Growing Net Worth With a Lower Income

Growing Net Worth Lower IncomeI’m going to put “lower income” in quotes here, because, for heaven’s sake, I make $47500 in base salary, plus side hustling that is probably going to amount to $1000-$2000 this year. That ain’t a low low income; it’s not all that far below the median household income for the United States.

But it’s certainly not the kind of income that many PF bloggers have, either through successful freelance businesses, or just because they’re in much better paying fields. Even at under $50K income, and despite a few emergencies, my net worth is steaming along at a respectable pace at this point. I’ll run exact numbers at the end of June, after exactly one year at this salary, but most months I manage a net worth growth of around $1800-$2000, on a gross salary of $4000. Obviously, I’m keeping my expenses low — something people routinely comment on when I do a monthly net worth update.

I should say before I get into this that there are other things in life than net worth growth. I’m trying to boost mine up as fast as possible so that I can in fact focus on some other stuff. No judgment here if you’re not interested in doing what I’ve been doing! However, for the record, here’s what I’ve been doing to keep my expenses low — around $1000 in a normal month — so that I can jack up the net worth.

1) You have to, have to, have to, HAVE TO keep housing costs low. I’m putting this at #1 for a reason: it is the single most important thing I’ve done this year, and the only reason why my net worth goals are feasible at all. “Live with a roommate in a place that has low housing costs” is the holy grail here. Last academic year, I lived in a city that had medium housing costs, and I lived alone; this year, I’m living in an exceptionally cheap city, and I focused on finding a good housemate situation. If I’d just moved cities, I’d probably have saved $100 a month vs. my costs last year; however, the combination of sharing a house rather than going solo, and being in this new city, means I’m paying less than half of what I was last year in rent and utilities. (Last year, I spent $785 a month on rent and internet, plus a variable amount on electricity and gas that averaged about $50-60; right now I’m paying $400 for rent and all utilities including internet.) So: if you want to extreme-save, you have to do something to keep your housing costs minimal. Roommates, older building, less “desirable” neighborhood, living with family, whatever it takes: absolutely nothing will get you a boost that’s in the multiple hundreds of dollars a month like minimizing housing. If you want to extreme-save, you have to be at least a little adventurous. This includes if you have kids. I know, I know, easy for me to say; but you can be adventurous with your kids too, if it’s important to you to cut down these expenses. It’s character building, and I’m not even joking; consider sharing housing with friends or family (or taking in a boarder if you own a home; students are a good bet, and might well trade housing for child care), definitely have your kids share rooms if they’re of the same gender or young (I shared with my younger brother until I was 10 or so, and it was fine), etc.

2) You also have to keep car and food costs under control. The easiest way to keep car costs under control is of course not to have one 🙂 I’m not doing that, but I do have a car I paid cash for (so no regular payment) and in most months I only use about a tank and a half of gas. My car is also olllllllld, so insurance costs are minimal. My biggest car costs by far are repairs — I’ve spent about $700 on maintenance and repairs this year and we’re not even halfway through, although I sincerely hope I don’t spend anything else in this category this year 🙂 When the weather allows, I bike a lot of places, which is very helpful with both costs and my health. Food: I eat out very, very rarely; I don’t even budget for one night a month or whatever (when I do eat out, it comes out of my slush budget, or sometimes travel if I’m doing it while out of town.) I’ve been working hard on using my pantry and on not buying things I’m not actually eating, too, as well as eating mostly vegetarian, and the upshot of all my work on that is that I spend about $200-250 a month on food, give or take. (That includes my takeout coffee.) I could do better — just like I could have saved even more on housing by downgrading to a situation that would have been really difficult for me — but I’m ok with this being where it’s at. Finding the balance is key.

3) Use a tax-advantaged account to do the bulk of your saving. I don’t get an employer match, which is a major bummer, but I do have 25% of my monthly gross salary deposited into a 403(b). Because I don’t have to pay taxes on that money, I’m saving it and the portion of my overall paycheck that goes to taxes is pretty minimal, so I can increase my net worth more than I would if I were just trying to save straight cash.

4) Move set amounts of targeted savings out of your checking account immediately. Some people swear by automatic withdrawals, but I don’t like them — I tend to lose track of what I’ve set up and what I haven’t. But as soon as my paycheck hits, I log into my bank account and send whatever I have budgeted for savings into my Capital One accounts (I use multiple targeted savings accounts.) This money is accessible if I need it, of course; I transfer money out of the travel account in particular all the time. But since this is a stretch goal I’m trying to hit, and my finances do feel constantly stretched because of it, every little bit of psychological boost helps. Seeing the money in savings, accumulating interest (even though it’s not much) makes me want to keep it there, and discourages me from accessing it for non-necessities.

