5 Tips to Make a Million Dollars With Your Current Salary

Is it possible to make a million dollars on your salary alone? With the average nationwide salary coming in just under $60,000 per year, saving up a million bucks may seem incredibly daunting.¹

Besides, don't most millionaires inherit their wealth or earn it through savvy business ventures and strategic investments?

Not necessarily. We'll walk you through some helpful tips to begin saving and investing your way to a million dollars on an average salary.

1. Set Financial Goals

Start with the importance of goal setting. You need a vision of how you want your life to unfold over time. Financial goals should include career growth, funding any upcoming one-time expenses (new vehicle, travel, home renovations or repairs, education, etc.) and long-term goals such as retirement or semi-retirement.

Case study

Let's pretend that 30-year-old Samantha Jones earns $60,000 per year as an account manager and she wants to retire at age 65. She currently rents and has no immediate desire to own a home. Samantha spends about $40,000 per year on living expenses. She pays another $14,000 in taxes and other payroll deductions, leaving her with approximately $6,000 to invest for retirement. She also has an existing $10,000 saved in a high yield savings account for emergencies—enough to cover three months' worth of spending.

Let's walk through the next steps to demonstrate how to make a million dollars on her salary.

2. Increase Your Income

Whether the economy is booming or inflation is rampant, you need to make sure you're being fairly compensated for your skills. If you're happy with your current job, at the very least make sure your next raise is in line with the current inflation rate so your cash flow isn't falling behind.

Are there opportunities to climb the corporate ladder? Some workers might be OK with regular salary increases for merit or cost of living throughout their careers, but a quick way to accelerate your financial goals and career trajectory is to get a promotion. Make sure there's a clear path to career growth at your current organization—otherwise, you'll be a camper, not a climber.

Sometimes a job is just a job. Perhaps your true passion is something you can pursue on the side. A side hustle or freelance gig outside of your regular day job can help you achieve your financial goals earlier, provide more fulfillment and even lead to a new career if you turn the side hustle into a full-time income.

In Samantha's case, she's content with her current role and expects her income to increase by 3.1% annually. At that rate, she'll earn $100,000 per year by age 47, and nearly $175,000 at age 65—her final year of work.

Note that if Samantha's salary increased by 5.1% per year on average, to account for various promotions throughout her career, she'd earn $100,000 by age 41, and more than $340,000 per year by age 65. That extra salary can go a long way toward building a million-dollar retirement fund. You can calculate your own figures using an online salary increase calculator.

3. Live Within Your Means

One key principle of building wealth is to spend less than you earn. Indeed, you need to live within your means if you want to stay out of debt and have extra cash flow available to save and invest.

A budget can help, but it's like driving while looking in the rearview mirror. A spending plan, on the other hand, is forward-looking and intentional. It maps out your projected income, expenses and savings targets over an entire year so you can assign a job to every dollar of gross income.

Even with a spending plan to guide you, it makes sense to cut back or eliminate unnecessary expenses to free up more cash flow. Small money leaks like monthly bank fees, unused subscriptions and too many convenience store snacks can be enough to sink your financial ship if left unattended.

Finally, no plan is complete without a debt reduction and payoff strategy. Start with high-interest debt and allocate as much of your extra cash flow as you can spare toward paying it off as quickly as possible. Treat high-interest debt like a hair-on-fire emergency!

Then, like an avalanche, once your highest interest debt is paid off, direct all that extra cash flow toward your next highest-interest balance until you're completely debt-free.

In Samantha's case, she's starting from a place of strength: She paid off her small student loan balance and never got into trouble with credit card debt. That means all her extra cash flow—$6,000—can be directed toward her retirement savings.

4. Save and Invest Wisely

That brings us to saving and investing. Once you're out of high-interest debt, it makes sense to build an emergency fund to cover unplanned expenses or income interruption from a layoff. Start with one month's worth of expenses, and think of it like an operating float in your checking account.

Being one month ahead with your savings means you can handle some small unplanned expenses without dipping into credit or disrupting your regular savings contributions. It's a good feeling!

Once you've established that operating float, work on increasing your emergency savings to a more comfortable three to six months' worth of expenses.

In Samantha's case, she's established an emergency fund of $10,000, which represents three months' worth of spending. She's ready to move on to the next step—contributing to a retirement account to start investing.

Without an employer savings plan, Samantha decides to open an IRA and invest on her own in low-cost index funds with a risk-appropriate mix of stocks and bonds. She contributes $6,000 this year and plans to increase her contributions over time (within the contribution limits) to align with her increasing salary.

5. Stay Disciplined and Stay the Course

Life doesn't move in a straight line. It's perfectly normal to experience setbacks in life, whether that includes periods of income interruption from a layoff or health scare, one-time expenses like a vehicle or home repair, or divorce or death of a loved one.

Your money will go through ups and downs as well. It's important to stay the course and not be discouraged by poor short-term results or alarming news headlines.

Samantha steadily contributes 10% of her gross income to her retirement account each year and invests the funds immediately in a balanced portfolio of index funds. She aims to earn a 7.1% annual rate of return, but understands that her investment returns will vary widely, even losing money some years.

She knows that markets eventually recover, so she stays the course and continues investing. She's even excited by the idea of buying stocks while they're "on sale," taking advantage of lower prices at times.

Through the power of compounding and her disciplined approach to saving and investing, Samantha turns her $6,000 annual contributions into a million dollars by age 62—a full three years before her retirement date!

Samantha's trending net worth

Samantha grows her retirement nest egg to more than $1.25M by the time she retires. It's more than enough to allow her to continue enjoying the same lifestyle in retirement that she enjoyed during her working years. She may even enhance her spending with some extra money for travel and hobbies.

Final Word

It's possible to make a million dollars on an average salary. You just need a healthy dose of discipline to save and invest, plus a financial plan to pave the way for you to achieve your goals. For Samantha, setting aside 10% of her gross income—even at an average salary of $60,000 per year—was enough to make a million dollars by age 62.

A more career-oriented version of Samantha who earned salary increases of 5.1% per year and still aimed to save and invest 10% of her income would have made a million dollars by age 59—only three years sooner!

Most 30-somethings don't have a clear vision of their retirement. After all, retirement is decades away. But financial freedom is something that resonates with most people. By saving and investing 10% of her gross income, Samantha is giving her future self the freedom of choice—the freedom to change careers, move to a different location, buy a house, get married, have children, retire earlier, spend more later and so forth.

The point is, don't get discouraged thinking you'll never be able to save a million dollars on your salary alone. For many people, financial freedom isn't necessarily about a number in the bank or watching numbers go up on a net worth calculation. It's about having options to live your best life, regardless of income or net worth. It's being able to live out your vision without worrying excessively about the costs.

 

Robb Engen is a leading personal finance expert in Canada and the co-founder of Boomer & Echo, an award-winning personal finance blog. He is a fee-only financial advisor who helps clients at different ages and stages get their finances on track and prepare for retirement. He's also regularly quoted or featured in top financial media, such as The Globe and Mail, MoneySense, Financial Post, CBC and Global News. Robb lives in Lethbridge, Alberta, and is the married father of two young girls who keep him very busy.

 

READ MORE: The Ultimate Guide to Calculating Your Retirement Savings

 

 

Sources/references

1. Wong, B. Average Salary By State In 2023. Forbes Advisor. August 23, 2023.