Before we dive in, a quick note about a resource we genuinely recommend: Monarch Money. If you’re looking for a clearer, more complete picture of your finances, Monarch helps you track spending, manage budgets, and see all your accounts in one place — without the overwhelm. Many TFD community members use it to stay organized and make more intentional decisions with their money, and it’s a simple, low-lift way to feel more in control of your financial life. Get 50% off your first year with code TFD50 by signing up using our link.
By Holly Trantham
Welcome to the second part of our two-part series, all about how to determine next steps with your finances depending on your income level. In part one, we focused on those earning six figures or more, or who have a six-figure (or more) net worth. As a reminder, there’s nothing particularly magical about making $100,000 — that kind of salary could get you quite far in certain rural areas, yet still feel solidly middle class in major, expensive cities like San Francisco (especially for multi-person households). You could also be earning significantly less, but still have substantial savings that put you in the net worth range of people earning a lot more than you. On the flip side, plenty of people earn over six figures but still live paycheck to paycheck, as general personal finance media loves to highlight.
Today, we’re going to focus on what to do if your income (or net worth) is under $100K.
Again, having a lower income does not mean you cannot build wealth, and having a higher income does NOT mean you are better with money. However, when you have high paychecks coming in, it is easier to pivot your financial strategy, as money often begets more money. So today, we’re going to focus on what to do when that is not the case, and where we recommend directing your financial energy.
Step 1: Get Your Budget Under Control
Listen, you may very well excel at budgeting — it is quite common for lower earners to be better at budgeting than higher earners. However, when a lower income means you simply have less to work with, budgeting is more important for building wealth than it is once you surpass a certain income level.
First, track your spending. This is crucial for identifying your spending patterns and weak points. We always recommend using a budgeting app like Monarch, because it makes this step a whole lot less agonizing. Monarch actually lets you create “rules” so that all of your spending is automatically categorized correctly. It even lets you split expenses if you, say, were venmoed for half of a dinner out, or bought both a bottle of wine and personal necessities on a grocery store run. It will also give you a detailed spending report (see example below) by category, so you can see exactly where your money has been going. Once you get in analysis mode, take note of what your common leaks are (such as food delivery, subscriptions, or impulse buys), and determine if you are living within your means or regularly outspending what you’re bringing in a given month.
Then, build a realistic budget. Balance between needs, wants, and savings, knowing that your budget is fluid and something you will tweak again and again. The 50/30/20 rule (50% needs, 30% wants, 20% goals for savings, investments, or debt payoff) is a personal finance go-to for a reason, but it can just be a starting point. And remember that you don’t necessarily have to get granular about your spending (though this can be helpful for chronic overspenders) — you just have to keep your spending in check so that your budget makes room for your goals. If hyper-specific budget categories are not at all motivating to you, you can try flex budgeting, where you just keep your discretionary spending under a certain threshold, without tracking individual categories. Again, Monarch makes this super easy to set up!
You want to mentally link your budget with your long-term goals: is your budget making space for setting money aside towards debt payoff, long-term savings, or retirement? Which brings us to:
Step 2: Confront Your Numbers
It doesn’t matter how low you think it is: you need to know your net worth. This means knowing how much money you own (your assets such as cash, investments, and property), combined with how much you owe (your debts, from credit card debt to student loans to the remainder of your mortgage). If you’re in the negative, you likely want to focus on debt payoff before you pivot towards investments. Once again, Monarch allows you to seamlessly sync up all of your accounts, so you can easily access this number on your dashboard!
Regardless of whether your net worth is positive or negative, if you don’t have an emergency fund, focus on that first. Even while paying debt, prioritize at least a small cushion in your emergency fund. It is always recommended to start with at least one month of expenses before moving on towards a debt payoff goal, but in the current job market and economy, more cash on hand is always better. Your ultimate emergency fund goal will ideally be at least 3-6 months’ worth of necessary expenses, saved somewhere it can be put to work while still being accessible in times of need, like a high-yield savings account.
