The Logistics of ACTUALLY Increasing Your Net Worth by $25,000 per year on a $50,000 Annual Salary

24 Comments

I logged into my old employee portal and took a screenshot of a random paystub from last year. Here it is below:

Screen Shot 2013-11-20 at 7.06.19 PM

a screenshot of one of my biweekly twice-monthly paycheques from my old employer. Click to embiggen!

I don’t mind sharing this info with you right now because, firstly, I don’t work there anymore, but secondly because the University of Alberta is ultra transparent with salaries so if any of you had ever really wanted to know what I was bringing in when I was working there, you could have simply visited this link and taken a peek.

This is why nothing is a secret on the internet, it just sometimes takes a little digging.

Now the reason I’m sharing one of my paycheques with you — which is something I’ve never, ever, ever done before — is because a lot of commenters and tweeters balked at my 5 Steps To Increase Your Net Worth By $25,000+ Per Year.

They complained about taxes (as you can see from my paycheque I was giving up nearly $1,000 a month to taxes, employment insurance and the Canadian pension plan) and regular expenses (as if I didn’t have my own rent to pay or groceries to buy). If this plan looks to difficult, by all means, make up whatever excuses you need to in order to justify not doing it, but if you do actually want to increase your net worth by $25K per year and you make a normal salary, it comes with a bit of pain and sacrifice.

If you want increasing your net worth by $25K per year to be simple and painless, then go earn $125,000 per year. It’s up to you if you find banking $25K on a $50K salary more or less difficult than earning $125K, it’s totally your preference, but there isn’t a net worth fairy that’s going to deposit $25K in your bank account every year for nothing.

Now let’s have some fun with math!

  • Gross income: $4,463.56 per month
  • Automatic pre-tax savings into retirement plan: $454 per month (net worth increase: +$5,449 per year)
  • Taxes and other deductions: $964.22 per month or $11,570.64 per year (net worth increase: $0)

Net Monthly Income: $3,021.22 per month

Regular expenses: Rent $750, Laundry $50, Electricity $25, Internet $50, Cellphone $75, Netflix $8, Groceries $200

Total regular expenses = $1,158 per month

Money remaining for miscellaneous expenses, entertainment, savings, investing, and debt repayment after paying regular expenses: $1,863 per month

  • Average student loan payment*: $1,000 per month (net worth increase: +$12,000 per year)
  • Average income from dividends and interest**: $500 per year (net worth increase: +$500 per year)
  • Automatic savings to brokerage account: $250 per month (net worth increase: +$3,000 per year)
  • Automatic savings to personal RRSP: $250 per month (net worth increase: +$3,000 per year)
  • Automatic savings to TFSA savings account: $100 per month (net worth increase: +$1,200 per year)

Total Net Worth Increase: $25,149 per year

Money remaining for entertainment and miscellaneous spending: $263 per month or $3,156 per year.

Now, the fact that the remainder is in excess of $3,000 net income is important because I’m sure a handful of people are going to whine that my salary was over $53,000 and therefore not relevant to those bringing in only $50,000. Clearly if this plan of action I outlined above allows for a net leftover of $3,000, it’s under budget for the $3,000 gross difference in my salary from the suggestion of at least $50,000 base salary.

I realize I had a bit of a leg up by being able to save over $5,000 of my income for retirement before taxes. This is an advantage I had through my employer. If you don’t have access to the same perk then you will simply contribute to retirement with your after-tax income and get a bigger income tax refund when you file your taxes at the end of the year. Bank your income tax refund instead of spending it on stuff. Bam! Net worth increase. Are you getting the hang of this yet?

One of the things I really, really, REALLY want to emphasize is this:

If you can’t increase your net worth by $25,000 per year, increasing it by $20,000 per year instead is still awesome. As long as your net worth is going UP not DOWN, you’re doing things right.

I understand that there is a myriad of circumstances contributing to different expenses that swallow your money before you get a chance to use it the way you want to. You have to keep in mind that the way things are are not necessarily the way they will always be. You still have time to get a raise at work, start a side business, make a killing on a good investment. It also means there’s still time to face an expensive personal emergency, get laid off, or suffer the consequences of a poor investment decision.

