10 Ways to Massively Increase Your Net Worth in One Year (Median Salary)

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2:28Mindy Jensen:Massively increasing your net worth in one year sounds unrealistic, but for many people pursuing financial independence, it can happen much faster than you expect, especially earlier in your wealth building journey. Today, we are breaking down the practical yet totally doable strategies that can dramatically accelerate the growth of your net worth and help you fast track your financial independence.

2:57Mindy Jensen:Hello, hello, hello, and welcome to the BiggerPocketsMoney podcast. My name is Mindy Jensen, and with me as always is my has doubled his net worth in one year co-host, Scott Trench. 100%, Mindy. Very excited about this conversation today, Mindy. Have you ever doubled your net worth in a year. So Carl and I started tracking our net worth when it was about five or$600 ,000. We didn't really keep track of it before then. So I'm sure it had doubled at one point before that. But after that, it has never doubled in one year. We've had significant ups, a couple of significant down years, but never doubled once we started tracking it.

3:34Mindy Jensen:Scott, do you remember if your net worth ever doubled in one year? Sure. My net worth doubled almost certainly in the very early stages of the journey when I went from very close to zero net worth to my first$20 ,000,$30 ,000. It may have doubled again in certain years as real estate took off with high leverage. And then when Josh Dorkin decided to sell BiggerPockets back in 2018, he named me the president of BiggerPockets. And as part of leading the company, when the company sold, I was paid enough that it effectively doubled my net worth at the time of the sale. That's awesome. I mean, you were not president in name only.

4:10Mindy Jensen:You were doing so much work on that. I'm sure on the transition process, but just in general, running bigger pockets. That was well-deserved, Scott. Congratulations. Well-deserved. I don't know. Lucky. Right place, right time. Maybe other people have something like that happening in their lives there. I'm surprised you have not doubled your net worth in a year, though, across your entire journey. Has there ever been a particularly good year that stood out where your net worth jumped by an enormous amount? I have a list of our net worth on January 1st, every year from 2013 to 2024. 2013 was 586 ,000.

4:44Mindy Jensen:2014 was 869 ,000. So a nice bump, but not doubling. The next year was 987 ,000. So just like 130 ,000. But that was the year my husband was also making 130 ,000. So our net worth went up by the amount that he was bringing in working 40 hours a week. The next year was$1 ,057 ,000. The next year we were up$200 ,000, up$300 ,000, up looks like$29 ,000 the year between 18 and 19. So when your net worth doubled, I increased my net worth by$29 ,000. I don't think that it's very likely you're going to find a way to double your net worth. We don't have any way to do that. We're not going to pretend to.

5:28if you already have a several hundred thousand or multimillion dollar net worth. It may be very reasonable for you to double your net worth if you're starting very close to zero or have less than$100 ,000 and make a reasonable income. And that's not gonna be because of some mysterious investment return. It's gonna be because of the actions that you drive may be aided with a little help from volatile markets. So should we get into it? And let's talk about the framework for how to massively increase your net worth in one year.

5:53Mindy Jensen:Yes, but before we do that, Scott, let's talk about what exactly are we discussing when we say net worth? Net worth is everything you own minus everything you owe. So you can increase your net worth by accumulating cash, by accumulating assets, by having the assets go up in value, or by reducing your debt. All of those are viable ways to move your net worth forward. Okay, that is a great framework. I think if you've got a net worth of$20 ,000 and you have$10 ,000 in debt, once you pay off that$10 ,000, your net worth jumps by that same amount. Mindy, how do you increase the amount of cash you accumulate in a year?

6:30Mindy Jensen:Well, your income minus your expenses is the cash flow or the amount that you can save every month. And then the wild card is taxes. The wild card is taxes. If you can reduce your tax owed, that's more money that's not going out of your pocket to the government, but instead your pocket to your pocket. That's right. So that's all this is. We're going to look through these items here. There's no mystery. And just look for the best leverage points that are accessible to people who are early on in their financial journey and say, what are the most effective actions you can take in the next year to massively increase your net worth?

7:03And that's what we got today. Sound good?

