So what if you don’t make that much money?
First of all, as I have hopefully established on this site, be careful about how you define that much money. It’s been proven over and over again by gurus in the early retirement field that you could live pretty well on $8,000 a year or even less per person. Granted, it’s much more difficult to do it as a single person. But if you have roommate or 3, live with your parents, watch the partying or work toward other frugal spending styles, it can be done. A full-time, minimum-wage job would make you more than that. You certainly can’t easily build a savings rate with that kind of pay, but you do have something working for you that might prove more difficult for someone who makes a more but has also built up a prison that drains his or her ability in a much more severe way.
In fact, most people spend what they make. The average savings rate for Americans is one of the lowest in the world. In many cases people have single digit savings rates no matter how much money they make. So rich people don’t feel rich. On top of that, they have take out huge debt in mortgages, credit cards and car loans.
So if you you don’t make money, how does this work in your favor? You are used to not spending much money. In fact you have likely figured out some life hacks that stretch your money. It’s very likely that you know where every penny goes, and just maybe you at least have some sort of budget. Even if you don’t, it wouldn’t difficult for you make one. I can’t tell you how remarkable it is to be in this place.
Don’t mess it up by letting your spending get out of hand. Almost every financial regret I have came from buying a newer car, a bigger or nicer house, a few too many pairs of shoes, an expensive toy or something else that I really didn’t need.
At one point, I actually owned my home free and clear. When I moved to the beach, I thought it would be smart to buy a larger house in a really nice community as an investment. While the house has appreciated in value, it has cost me so more in furnishings and electric bills and taxes and insurance and lawn care and repairs and interest that I’m close to breaking even. I could have paid cash for something lesser and invested that money instead. I would have done better along with having peace of mind.
Now I get that real estate can be a good investment, and if you know how to do that well fine. But if you don’t, I suggest you live in a house that you own as quickly as possible. Or if you aren’t going to live in it for at least seven years, then it might be best to find an affordable place to rent. Apartments by nature are small and you aren’t as compelled to fill them up with stuff. You also don’t have pay property taxes, or maintenance. And renters insurance is low. (You probably shouldn’t buy that anyway.) Either way, keep the size as close to the minimum you need. You will rarely regret doing so, and you will be able to build your portfolio faster.
Since you don’t spend much money, keep it that way. Work hard, educate yourself, and build new skills. Use all that investment in yourself to help you make more money. Keep your spending habits as close to the same as possible and start socking as much money away as you can.
Let’s run a scenario. The median household income in the US was $59,039 in 2016. So for the sake of argument, you make $29,500. If you’re have a better half, then you could be in at the total rate. I’m going to run this for a single person, 25 years old. If you work hard and get your expenses down to $20,000 per year, you will have $9,500 in savings each year. Good for you. You have worked yourself up to a 32% savings rate. Invested reasonably, you will be able to retire in about 26 years. Maybe that’s not what you were hoping to hear. But hey, you retire in your early 50s while watching everyone else slave away for at least 10 more years, many even longer.
Now if you could get your savings rate up $5,000 more, you’d have an almost 50% savings rate. That would have you spending your days at the beach in 17 years in your early 40s. A 50% savings rate on the median income of 2016 households is actually very doable.
Here’s what is more likely to happen though. Because you invest in yourself and aren’t softened by consumption, you will likely increase your income through promotions, raises and side-hustles. Your savings rate would continue to grow and your days of financial freedom will come even sooner. And here’s what you won’t have to do. Since you never had a huge mortgage or credit card debt or auto loans or got used to spending $50,000 plus per year, you never have to deal with the problems all that creates.
Sounds like a pretty good advantage to me.
PS. I get that many of you have pay day loans, your best assets in hock at a pawn shop that’s charging you high interest to get them out, and credit card debt. I will deal with that in some other post, but you know what you need to do about that. So do it. And when you do, leverage your advantage and start hacking your way to financial freedom!