If you’re interested in accumulating wealth for a financially stable retirement, you might feel intimidated or discouraged if you have a relatively low salary. People making six or seven figures per year may be able to put aside more than enough money per year to eventually sustain them for the indefinite future, but what can you do if you only make, say, $40,000 a year? Or the median personal income of $31,000?

Many people in this situation immediately surrender, writing off the possibility that they can become wealthy. However, it’s possible to save money for retirement, or even make yourself wealthy, regardless of how much money you’re making now—especially if you’re young.

The Fundamentals

Let’s start with a basic analysis of your fundamental goals. What does it take to build wealth from scratch? For starters, you need “extra” money to put aside periodically; most people aim to put away money every month. You may already have extra money without realizing it, or you may need to adjust your expenses. Depending on the circumstances, you may also need to supplement your current income.

Once you start accruing money regularly, you’ll start investing that money wisely, harnessing the power of compound interest to achieve astounding long-term growth. If you start this process young (i.e., in your 20s or early 30s), you’ll have plenty of time to make the most of this. As a quick example, if you invest a mere $5,000 per year starting at age 20, at a conservative growth rate of 7 percent per year, you’ll have more than $1.1 million by the time you’re 60.

Reducing Bad Debt

Your first step is reducing bad debt however you can. If you have a mortgage, or a similarly low-interest rate loan, don’t worry too much about it; these loans are often considered “good” debt because they allow you to buy semi-necessary assets you might otherwise never be able to afford. Their low interest rates (often 4 percent or less) also pale in comparison to what you could make in the stock market.

By contrast, your credit cards with 20-30 percent interest rates are costing you an exorbitant amount of money. Try to transfer your debt to a single account with the lowest possible interest rate, and negotiate to get that rate lower. From there, start using any extra money you can generate to pay down these principal amounts.

Buying a Home

Though there are some circumstances where it’s better to rent than own, for the most part, it’s in your best interest to buy a home; that way, you can start building equity. In many areas, you can find a home with a cumulative monthly mortgage payment in the same ballpark as rental prices for apartments—and in some cases, your mortgage payment will be even less. 

The difference is, part of your monthly payment will be used to pay down your debt, increasing your equity (or share of ownership) in the home. In other words, instead of 100 percent of your payment going to a landlord, a portion of your payment will come back to you when sell the home in the future. Plus, if you live in a high-growth area, the value of your home will likely increase by the time you’re ready to sell.

Finding “Extra” Money

Reducing your debt and investing requires you to find “extra” money at the end of each month. But how can you do this with a relatively low income?

The first answer is to reduce your expenses. Look to make cuts wherever you can, even if it means making sacrifices. For most people, the easy targets are subscription services, costs of dining out, and other unnecessary entertainment expenses. If you’re still struggling, you may need to cut costs in other, bigger areas of your life. For example, you might need to move to a less expensive area, or start using public transit instead of a car.

If you’re interested in saving even more money each month, the second answer is to increase your income. Raises, promotions, and career changes can all open the door to a higher salary, but even if those aren’t options, you can spend a few extra hours each week on a side hustle, making a bit of extra money in the process.

Investing

Once your debts are paid and you have a house, what do you do with the money? This is a topic that warrants its own article, but the high-level view is that you should put it into retirement accounts, like an employer-sponsored 401(k), a Roth IRA, or something similar. 

From there, you can invest your money in stocks, bonds, and index funds in a way that balances risk with potential reward. The younger you are, the more aggressive your portfolio should be, with more stocks and high-risk, high-reward plays. But if you aren’t sure what you’re doing, you can safely pour most of your funds into an index fund that tracks overall stock growth; it will go up and down, but over the long-term is a pretty safe choice.