I could say more, of course — there are lots of ways to improve on the margins, and I practice some of those and talk about them on the blog and on twitter. I’m not proud; I’ve been known to ask for discounts that have netted me less than a buck, and it all goes into the growth in the end. But at the end of the day, I don’t really believe in the latte factor in its extreme form. To make big gains relative to your income, the basic idea is to keep costs for housing, transportation, and food as low as possible while not hating your life; to take advantage of whatever savings help you can get via your employer and/or the federal government; and to get your money out of your grubby little checking account’s hands as fast as possible, before it disappears into somebody else’s pockets.

(On the other hand, I’d love to be proven wrong — anyone making big gains on a moderate income with one weird trick that I didn’t list here? Tell me about it so I can start doing it, please!)

35 thoughts on “Growing Net Worth With a Lower Income

  1. Liz says:

    Nice, I like that you focus on balance, of course you could go to extremes, but happiness and sanity count for a lot.

    1. thesingledollar says:

      Yeah, there were a few weeks this winter when I was considering a rental that would have been $275 a month, not $400…but I would have hated it. Saving the extra $125 was just not worth it. I guess the thing is that one person’s extreme hate is another’s “oh, that’s fine,” and I’m probably more adaptable than many — but there is just no other way to easily lop hundreds of $$ off a month.

  2. I agree with your 3 categories here. I really wish I wasn’t spending so much on housing, but I’m living in an increasingly expensive city (Denver) and choose to live in my current neighbor because of the community. I just re-signed my lease for a year, but I am still actively searching for other situations that will help me cut my costs further.

    Still, I overheard a coworker who works similar amounts of overtime to me say that she has to work the extra time just to make her rent. I’m thankful that even if the overtime and extra income goes away, I can still afford my rent (as ridiculous as it is) because I’ve kept my expenses low in other areas.

    How much of your net worth increase comes from interest and investment growth? That’s one of the reasons I want to increase mine, so that my money works harder than me.

    1. thesingledollar says:

      Yeah, I’m really being helped by being in such a cheap city — it would be a lot harder to do in Denver, let alone LA or NY or DC. Good luck to you! // Hardly any comes from interest/investment growth at this point. I make maybe $2 in interest a month, hee. As for investments, maybe $100 a month on average over the last year? I’m really at the beginning of my journey there; I don’t have all that much invested, and the market’s been relatively flat over the year I’ve been investing, compared to how it was in the 2009-13 period.

  3. Jason says:

    You have made great progress, but you don’t get a match? I thought all colleges and universities provided something? I even get a match, but I am not in the pension plan.

    1. thesingledollar says:

      I have a postdoc. My rant about academic exploitation is being saved for another post 🙂

  4. Alicia says:

    I’m totally on board for having a boarder, but my fiance isn’t a fan. Also, it doesn’t work in our current place, but it would in our previous town-home. I can’t get over how well you’re stretching your net worth with a decent salary but not out of this world (in the PF community), but no retirement match, etc.

    1. thesingledollar says:

      Yeah, I actually went back and put in the disclaimer after I wrote, but before I posted — I totally get that people are just not going to be into some of these suggestions. I really do think that compressing those housing costs is the key, though, by hook or by crook. Any news on job stuff for you?

  5. I totally agree with the housing thing but as you know in my situation that isn’t going to happen for now. Not that it ever won’t in the future though. I am having a friend’s 20-something kid stay with me a couple months and he is paying me rent to sleep on my couch basically. It’s going to be challenging I think, but with that and my garage renter paying more, it beings my rent down to what I was going to be paying if I had moved. Now he is only going to be here a couple months (which may feel like an eternity after living alone and having my space), but it’s a good trial run to see what that situation might be like.

    1. thesingledollar says:

      That’s actually fantastic! If it works out ok, you really could go the AirBnB route, and still have time to yourself. But yeah, I put the disclaimer in because I totally agree that different things work for different people — there’s no point being miserable in your house when you spend as much time there as I do.

