Taking a $40,000 Salary To Extreme Wealth

Cat covered in money wearing a crown

It’s Christmas time 2020 while I’m writing this, and to treat myself I decided to write an abbreviated version of a fun idea I had when I first started this blog.

There are millions of humans in our world that make a yearly salary of approximately $40,000 USD. Some of them will go on to become extremely wealthy, while others will eventually declare bankruptcy.

I thought it would be interesting to explore what takes a person making $40,000 per year into extreme debt, no wealth, some wealth, or extreme wealth. How much can our actions, our personal finance knowledge/execution and our investing knowledge/execution really affect our eventual net worth?

Let’s find out.

How To Turn $40,000 Per Year Into Extreme Debt

First, it’s important to understand how a person ends up in crippling debt. Financially speaking, being in a spot where your debt payments are larger than your income is the worst case scenario.

Nobody is born with debt (as far as I know), so those who are in this scenario have, at least in one manner of speaking, done it to themselves.

Jane’s debt story

Jane is a bright young woman who has always done well in school and seems to be headed towards a successful future. Before graduating from high school she is told that women who are smart go to university and get a specialized degree so they can get a respected job.

She gets accepted to several colleges, but conservatively decides to attend a state school. In order to focus on her education, Jane takes on a series of school loans to pay for her education and even her living expenses.

When Jane graduates, she manages to find a job paying her $40,000 per year, but she also has $60,000 in school debt.

Out of college

Jane’s job pays her $2,700 per month (after income taxes), and her school loan payment is $640 per month. Her living expenses are about $600 per month. She also finds an apartment to live in that costs $700 per month plus $150 per month in utilities.

When it’s all said and done Jane’s bank account grows by around $600 per month. She makes $600 more than she spends each month. She’s never had so much month in her life!

Jane was lucky enough to have been gifted a car before college, but it’s old, and she’s just graduated from college and got her first full time job. She deserves a nicer car.

Jane trades in her old car for a new one, but she doesn’t have the cash to buy it outright, so she gets a car loan. Her car was used, but still nice, and she took out $20,000 to buy it. It adds another $360 per month to her expenses.

Now Jane’s bank account only grows by $240 per month.

Life goes on

She’s surviving, and in theory her bank account should grow from month to month. But sometimes she needs to take her used car in for a repair. And she has siblings and parents with birthdays. She takes pride in giving nice gifts to her loved ones, especially around the holidays.

Sometimes she doesn’t have the money to buy a gift, or pay for a repair right now, so she pays with a credit card. The money will be there before the payment is due.

Except one day it isn’t. The credit card balance is $580, but she only has $500 in her account. The minimum payment is $25, so she pays that. Surely the money will be there next month. She’ll sacrifice a few meals.

Next months comes and she has $580 to pay the balance, except the balance isn’t $580 anymore. It’s $700. Better pay the minimum again.

6 months goes by and the credit card balance has exploded to $2,500. It’s hopeless, just a part of life now.

But Jane works hard every day. She deserves to take a vacation once in a while. So she still gives herself the finer things in life, using credit.

Carrying debt from month to month has become normal for Jane. She can’t picture a future without it. But that shouldn’t keep her from enjoying life, right?

What now?

Jane has quickly created a situation where her credit card debt will grow to a point that it will consume her finances. It’s easy to see how Jane’s situation could become inescapable.

I’ve had friends who have accumulated significant credit card debt. But there are lots of other ways that debt can accrue. Unfortunately, not all of them are under our control.

The culture I’ve grown up in has told me that I deserve to have things before I can afford them. While that idea can be used to create wealth, it is typically used to make us poorer.

The great fallacy (at least in America) is that having expensive things makes you rich. The expensive things are what make you poorer.

  • Big TVs make you poorer
  • Nice cars make you poorer
  • Your home probably makes you poorer
  • Nearly everything in your home makes you poorer (computers, clothes, furniture, food)

Most people can’t tell the difference between something that makes them poorer and something that makes them richer.

How To Turn $40,000 Per Year Into No Wealth

The first lesson in building wealth is personal finance. That term can mean a lot of things, so let me say it in a different way.

The first lesson in building wealth is budgeting.

Jane’s Debt Avoidance Story

Let’s follow Jane again as she lives a slightly different financial life. Same story, except this time she works while attending school. It’s enough that she is able to cover her living expenses.

She graduates and gets a $40,000 per year job, but she exits with $40,000 in school related debt this time.

Out of college

Jane has virtually the same situation this time around. The only difference is that instead of a $640 monthly school loan payment, she only has a $420 monthly school loan payment.

Her bank account is growing by $820 per month this time thanks to a smaller loan payment.

Jane knows that she makes extra money each month because she tracks her spending and her income. She even sets aside money each month in case any unexpected expenses arise.