7:05Mindy Jensen:That sounds great. Scott, what is the first thing that you should do when you are looking to increase your net worth? All right. Number one thing is cutting fixed expenses. Fixed expenses are what kills the American budget. Fixed expenses are things like housing, cars, subscriptions, insurance, utilities, that insurance includes medical insurance, for example. If you can get those expenses to be lower on an ongoing basis, you save money every single month automatically, which can all feed into more automated investing or accumulation. With housing, that can mean making the big decisions to buy something that is way below your means, to live in a smaller apartment, to get roommates early in the journey, sacrifice some square footage, what do you actually need?

7:46If you are spending at the limits that your income allows, you're probably spending too much on housing and it's going to be very hard to save money on a long-term basis. Same thing with a car. The lower we can keep our transportation expenses, primarily by, you know, the best is avoiding a car entirely and maybe building a life that does not require a car for a few years. But if it does require a car to buy a paid off used economy car, if you can, or finance it lightly and pay it off quickly, if you must finance it. subscriptions is a disciplined activity set every week insurance is or every month to make sure that you do not rack those up and do not they do not continue unless you're actually using them and insurance is i think a worldview and i what i recommend for insurance is that if you can and you have enough cash and some buffer in your life you have a high savings rate push those deductibles up on the insurance because that can greatly reduce the premiums that you pay every month you will pay more when you do need to use insurance if your plan is to build strong savings habits, or you already have a strong emergency fund, you can use that.

8:41That's an investment that allows you to absorb the infrequent usage of insurance that may come up over time. That's the last tip. And then there are other items you can look to, things like utilities, making sure that you're not using power unnecessarily. But if you can get those things locked in, it makes everything else so much easier downstream to accumulate money. Those variable expenses are really hard to control, although we'll talk about those next.

9:03Mindy Jensen:Yeah, I was going to say I would commit to reducing your variable expenses too after you get your fixed expenses locked down. Your variable expenses are, you know, groceries, restaurants, having fun, clothing, you know, the rest of your life stuff. And you don't really need to buy new clothes all the time. You don't need the latest phone every time it comes out. You can shop the sales and make nutritious meals with whole healthy foods instead of shopping, you know, oh, I really have a craving for Doritos today. I'm going to go buy a bag of Doritos. There's lots of ways to reduce your variable expenses.

9:39Mindy Jensen:One way is just pick one of your variable expenses and commit to reducing it by a nominal amount. Commit to reducing it by 5 % this month or 10 % this month, and then see how that was. constantly keep track of what's going on in your life. I mean, if you're going to significantly reduce your net worth, this is going to take some work. And one of the things that you want to make sure is that you're not reducing your life enjoyment in the all out pursuit of financial independence, where you have a kind of terrible existence while you're getting too fi. It's going to take you a while to get to fi.

10:14Mindy Jensen:You should enjoy the journey, but see what it is that you can reduce that you don't even notice. One of the reasons I like to start with fixed expenses first is because it's a little demoralizing to not buy a$5 coffee at Starbucks when you're spending 2 ,400, 3 ,000 bucks a month on rent. But if you've made the intentional decision to move to a place that's much cheaper, that's well within your means, then maybe that's gonna actually spur you to do a little bit better job on the discretionary side as well. And then when it comes to discretionary spending, this is like any habit in life. If you make something easier, it becomes easier to execute as a habit.

10:49And if you make it harder, it becomes harder for you to do a bad habit. And so I would encourage you to put a little bit of mild friction between yourself and every one of the transactions of the type that build up or rack up on your monthly budget. So if Amazon shopping is a problem, you can cut the Prime subscription. That's a drastic one. Or if you want to use Amazon from time to time, but you want to cut back, maybe delete your credit card information from Amazon and re-add it every time you want to buy something. So those are ways to potentially do this. And I've, you know, I recently went through and deleted all my credit card data from my browsing history and boy, is it a pain in the rear, but it also puts a little bit more friction between myself and some of those discretionary expenses that I don't need to put in place there.

11:29So those are ideas to get you started. But I also would argue that this is where I think people critique, you know, frugal, you know, personal finance nerds for being too hardcore is when you start not going out with friends and getting drinks on Thursday night or whatever with your buddies. That's life, right? That's, I think, what life's all about. That's the memory. That's the relationship piece of this. The other things we just cut here may not impact that or hopefully don't or have a very limited impact on that. And that's why I think they're the best way to drop expenses.

