Can you reach Financial Independence on a Low Income? 10 simple strategies
Achieving financial independence on a low income might seem like an impossible task for anyone not already on a super high salary, but it’s definitely possible with some strategic planning and dedication.
True, it may be easier to reach financial independence and retire early if you’re on a 6 figure salary and can easily invest heavily without having to cut back on your everyday spending, but the FIRE movement is not and shouldn’t be limited to just those people.
There are lots of variations and approaches to FIRE and the method that works well for one may be completely different to what suits another.
It’s not about the total amount of money you have available, but what you choose to do with that money. This is what can make the difference between actually achieving FI or just dreaming about it.
Yes, it might take longer than for those with a higher income and yes, it may well require more sacrifice and careful saving and spending, but don’t assume that just because you earn less you can’t get there!
Here are a few strategies that can help you on your way to financial independence, even if you’re working with a limited income:
- Create a budget: The first step to achieving financial independence, regardless of your income, is getting a handle on your finances. This means creating a budget that tracks your income and expenses and helps you see where your money is going. By identifying areas where you can cut back or save more, you can start building a solid foundation for your financial future.
- Get rid of debt: Try to prioritise eliminating debt from your life. If you already have debts, focus on paying them off, starting with whatever has the highest interest rate. Try to avoid taking on any more debt if possible.
- Make the most of any available help: There are lots of financial schemes and benefits out there specifically targeted at those on a lower income, that may be help with home-buying, childcare, education and so on. Research what you might qualify for and don’t shy away from making the most of what you’re eligible for – every little helps when it comes to pushing you further along your financial independence journey.
- Save and invest aggressively: Even if you’re working with a low income, it’s still important to save and invest as much as you can. Consider setting aside a certain percentage of your income for savings and investing each month, and aim to increase this percentage over time. It’s also important to diversify your investments and choose a mix of investments that are appropriate for your goals and risk tolerance.
- Seek out opportunities to increase your income: If your income is low, it may be very difficult to cut back enough so that you have money left over to save and invest, so it might be that you need to find ways to increase your income as well. This might involve taking on additional work, such as a part-time job or freelance work, starting a side hustle or small business, or negotiating a raise or promotion at your current job.
- Practice frugality: While you don’t want to become so focussed on the future that you forget to enjoy the present, it’s also important to be mindful of your spending and avoid excessive spending that could derail your financial independence plans.
Try to adopt a frugal mindset and look for ways to save money on everyday expenses. This might involve cutting back on non-essential purchases, shopping around for the best prices, cooking at home instead of dining out, using coupons and discounts or finding other creative ways to save.
The benefit of frugal living is that it really helps you focus on your needs rather than wants and can help you become a lot more content with what you have and how you live.
- Never stop learning: In order to make informed financial decisions and achieve financial independence, it’s really helpful to learn as much as you can about personal finance and investing. Try reading recommended books and articles on the subject, maybe join a few online communities, and seek out other resources to help you learn and grow.
This could include taking classes or workshops, working with a financial planner or advisor, or simply learning from others who have successfully achieved financial independence.
There are tons of useful videos on YouTube where people share their experiences and advice on how they’ve become financial independent, paid off debt or retired early.
- Start early: One of the biggest advantages of starting to save and invest early is the power of compound interest. The earlier you start, the more time your money has to grow and compound, which can significantly increase your savings over the long term. So, even if you’re working with a low income, it’s important to start saving and investing as soon as you can.
- Prioritize your goals: It can be tempting to try to tackle all of your financial goals at once, but this can be overwhelming and may not be the most effective approach. Instead, consider prioritizing your goals and focusing on the most important ones first.
For example, if you’re trying to pay off debt, you might want to focus on paying off high-interest debt before saving for retirement.
- Make saving automatic: One of the easiest ways to save and invest on a low income is to make it automatic. One simple way to start is by setting up automatic transfers from your checking account to a savings or investment account, so that you can save and invest without even thinking about it.
This can be a great way to ensure that you’re consistently setting aside money for the future, even if you don’t have a lot of extra cash on hand.
Don’t give up! Staying the course and being dedicated to your goal is key. If you keep going and stay focused on your long-term financial goals, you can achieve financial independence even on a low income. It may take longer to reach your goals than it would if you had a higher income, but with patience, discipline, and a bit of hard work, financial independence is within reach for anyone!