Once you’ve saved up at least a month of an emergency fund, if your net worth is in the red or you have outstanding debts, decide on your payoff strategy next. One option is the debt avalanche method, which focuses on the highest-interest debt first, meaning you pay the least amount of interest over time and lower your overall debt burden. Another is the debt snowball, which focuses on the smallest balance and is often found to be more psychologically motivating. Additionally, decide when it makes sense to make minimum payments on your debt to prioritize investing versus focusing on paying off debt faster. Regardless, high-interest debt like credit card debt should always be prioritized, as no investment strategy is likely going to outpace what you are losing to an outstanding balance with 20% APR — we dove into this more deeply in a recent YouTube video.
And we have to make one final Monarch mention here: it has a goal-setting feature that allows you to seamlessly incorporate your goals into your budget, whether that’s saving your emergency fund, paying off debt, or some other intimidating money goal. You need to confront your numbers, but you certainly don’t have to do the math yourself!
Step 3: Master The Basics Of Investing
Investing is crucial to start doing even when you don’t earn very much, because the most important factor in growing wealth is time in the market. For example, if you invest $2,000 a year ($166 a month) from age 19 to 27 and don’t save anything again beyond that point, assuming your investments yield an average 10% rate of return, you’ll end up with $1 million by the time you’re 65. On the other hand, if you wait until age 27 to start saving $2,000 a year and then save for the next 38 years, you’ll end up with $800,000 by age 65; in other words, you would make $200,000 more by the time you’re 65 if you started investing at age 19 and would have only had to save for eight years total, versus starting at age 27 and saving for 38 years straight. Obviously, we can’t retroactively start investing at 19, but the numbers are too big not to highlight; the most important thing is to start as soon as you can.
Start with workplace retirement accounts (401k, 403b), especially taking advantage of employer matching. If you don’t have access to an employer-sponsored plan, consider a Roth IRA, SEP IRA, or Solo 401k (just make sure you actually always invest what is in the account!). Then, decide on asset allocation, which is your mix of stocks, bonds, and cash based on your goals and risk tolerance. If figuring that out sounds a bit stressful, one option is to use a robo-advisor that can manage your portfolio for you. This is particularly helpful if one of the things preventing you from investing is thinking you need to know more about the market first, because you simply don’t. Robo-advisors also tend to have low barriers to entry when it comes to funding your account, unlike traditional financial advisors, who typically work with clients above a certain net worth threshold.
Don’t put off investing, but at the same time, don’t bite off more than you can chew. Especially if you haven’t been contributing to your retirement and long-term wealth up to this point, the most important thing is getting started. Eventually, you’ll want to use a retirement calculator to help you set clear goals, but you don’t have to go there just yet.
Step 4: Increase Your Income (Over Time)
There are ultimately two levers of wealth-building: spending less and earning more. You already know the importance and impact of spending less, but it can only help you achieve so much if you are not also consistently leveling up your income.
When it comes to earning more, start with your day job. Negotiate raises wherever possible and be open with your peers about salary information. Intentionally pick up overtime — if it’s available and you can take it on without burning out, definitely prioritize some extra shifts here and there, especially if you get an increased overtime rate. Once you have exhausted your opportunities with your main role, be strategic about side income. Find seasonal or side jobs, such as at restaurants, tutoring, or gig apps. Set deadlines and goals to avoid burnout. Only take gigs that meaningfully move you toward your savings goal; a DoorDash run that costs you as much in gas as you made in tips probably isn’t going to cut it.
Finally, adapt the right long-term mindset: as you increase your income, don’t let your lifestyle increase along with it. The more you can widen the gap between what you earn and what you spend, the more financial freedom you will be able to build.
Step 5: Master Your Milestones
Do a regular “money audit” to see where you stand. Check if you have 3-6 months’ emergency savings and remember to re-prioritize this when you have to pull money out for emergencies (which is what these funds are for!). Also ensure you are on track with debt payoff and investing enough for retirement. You can use tools like the Vanguard calculator.
Consult your life admin tasks checklist. This includes: an annual tax plan; creating a will/trust; keeping insurance up to date (renter’s/home, health, life, etc.); rolling over old 401(k)s; and comparing high-yield savings accounts/transferring money when needed.
Finally, remember one important thing: you do not need to do all of this at once. Take it one step at a time, and it will feel MUCH more manageable.