Jane still likes to enjoy nice things and reward herself from time to time. She knows that buying a new car fits into her budget, so she goes ahead and buys one.

Her budget is tight, but she makes about $2,700 per month and she spends about $2,700 per month on average. Her emergency fund allows her to avoid accumulating credit card debt, but she spends the rest of her money on herself.

If there’s extra money, it goes towards new clothes or a short vacation.

Life goes on

Jane’s debt remains manageable. She pays off her credit card balance each month and never breaks her budget for more than a month at a time. If she does, she pays from her emergency fund and then refills the fund next month.

Eventually, some of Jane’s debt disappears. Her school loans are paid off.

That opens up some opportunities. Jane decides she wants to own a home, so she saves some money and borrows money to purchase a house. She replaces her school loan with a home loan.

Before her car loan is paid off, she trades in her car for a newer one. The car loan starts over.

And all the while Jane continues to stay on budget and out of debt.

What now?

Jane is avoiding any financial decisions that put her under an ever growing mountain of debt. She pays enough attention to her bank account that she never ends up in serious trouble.

But Jane’s finances live in the present. She manages to drive a newer car, she wears nice clothes, and she travels at least once each year. She deprives herself only of that which she cannot afford, and the purpose of each and every one of her dollars earned is to treat herself.

You can see where this is going.

While Jane survives without any huge financial problems for decades, she will age. And at a certain point in every person’s life it becomes impossible to continue working. When Jane’s paycheck stops, her finances will fall apart.

Not only that, but sometimes life hits you with something hard. Maybe you lose your job or get hit with major medical expenses. Jane will have a very hard time weathering a major financial hit. And her survival on retirement will depend on the generosity of others.

How To Turn $40,000 Per Year Into Modest Wealth

The first step to financial health is healthy personal finance (or spending less money than you make). The second step is investing.

Jane’s healthy retirement story

Let’s follow the same old Jane. Same story as last time. She graduates with $40,000 in debt after working a job through college and gets a $40,000 per year job.

Out of college

Right out of school Jane’s bank account is again growing by $820 per month. She can’t avoid the cost of her school loans, her apartment costs and her living costs (food, gas, etc.), but she knows that a growing bank account isn’t enough to create a secure future for herself.

Her employer offers a retirement plan, so Jane decides to put 8% of her monthly income into that retirement plan. That’s about $200 per month.

There’s a little bit less money coming into her account each month, so instead of trading in her old car for a new one, she just drives the old one a little longer.

She wears her clothes a little longer, sometimes shops at thrift stores, cooks at home a little more often, and generally just practices good personal finance and contributes 8% of her salary into a retirement account.

Life goes on

Day to day, Jane’s life looks nearly identical to the Jane who accumulated no wealth.

This Jane lives her life on $2,500 per month instead of $2,700 per month.

But this Jane has something happening behind the scenes that the last Jane didn’t. There’s an investment retirement account that she owns that grows bigger and bigger each year.

In 10 years (and 10 years is a long time), the account will have reached around $40,000. That doesn’t sound like much, but after 20 years the account will be over $120,000 and after 30 years it will be about $350,000.

What now?

If Jane started contributing to her retirement account right out of college (about 22 years old), then by the time she is 52 she’ll have well over $300,000 in her retirement account.

In fact, Jane’s retirement account will cross the $1 million mark right about the time she turns 65 years old.

After a long, modest life, Jane can quit her job before her body forces her to and continue her current lifestyle.

How To Turn $40,000 Per Year Into Extreme Wealth

Investing is essential to building wealth, like you literally can’t build wealth without investing. But some investments are better than others.

$1 million is more than most individuals will be worth in their lifetime, but is it possible for Jane to be worth $25 million by the time she turns 65?

Jane’s wealth story

Let’s imagine that Jane never attends University and never gets a degree. She still manages to land a $40,000 per year job, but she carries no debt and she gets a head start on the other Janes.

I want to make clear that I’m not against a college education, but I don’t believe that a college education makes a person more likely to become wealthy.

Out of high school

Jane is truly an investing prodigy. She comes out of high school with a strong understanding of the power of compound interest, and she knows that her return on investment can be significantly increased by leveraging the money she has.

(She was fortunate enough to read my article about creating financial freedom in 5 years or less)

The first thing Jane does is get her $40,000 per year job and puts every possible extra penny into an investing account.

She still has to pay for food, shelter and other normal expenses, but she doesn’t buy a new car and she lives well below her means. Her frugality allows her living expenses to be cut to $600 per month and she decides to move in with a roommate so she can pay only $500 per month in rent and utilities.

Jane’s $2,700 monthly income paired with only $1,100 in monthly expenses allows her to put $1,600 per month in her investment fund.