  6. I completely agree about the housing. The only way I could “afford” to take this internship was to stay with family. At first I felt like I was walking on eggshells all the time, trying to distrub them as little as possible. Now I understand that they´re happy to help, and really don´t mind me being there (though I still try to disturb them as little as possible).
    And as this looming job-move is approaching, I´m starting to consider having a roommate wherever I go. It hadn´t really crossed my mind at first, but I´ve come to realize it might be the only way. I think with the right kind of roommate, it´ll be fine. I might have to hit you up soon for tips on how to do this as well as you have 🙂

    1. thesingledollar says:

      I should write a post on that — I’ve lived with a million roommates and have strong opinions 🙂 I’m glad you’re having a good experience. It really makes lots of things more financially possible.

  7. ARBM says:

    I have zero tricks to share… I’m still learning from others…
    I know that our housing costs are why we aren’t making great strides in saving for things, but it’s a choice we made, and I love our house! So we just have to work at decreasing the other costs… and food is our big one now…

    1. thesingledollar says:

      Yeah, I put the disclaimer in because we all make tradeoffs — if the house is worth it to you, great! You’re right, you just have to make up for it other ways.

  8. You hit on a lot of key points here. Our housing is pretty expensive, when you consider mortgage, insurance, taxes, and the multitude of expenses that come with home ownership. I’m happy that we own our house, but I wish I’d had a better handle on all of the costs that come into play, like the thousands of dollars we spend on propane every winter, periodic septic system cleaning, etc., from the beginning.

    I’m a big believer in driving older cars, too, but there does seem to come a time with them when we put more and more money into maintenance, before reaching the it’s-just-not-worth-it-to-fix-it-anymore point. I think our Camry may be approaching that point…

    1. thesingledollar says:

      I worry about that with my car too. I know I wouldn’t fix it for, say, $1500 at once — but it’s hard to make the call when $1500 in repairs trickles in over the course of a couple of years. This is my first car and I honestly don’t have a good sense of the balance. I maybe should make a post about the specific car and see if people who know more than me have advice.

  9. Thank you for saying “while not hating your life.” That’s key! We’re seeing so many PF bloggers talk about these extreme cuts that make their lives seem so joyless. Maybe they’re not, but balance is everything. And wow — you are doing an incredible job hitting that saving level on your income. These are great tips. One question we have for you is: When your income goes up at some point, will you upgrade your living arrangement, or are you planning to keep things steady so that you can sock money away faster? Like most PFers, we’re big fans of not inflating your lifestyle, but we could for sure also see you wanting to live on your own again!

    1. thesingledollar says:

      That’s a good question, and I don’t know the answer 🙂 I expect my income to increase significantly in roughly a year, because I’ll be done with the postdoc and get a “real job” whatever that looks like, in academia or not. But I don’t know what city I’ll be living in, or what the job will be, or how much the income will go up, so it’s, you know, hard to plan! That said, I actually think it’s relatively unlikely I’ll live totally on my own. There are drawbacks to roommates but, as a single person, I quite like having someone around to chat with a bit, share the cleaning, pick up packages, help take care of the dog, etc etc. If I stay in the city I’m in now, I might look to buy a house with friends — there are a number of old houses here that could easily be split into two apartments. Or I might buy a house, decorate it to my tastes, and then get a roommate. Anyway, I do expect my housing expenses to rise again one way or the other, but it’s really great to be able to keep them so low for now.

  10. I COULD NOT AGREE WITH YOU MORE. I’m actually writing a post now that is probably going to look very similar to this but with my personal details… but the keys to keeping spending low are housing, transportation, and food. If you get those right for your income level the rest will fall into line much more easily (especially because almost nothing is a need outside of those categories and utilities). The only thing I will say differently is that I am all about the automatic transfers into savings, although I do like doing manual transfers OUT of targeted savings.

    It is always a bit strange to talk about low or high income for a PF audience or a PhD audience… We definitely aren’t low-income, but we have a low income in comparison to those groups and what we aspire to. Tricky to walk that line.

    1. thesingledollar says:

      Regarding your last paragraph, yes, exactly! The postdoc stage is especially weird. I’m not totally broke at all, the way I was as a grad student, but my income is also artificially deflated. The tradeoff is worth it because I have so much time to work on my book, but I’m looking forward to my paycheck going up again. I’m trying to say things like “income low relatively to my net worth goals,” which is accurate, rather than “low income,” which is obviously not (except in comparison with people with corporate jobs.)