I increased my net worth by $25,000 two years in a row. Next year I won’t. The year after I probably will, but that’s still uncertain. No matter what, I’m not going to kick myself for only saving $24,000 one year or over celebrate saving $30,000 the next.

How much you can increase your net worth by is largely circumstantial — but an even larger part of the equation is your attitude.

No, you can’t have a car. No, you can’t go out for dinner every day of the week. If you want a ballin’ lifestyle while banking $25K/year, then EARN MORE MONEY — don’t whine that the laws of mathematics are restrictive! This is life, kids, this is how money works: you can’t spend more of it than there actually is (at least not indefinitely).

So there you have it: the real numbers of increasing your net worth by $25,000 per year on a salary of $50,000.

*note: I paid off over $21,000 of student loans in 22 months for an average of about $1,000 per month. If you don’t have debt, use this $1,000 per month for savings and investments instead.

**note: I realize you have to actually accumulate assets in the first place before you can glean any monetary payout from them. I started saving when I was still in school, before any of my student loan payments came due, so I had a small boost in this department. It’s ok to start from zero in this category — as you keep saving and investing, it will gradually stop being zero so there’s no cause for panic.


24 Comments

  1. Rea

    I’m going to eventually increase my net worth by 25k per year.
    I’m currently half way through an internship, however I am only being paid a percentage of the starting salary for that field (Currently my pay is $33,460 after tax – or approx $700 a week) in another 18 months I will receive the starting salary of 50k 🙂

    Despite earning a below average income, I managed to save 15k last year (a combination of savings / retirement) and I never felt deprived because the purse strings were tight. There’s plenty of free entertainment. I eat out once a week & appreciate it more.

    Also, I COMPLETELY agree about being car free. When I had a car I was still paying 5k+ annually with registration, insurance, services, fuel, etc – and I owned it outright!

    Best way to increase your net worth there!

  2. Thanks for the informative post. I’m focused on paying off debt now, which is definitely increasing my networth, although it will be negative for a long while.

  3. Cameron

    At first I scoffed when I read the word embiggen. Then I realized it was a perfectly cromulent word.

  4. Erica

    Ok, it’s official – you’re awesome! I asked about how this was done, and you just showed me- thanks for the transparency and thanks for the deets !

    • Bridget (Author)

      No worries! Happy to help.

      Sometimes I forget how much information I’m leaving out — in my first post I clearly had my paycheque in mind and that’s why it all made sense to me, but showing everyone definitely makes it easier.

  5. Yep, looks feasible to me. I didn’t balk at the $25,000 increase on $50,000 a year. Obviously you were taking into account debt repayment and all that.

    It wasn’t just a NET savings of $25,000 on $50,000 gross a year, like a “banked $25K” deal.

    It was your net worth increase of $25,000 a year.

    And as someone who once saved $130,000 (net banked in the bank after taxes) in a single year, I made $180,000 gross to get that.

  6. I just looked at an old pay stub at another job to compare. What’s interesting is that my gross salary was $10K higher than yours listed here but my bi-weekly net pay was the same ($1,540).

    Breaking this down comparatively, my pre-tax contributions were less than yours (this includes my health insurance) probably because I put less in my 401K than you had designated. Under “Taxes”, I was paying $235 more than yours listed. NYC tax alone is $113 of that. Ugh.

  7. Brian

    Great reference!

  8. Brian

    Apparently I hit post before completely my entire thought.

    It is nice to see someone who is willing to show their paycheck and how they actually did it instead of just throwing made up numbers out there. What is great is when you have enough capital and continue your dividend investment strategy you can save thousands a year that you didn’t even have to set aside

  9. Jenn

    I don’t usually leave comments but have been reading your blog for about a year. I don’t calculate my net worth because I’m so deeply in debt (100% school loans). However I have a similar salary to you and similar expenses. With yours all written out, I realize I’m in a much better place than I thought I was! It will still take me many years to be debt free but I’m definitely making bigger gains than I thought!! Thanks for posting!

  10. SP

    I think it is important to note that you made at least another $7k in side income, which allowed you to live a “better” lifestyle. (Basing this assertion on your comment that you grossed more than $60k your first year.) That said, it doesn’t diminish the message at all. Anyone has the opportunity to pursue that too, and you still had a “normal” salary!