11:57Mindy Jensen:I will agree with you, Scott, but I'm also going to push back and say that I have a lot of parties at my house where it's more like a potluck style. People come over, they bring a dish, we sit around, we drink great beer, we have great conversations, but we're not out with friends at a bar or a restaurant. Honestly, it started because I wanted to have a much longer conversation than just sitting at a restaurant, having dinner. And then I feel guilty, like, oh, I'm taking up this table at this waitress's station. I need to go. I want to be able to have a nice long conversation with my friends. So we started just bringing people to our house, inviting people to our house so that we could have the conversations that we wanted to have, not like crammed into a tight timeline.

12:41Mindy Jensen:So you're still getting the social aspect of it, but you're not, it also happens to be cheaper because everybody's bringing a dish instead of ordering, you know, restaurant food. Yep. Love it. The reason we started with expenses, by the way, is because every single dollar you don't spend is an after-tax dollar that you accumulate. That's extremely powerful and dollar for dollar, much more powerful than earning an additional dollar of income, which we'll talk about next, right? You can increase your savings rate by increasing your income or reducing expenses. Okay, Scott, let's move on to the next lever.

13:14The next best way to increase your savings rate is to follow a basic investment order of operations, right? If you take your 401k match and they match 5 % of your salary at your job, that's 5 % increase to your savings rate, right? And it's not going to be taxed, at least not this year, if you contribute$10 ,000 to your 401k in this next year by automating your contributions, every paycheck, that's$10 ,000 that you're saving. And it's maybe another two to$3 ,000, maybe more, depending on what income tax bracket that you're in and your marginal federal and state tax bracket. That's a really powerful way to increase your savings rate.

13:49If you contribute to an HSA on top of that, that further increases your savings rate. So building a tax advantaged order of operations can be a really powerful way to increase your savings rate effectively in any given year. And one that we'd recommend you start with as an initial hypothesis might look like taking your employer 401k match, maxing your HSA, if you have an HSA compatible healthcare plan, maxing your 401k, then contributing to a Roth, then contributing to an after-tax brokerage account. There are other intermediary steps that we have if you have an employee stock purchase plan, but we've talked about that at length on other episodes of the BiggerPocketsMoney podcast.

14:23Mindy Jensen:Scott, I could not agree more. That's a great thing to have in your mind because because then you're committing to following it instead of just, oh, I think I wanted to put some money in my 401k right now. Oh, I think I haven't put anything in the Roth IRA for a while. I'm going to do that. It can get a little jumbled when you're not purposely following a step-by-step order. Perfect. What's another step that we can take? What's the fourth step here? Scott, it's my favorite B word, the budget. You need to build and maintain a budget that you review every month. You're reviewing your transactions every month.

14:54Mindy Jensen:You just want to know where your money's going and you want to be the boss of where your money's going. So before I had a budget, my money went wherever it went. I would go to the store. I would buy whatever I was going to buy with not really much thought to what I was buying and what I was going to do with it, swipe the credit card and then come home. And then all of a sudden, Carl and I are like, where is all of our money going? We started tracking our spending first and then, okay, now I know where it's going when I'm not paying attention, I think I can cut those back. So you first have to track your spending and then you maintain a budget.

15:30Mindy Jensen:You create a budget based on where you want your dollars to go and you just keep an eye on it so that you know that you're sticking to it. Because it's really easy for just a dollar to go, just$20, just$100. And all of a sudden, your budget is nowhere to be seen. Scott, when I first started, I was just doing this right on a piece of paper on the countertop right when I came in from the garage, which is where I would come into the house every time. I have moved up and gotten with the technological times. And now I put all of my spending, all of everything in Monarch. I have attached all of my credit cards, all of my bank accounts, all of my investment accounts to my Monarch account.

16:07Mindy Jensen:So I can pop on monarch.com and take a look at my entire financial situation. But also I can see at a glance what's going on with my budget. Oh, you know what? It's about the middle of the month. I'm about in the middle of how much I thought I was going to be spending. I'm on track or, hey, I'm way over. Let me see what's going on. It is such an easy thing to do. I don't have to enter all of my expenses anymore. Monarch does it for me. If you have not yet signed up for Monarch, it is 50 % off your first year for$49.99 if you use the code pockets when you're signing up. Yeah. So here's how it works for me.

