Achieving financial independence isn’t just for those with high incomes; it’s very possible on a modest salary as well. Let’s define a modest income as around 25% above or below the median U.S. household income, which is approximately $75,000. This means if you’re making between about $63,750 and $93,750, you’re in the range.
A key to reaching financial independence is maintaining a positive mindset about wealth. If you believe you deserve financial success, you’re more likely to achieve it. Conversely, if you doubt your worth despite your capabilities, you might find yourself settling for less.
Success in sports often comes down to mindset, and the same goes for financial independence. It’s not just about the actions you take, but also about maintaining a belief in your ability to succeed.
You can either make excuses or take action to improve your financial situation. Many people get discouraged when they see others achieving financial freedom and feel it’s out of reach for them. However, it’s crucial to focus on what you can do rather than what you can’t. For instance, focus on percentage goals like saving rates and investment returns rather than just the absolute figures.
Imagine starting a job in finance at age 22, expecting a glamorous paycheck, only to be offered $40,000 annually. In cities like Manhattan, this amount is comparable to much less due to the high cost of living. Here’s what the equivalent salaries would look like across different cities, reflecting the cost of living adjustments:
– Washington DC: $26,330
– San Francisco: $31,893
– Seattle: $25,554
– San Diego: $24,255
– Los Angeles: $24,349
– Chicago: $20,394
– Miami: $19,100
– Philadelphia: $18,766
– Phoenix: $16,600
– Houston: $16,100
Working long hours for a modest salary can be challenging. When I began, $40,000 a year meant long days with little time off. Realizing the need for a better future, I started saving aggressively to provide myself with more options later on.
One mistake young people often make is assuming they will always be as enthusiastic about their job as when they started. This isn’t usually the case, which is why planning for the future is so critical.
I questioned myself early in my career about what I was willing to sacrifice for a better future. The answer was almost everything. This mindset shift was crucial for my financial planning.
I began contributing to my 401(k) as soon as I could, ensuring I took full advantage of pre-tax savings which also reduced my taxable income significantly.
Through diligent saving and investing, I planned for my income to grow over time. By saving at least $12,000 a year, I projected having at least $177,000 by age 32 with a 7% return rate. If I could increase my savings to $20,000 a year, I might accumulate $313,000 in the same period.
Real estate became a significant part of my investment strategy, providing stable and less volatile returns compared to the stock market. By my 30s, I had acquired multiple properties that contributed significantly to my passive income.
For those trying to achieve financial independence on a modest income, consider these strategies:
1. Live within your means: Continue living like a student if it helps you save at least 30% of your income.
2. Work hard: In your 20s, focus on learning and growing your income potential.
3. Don’t compare unfairly: Avoid comparing your situation to those in completely different circumstances.
4. Maximize retirement contributions: Adjust your lifestyle to prioritize saving for the future.
5. Explore multiple income streams: If your job doesn’t pay enough, look for freelancing opportunities or side gigs.
Ultimately, financial independence requires discipline, a willingness to make sacrifices, and a proactive approach to managing your finances.