    Anyway, I like this post. One could look at your budget and paycheck and compare to theirs, and see why they are struggling. If their rent is higher, then they can accept they will save less, or they can find a cheaper place to live. If they pay more in taxes, maybe they can only get to $20k/year this year. Etc.

    Can you talk more about your decision to pursue the MBA?

    • Bridget (Author)

      I’m not selling my lifestyle though — I think you can still have some fun on $263/mo! I just like to have more fun 😉 … which is why I worked to earn more money. If you want to have more fun but only make $50,000 then the trade off is less savings.

      I’ll definitely chat about the MBA in a post soon! Just wanted to get settled in the program and figure stuff out before sharing it all. There’s certainly lots to tell!

  11. Hiya Bridge!

    This is very good. And you’re right; $42k after taxes less $25k sent to net worth means $17k to spend — not easy, but VERY possible. And it’s something millions of people out there already do, either by choice or necessity.

    What’s great is that the bigger your base gets, the easier it will be for your retirement returns to help you out down the road.

  12. Cars are stupid expensive, I am frustrated by us having two, but 1.1 is very difficult to come by where we live. Plus, it’s part luxury 🙂 Zip cars and such are really amazing.
    Nice work on still planning to save while you are in school.

  13. Out of curiosity, I check our net worth change from Oct 2012 to Oct 2013 – it was a $28k increase, and TOGETHER my husband and I only make about $55k. We’re in the US so our taxes aren’t so high, but we do have a car and I think we live quite a nice lifestyle – and we’re supporting two adults! A good chunk of that net worth increase was due to stock market returns, which just goes to show that those increases come faster as you turn from debt payoff to investing. I just want to echo your message that those kinds of net worth increases are possible even for those with lower incomes!

  14. Erin

    I’m going to do this in 2014. My NW will still be negative, but at least it will be going in the right direction 🙂

  15. “If you want increasing your net worth by $25K per year to be simple and painless, then go earn $125,000 per year” I absolutely loved that line. Nothing about saving that kind of money is going to be easy. If you don’t earn a lot of money, it’s going to be hard to save. If you want to have an easy time saving it, you’re going to have to work hard to get a really high salary. Because simply having a pulse doesn’t warrant a 100k+ salary.

  16. There are too many negative Nancy’s out there who don’t want to put the work into increasing their wealth. I really enjoyed this post and your previous one, because they show was needs to be done and how it’s actually possible. And you even admit it’s not perfect, but if there is a will, there is a way.

  17. Great post. Saving money is all about living with restrictions. I chose to save less so I can enjoy my money now, but some people chose to live on less so they can save more. It’s just a matter of personal preference.

  18. It’s a great plan and very do able if you don’t have kids! Which is why we are DINKS.

  19. Love seeing the actual numbers. I’m in a similar situation with a few more liabilities (Mrs and Little Warrior 😉 ) but definitely can be upping the net worth still.

    As you noted, as long as the net worth is going up and not down, you’re at least moving in the right direction.

    The Warrior
    NetWorthWarrior.com

  20. rubymermaid

    Were you paid 2x a month or every 2 weeks (26 times a year rather than 24)? Because it you were paid every two weeks, your annual income would be 2,231.78 x 26 = 58,026.28 due to two extra paychecks a year.

    • Bridget (Author)

      I was paid on the 10th and 25th of every month, so only twice monthly — sorry my “biweekly” statement is misleading, it’s only a twice monthly paycheque.

  21. Tim

    In my own net worth spreadsheet, I reduce the net worth contribution of my deferred taxable accounts (DC pension, RRSP) by 25% to account for some/most/all of the taxes that will hit when eventually taking the money out in retirement. With DC pension plans becoming more common, I think people will need to decide on a standard way of tallying those accounts in our calculations.

    Do you think that is an overly conservative way of calculating net worth? I wonder, if you think it’s a good idea, what number I should be using – predicting tax brackets is difficult. I make $72k now at age 25 and expect to make around $100 at age 30. I do not plan to make much more than that though, focusing more on time than money after that age.

    By the way, I’ve only recently discovered your blog here and am making my way through your articles. Nice site!