16:45It just categorizes every expense into these various buckets we've created for our house. and auto populates them every single month. So super powerful, super easy. I can click on any category and see exactly what we've spent. And mine's a little different than maybe many people's because we don't have a mortgage or car payments. Those did not hit this month. The insurance, for example, does not hit for the car or the home this month. So fairly late month for us in the spending front. But this is a very powerful way to track your expenses and drill down into any category, reclassify the few that the AI gets incorrectly, but super powerful way to do it.

17:14And then we review this, my wife and I, every week, we just review this month's spending compared to the same time last month through that point in the month and see how we're doing relative to our goals. So very, very powerful system here. And it starts with reviewing every single transaction, which Monarch makes super easy.

17:29Mindy Jensen:Super easy. Yeah, I'm not gonna show mine because I'm building a house right now and my home improvement budget is such a big part of it that everything else just looks teeny tiny. But when I have regular expenses, Monarch is fabulous for just popping in and seeing exactly where I'm at in the month. And by the way, so for example, these expenses categories, right? I just showed you like child care is a big one for me. What are ways to defray that expense? Well, one is a dependent care FSA. So that's something I looked into setting up for myself and my family, right? And it's, you know, and so there's a whole bunch of these little things you can do, even for the categories that seem fixed at first.

18:04And no, that doesn't change the expense, but it does move some of it pre-tax, which is still real cash savings for me. Okay, let's talk about the next lever here. What is the next lever?

18:12Mindy Jensen:The next lever is automating your saving and investing so you don't even see it. What I'm talking about here is diverting the amount of money. Let's say you're going to aim for a 30 % savings rate. Talk to the HR department and have 30 % of your income sent to a completely different bank account. You don't even see that. It doesn't hit your regular bank account. And then you can take that 30 % and put it right into your investments, right into your savings account, wherever you're going to put your savings. You will take that immediately, put it someplace else. Then you don't even have this as an option.

18:47Mindy Jensen:Having that barrier can sometimes be the difference between saving the amount that you wanna save and not saving. You don't want to spend and then save what's left over. You wanna save first and then spend what's left over. All right, that brings us to level six, which is actually investing the cash that we accumulate in something that we believe is going to grow over the long-term. That's the key phrase here, long-term. What do we think is actually gonna build our wealth if we're in the accumulation stage of our financial journey, which is what we're talking about today. What do we think is actually going to grow?

19:19An answer to this that many people share in the Boglehead community, for example, is a broad-based market cap weighted index fund with very low fees. That's a very popular answer to this question. Other answers to this question, our portfolio is like with factor tilts. So I'm going to invest in stock market broad-based mutual funds and I'm going, or in index funds. And then I'm also going to have an allocation of my portfolio in factor tilts, like small cap value or large cap value, those types of things. Real estate is an answer that has worked for many people. There are many right answers to this question.

19:49The wrong answer is to not invest and to not take on some amount of risk in exchange for a reasonable shot at return over the next few decades. And that's gotta be done and there's gotta be an intellectual decision that you can live with behind that decision.

20:03Mindy Jensen:Another wrong answer, Scott, is to invest in something because you heard somebody else say something about it instead of doing your own research, instead of looking into what it actually means to be investing in that thing. The first thing that comes to mind is the meme stocks from COVID times, where other people heard they were going to invest in these stocks and there was this big run-up and then a giant collapse. That's not what we want you to be investing in. We want you to be investing in the stock market through index funds if you don't have a real reason to be investing in individual stocks.

20:34Mindy Jensen:Or take a tiny bit of your portfolio and invest in the individual stocks that you have done research on. Real estate, if you don't want to invest in real estate, then don't invest in real estate. There's lots of stuff I don't want to invest in. So I just don't. I choose what I want to invest in and I invest consistently. Love it. Yes, I think that's right. And as a side note, we would love to talk to somebody who really believed in NFTs, for example, and then invest in it and lost. And what was the intellectual case? Does anybody have a story from that? Because there's all sorts of things that people genuinely believe in and have really good reasons to.