How I grew my net worth by £40k in 9 months, while making £34k.

This is not clickbait. I actually did that and today I’ll explain the basics of how this came about.

I started making the measure of my net worth public with some level of consistency back in May last year. My net worth at the time was right around £167k. I finished this January, 9 months later, at £208k. At the time I started revealing my net worth in detail my income was also slashed – I went from making a tidy £55k per year to £42k. But more on that shortly.

Step 1: know where you stand

It is infinitely harder to understand your net worth if you are not tracking it. So if you are hoping to grow your wealth, which net worth is a good indicator of, start tracking. It’s simple – what you own (any assets that you would be able to exchange for hard cash such as home, car, fancy jewellery, investments & savings) minus what you owe (mortgages, car loans, credit cards, student loans, money owed to friends or family etc) is your net worth. Figure out where you stand.

Step 2: prioritise

Some financial personalities will tell you to pay off all your debt first even at a cost of having some enjoyment in life (see Dave Ramsey), others will tell you to reduce your debt repayment cadence slightly and focus on balanced life where the lifestyle and debt repayment are of equal priority (One Big Happy Life as example). In my case the priorities were clear to me: I want to have my cake and eat it. I’m not kidding.

This meant striking a balance between what I save and invest and what I spend. If you look back at the start of my financial journey, I took a year to repay all my consumer debt (I had £12k of student loans and credit card debt and £30k income) and if you have any high interest debt which you can clear quickly (1 year of faster), I’d give that priority to then free up bigger chunk of your income towards investing.

With my only debt being a mortgage, I was able to focus on both investing and paying that loan off.

Step 3: turn what’s on paper into action

In May I had about £16k in various investments and £40k in savings. Nobody needs £40k just sitting in an account, so I paid off my smallest mortgage promptly and continued investing into my stock portfolio, including the payment value which would have gone into that small mortgage. If you are curious which funds I invested in, you can find the information in this blogpost (do not take my list as financial advice). I carried on investing some of my net income (usually £500-£800 per month) into the portfolio and despite the craziness around Covid, the markets showed steady growth.

Investing into stocks directly was not the only thing I did. In addition to investing my income directly, I also optimised my workplace pension to both push 12.5% of my income (plus 2% employer match) into my pension and put my taxable income below 40% tax bracket. I explain how and why to do this in more detail here.

Next, I continued making only small overpayments into my mortgage (£200-£500). In essence paying your mortgage is like increasing your equity in a home, but you might want to think twice about it. While you signed a contract and you will continue making payments as agreed, overpayment is a decision about whether increasing your equity in a property is worth doing. If you don’t like the property you live in or you think it won’t hold it’s value, you might prefer to use the money you’d use to overpay elsewhere to receive a higher return. In my case my mortgage interest is around 2%, my investment return from stock portfolio is closer to 12% and my overall investment return in real money is significantly higher than the interest I pay on the loan over the same period of time. In an equation like this it would make sense to put more money into investments. But these are my numbers and you should do some modelling with yours before you make such a decision.

Lastly, I continued making small amounts of money outside of my workplace which also went partly into investments and partly into mortgage.

The one thing I didn’t do much of in 2020 is spend – the boarders were closed half the time as were the places in the country I usually spend money at. This resulted in me suddenly having the partial income loss largely offset by lower expenses. And talking about the income…

Income history

I started 2020 in a full time position making £55k (gross) per year. Right before the pandemic news, I resigned from my job with 3 months notice taking me to the end of April. In. April, with pandemic already there, the workplace I was about to leave asked me to stay on on renegotiated terms – I dropped to working 4 days per week with salary reduction by 20% (£44k pa gross).

I renewed the contract twice – first in July and then again in October. The October contract was a contentious one for me. It would only pay for my time until Christmas 2020 instead of full 3 months leaving me with more than a week of no income at least and I refused to sign it as job hunting over Christmas is impossible. As a compromise by base salary was raised to £60k per annum gross or £48k for my reduced hours. I signed that contract (grudgingly) and carried on while thinking about my next steps and continuing with my small side hustle dealing in houseplants.

My next step called in late November with a quickround of interviews and an interesting new job secured for January, maintaining £60k per annum but on a permanent basis and full time basis.

If you are curious about how the changes looked like month-on-month, here’s a playlist: https://youtube.com/playlist?list=PLssNS4jxHGK9GSWhr82piFV737zR4LIIz

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