After 18 months, Jane has saved almost $30,000. She decides to buy an investment property for $150,000. She gets 20% cash on cash return for her first year, which means she’s increased the amount she can put in her investment account by $500 per month.

After another 18 months she has almost $40,000 saved. She buys another investment property worth $200,000 and again is able to get 15% cash on cash return, adding $660 per month to her income.

3 years out of high school, before the other Janes have even graduated, this Jane is making not $40,000 per year, but $54,000 per year, AND she owns over $350,000 in real estate.

Life goes on

Jane lived her ultra frugal life for 5 years after high school. She acquired four investment properties that are now valued at nearly $700,000.

Note: Jane’s net worth is not $700,000 because she still has mortgage debt on all those properties.

At this point Jane’s yearly wage is actually about $70,000. Jane decides to make a life changing decision at the age of only 23 (5 years out of high school).

She decides to buy a business. And quit her $40,000 per year job.

Jane lives her super frugal life for 18 more months (she’s putting almost $4,000 per month into her investment fund), this time saving $70,000.

Jane is about to turn 25, she has $70,000 ready to invest and is searching for a business to buy.

Since an SBA loan allows her to buy a business for only 10% down, she is looking at businesses valued at $500,000 to $700,000. After searching for 6 months she finds a business that makes an average of $18,000 per month income and agrees to purchase it for $600,000.

On the day the deal closes, Jane owns a business that makes $18,000 per month and takes on a debt payment of $6,000 per month.

She quits her $40,000 per year job and adds $12,000 per month of personal income to her four investment properties that bring in over $2,000 per month.

After 7 years of frugality and intelligent, active investing, Jane has quit her job, makes over $150,000 per year from assets that will grow in value over time.

What now?

After buying her business, Jane spends the next 3 years taking her foot off the gas. She doubles her budget for living expenses to $1,200/month, moves into a single family home and buys a nice used car for $25,000.

After increasing her living expenses ($1,200 per month) and rent/utility bills ($1,500 per month), Jane is still able to put $10,000 per month into her investment fund.

You can easily see where this is headed.

Jane knows how to quickly increase her income (by buying cash flowing assets like real estate and businesses). She can afford to do this is a very conservative way for the rest of her life.

Jane spends two years paying off the mortgages on some of her investment properties. When she does this, she decreases her financial risks from holding debt while simultaneously increasing her monthly cash flow (no more mortgage payments).

At this point, it’s been 10 years. Jane is about to turn 30 and the real estate she bought after graduating from high school (and just paid off) is worth over $1 million. And the business she bought 3 years ago is also worth $1 million.

In 10 years she took $1,600 per month of investment fund money to a net worth over $1 million. Now she’s putting $10,000 per month into that investment fund.

If she does half as well this time, she’ll create another $3 million in net worth in the next 10 years, and the $1 million in real estate will be worth over $1.5 million now. She’ll be worth $4.5 million at the age of 40.

And guess what?

Now she’s putting $50,000 per month into her investment fund, while adding significantly more cushion to her personal budget.

Jane is only 40 and has accumulated significantly more wealth than our moderately wealthy Jane accumulated by the age of 65.

In fact, if this Jane stopped investing altogether, she would still reach $25 million net worth by age 65.

Final Thoughts

Our insanely wealthy version of Jane was an illustration of the power of time, leverage and cash flowing assets.

We need to first master personal finance by creating habits (like budgeting) that ensure we never spend more than we make. Even wealthy Jane kept a budget when her income was over $1 million per year.

Then we need to realize that we must invest a portion of our money in order to build wealth over time.

Most will invest in the passive stock market, netting a respectable 8-10% compounding return on investment. These will end up moderately wealthy.

Some will invest actively in leveraged, cash flowing assets that allow them to get anywhere from 20-50% compounding return on investment.

There are a lot of finer details that are left out of this article.

Why is real estate a more lucrative investment than the stock market?


Why did the purchase of a business skyrocket Jane’s cash flow?

Read: Return potential of business

I’ll be writing more articles about my business purchase

How do I mimic wealthy Jane’s success?



It’s certainly not easy to create extreme wealth, but it is possible for anyone with the right mixture of education, creativity and determination.

One of the most important things an investor can learn is the difference between something that makes them poorer and something that makes them richer. The things that make you richer are those things that become more valuable over time (stocks, real estate and businesses often make you richer).

Learn the difference and you will have a hard time NOT getting richer.

I had fun writing this one, so hopefully it’s fun to read as well.

Happy investing.


I'm living the path to financial success and sharing everything I learn in this blog. I believe in the power of cash flowing investments, due diligence and time. This is my journey so far.

I learned everything I know from books, podcasts, conversations with friends and family and of course through real world experience as a cash flow investor. And I'm always pushing to learn more.

To see my investing timeline, check out our about page

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