the magic of compounding interest. Someone earning a modest income who prioritises saving a percentage of each pay cheque will be wealthier in the long run thanks to compounding interest than a high earner who spends every rand they make.

Conscious spending

Our spending habits have a profound impact on our wealth. Mindful budgeting and prioritising needs over wants are crucial. Impulse purchases and keeping up with the Joneses can quickly deplete your income, leaving little room for savings and investments. Tracking your expenses helps identify areas where you can cut back and free up more money to put toward your financial goals.

Debt management

Uncontrolled debt, particularly high-interest credit card debt, can cripple your finances. Prioritise paying off high-interest debts first, and be mindful of taking on new debt for something that doesn't appreciate in value.

Investing for growth

Investing allows your money to work for you, potentially generating returns that outpace inflation and grow your wealth over time. Educating yourself about different investment vehicles and seeking professional guidance when needed can help you build a diversified portfolio that aligns with your risk tolerance and financial goals.

Smart habits

Building wealth isn't about a windfall or a high-paying job. It's about cultivating smart financial habits. Here are some actionable steps to get you started:

Create a budget 

Track your income and expenses to understand your spending patterns. There are budgeting apps and spreadsheets available to make this process easier.

Automate savings

Set up an automatic transfer or debit order from your bank account to your investments. This "pay yourself first" approach ensures you save consistently, regardless of how much you earn.

Explore investment options 

Research different investment vehicles. Consider your risk tolerance and long-term goals when choosing investment strategies.

Seek professional help 

If financial planning feels overwhelming, consult with a qualified financial planner, like one who holds the Certified Financial Planner accreditation. A qualified planner can help you create a personalised financial plan based on your unique circumstances and goals.

Remember, building wealth is a marathon, not a sprint. By focusing on smart financial habits, saving consistently, and making your money work for you, you can achieve financial security regardless of your income level.

A higher salary can certainly make life easier, but it’s much more important to form healthy, consistent financial habits that pave the path to long-term wealth.