Sometimes, 9 to 5 jobs get a bad wrap. We are told that to build serious wealth, we need to start our own business or hustle 24/7. But, that’s just not true.
Your 9 to 5 job offers all the components to build wealth. Wealth is built through a relatively simple equation, and it looks like this:
Wealth = Income + Investments – Lifestyle
Our income can come from any source, like our regular 9 to 5 job, starting a business, odd jobs, or side hustles that we do over the weekend.
To build wealth using our 9 to 5 job, we are going to focus on four primary money techniques: increasing our salary, building our emergency fund, investing as much as possible, and controlling our lifestyle.
Increase our salary
For most of us, our salaries are how we earn money. And naturally, the more money that we earn, the more we can save and invest. And, that’s the key.
The saving and investing part.
To increase your salary:
Show up every day and do a good job
Be one of the most dependable workers in the office
Ask for raises and promotions (when they make sense);
Stay in touch with former coworkers and switch companies;
Every time I moved companies (usually a referral from a former coworker), I got a 15 to 20% raise. When a better opportunity comes up, don’t be afraid to take it even if it means switching employers. You might be surprised at how much money you can earn just by moving around within your industry.
Build our emergency fund
Our emergency fund is money that we set aside for unexpected expenses, like car or house repairs, a medical emergency, or even a job loss. If you do not have an emergency fund, then consider this your very top priority.
An emergency fund will help to keep us out of debt and reduce our risk.
Here is how to build an effective emergency fund:
Separate it from your primary checking
Aim for 3 to 6 months of living expenses
Use automatic bank transfers to make it easy
We use an interest-bearing savings account to hold our emergency fund and use automated monthly transfers to transfer money from our checking account into the savings account.
Remember, your emergency fund is your lifeline and keeps you from going into debt to fund an unexpected expense.
Invest as much as possible
At this point, we’ve focused on boosting our income and saving for a rainy day. Though important, neither of these concepts directly relate to building wealth.
That is where investing comes in.
We don’t build wealth by saving money. We build wealth by investing in appreciating assets, like stocks, bonds, and mutual funds in the stock market. Or real estate. Or in businesses.
Keys to investing as a 9 to 5 employee:
If your company offers a 401(k) plan, sign up
If your company offers a 401(k) match, contribute AT LEAST that much
If your company offers a Roth IRA, sign up
If your company offers an HSA, consider signing up
A 401(k) match means that your employer will match a certain percentage of your contributions directly into your 401(k) account. That is 100% free money and a great way to boost investments.
Also, a 401(k) is pre-tax and reduces your taxable income (in other words: it will reduce earned income by the amount contributed).
Take advantage of every opportunity that your employer offers. In the last two years leading up to early retirement, my wife and I both maxed out our 401(k)s at work.
Control your lifestyle
The final step is to reduce your liabilities by controlling your lifestyle.
It’s too easy to spend money these days. With a couple of clicks of a button, we can find almost anything online, buy it, and watch it materialize on our doorstep in just a couple of days. Building wealth requires us to control our urges and impulses to press ‘Buy Now’.
My wife and I managed to save at least $400 a month by eliminating those under-the-radar expenses that we didn’t truly need, like our magazine subscriptions, cable television, and several streaming entertainment services that we no longer used.
You might be surprised at how quickly our expenses add up. We cannot build wealth and retire early if our lifestyle is too expensive.
Working a 9 to 5 job is an excellent way to build wealth. Remember, your retirement does not care how you earned your money. Whether you worked a 9 to 5 job your whole life, started a business, or did a bunch of odd jobs, money is money.
The important thing is what we do with our money after earning it.
That is what makes the biggest difference.