  11. This is great. I love your emphasis on housing. It’s huge that you bought a car with cash – that $700 in repairs is nothing compared to car payments and high insurance. REALLY awesome that you’re saving 25% for the long-term and that you have about the same amount going to shorter-term savings (do I have that right?) on a modest income. Wow!

    1. thesingledollar says:

      Yeah, the amount going to shorter term savings varies month to month, but I’m aiming for roughly 25% to long term, 25% to short term, and 50% for taxes/spending. And I think the housing is so key. I mean, the $450 difference between my expenses last year and my expenses this year is basically building my emergency fund.

  12. Hannah says:

    This is great advice even if you have a high income.

    We have a kid and a roommate; it works out pretty well. It helps that our roommate is good with kids, but he is pretty content to just do work or play video games about 95% of his waking hours, so we don’t see him except when we eat together. For us, a roommate isn’t exactly a forever plan, but we certainly don’t need (or even want) all our house right now.

    1. thesingledollar says:

      Good for you! Actually, I like kids enough that I’d love a longer-term roommate situation that included their child(ren). Assuming we were all friendly enough and lived together well, I’d be really into helping out with the kids sometimes and having them around, but also having my own room to completely chill out in.

      1. Hannah says:

        If you find the right family, it would totally be doable. We were hoping to have one of my friends trade babysitting one day during the week (plus one weekend evening) for free rent and utilities, but she ended up finding a much better job that also included free rent.

  13. I was a $8-$9 per hour earner for a really long time. I was low income, but I never went broke. I accomplished that by having roommates and keeping my spending as low as it could go. It wasn’t a great life, but I made it through! I wouldn’t necessarily say that my net worth grew during that time, but I suppose I’ve made up for it.

    1. thesingledollar says:

      You have totally made up for it! Wow. Also, yeah, while you’re genuinely at the low end of the income spectrum, it’s especially important to do this stuff. My biggest financial regrets from my much lower income grad school years all stem from a couple of years when I let my desire for lifestyle inflation get out of control.

  14. Kristin says:

    The housing expenses are a tough one! I have been all over the board on this one. When I owned my home, I had a renter for years to lower my mortgage payment. Even though I’m renting an apartment with my roomie, my expenses are still high. I really think it comes down to what city you live in!

    1. thesingledollar says:

      The city is really very determinative — there’s a spectrum of costs within any given city, but you can only bring them down so much in a place like NY or LA or DC.

  15. Kalie says:

    Great tips–getting the top three expenses under control is huge. I have 2 kids and agree that being somewhat adventurous is good for everyone involved. We currently live on the same street as our close friends, but if we can find the right place & sell our homes, we’d move in together.

    This is nothing earth-shattering, but one of our “tricks” is getting almost everything but food & toiletries used. Furniture, electronics, clothing, baby gear, yard equipment, etc. Many of our possessions were free or very inexpensive. Tree lawns, hand-me-downs, yard sales, thrift stores, Craigslist, gifts…there are many options for getting what you need for less.

    1. thesingledollar says:

      We never lived with anyone but immediate family growing up, but we did live in a supposedly marginal neighborhood (that was actually just fine, and much cheaper because it was ungentrified) and in a tiny house with lots of sharing spaces, so I feel like I can say it has good effects even if I’m not trying to do it with my own kids 🙂 Good luck figuring out the situation with your friends, that sounds like it would be awesome. Also, I agree, used and hand me down is the best. Nearly all my furniture is craigslisted or sidewalk-saled and I see no reason to quit doing that in the future. I do buy a fair amount of my clothing new, because it’s infinitely easier to find something in my size that looks decent and isn’t half-worn-out already, but I wear it into the ground, so I think it amortizes well 🙂

  16. Chonce says:

    Great post! I make quite a bit less than you do and my ‘secret’ is also low housing costs and I love it. I only have one child but I chose not to run out and buy a house to give him that ‘perfect’ suburban life because my son is so young and could probably care less right now. We have a super affordable spacious apartment in a great area, and we’re moving soon and I landed another spacious great apartment at a super low rent rate. I think you hit all the major points here, and congrats on growing your net worth, you’re really doing an amazing job!

    1. thesingledollar says:

      Thanks! I agree completely with you about your son — he needs a mom who has her financial life in order MUCH more than he needs a house! Congratulations on your savvy in finding apartments; it’s serving you really really well.

  17. Debt Hater says:

    It’s awesome that you were able to cut your housing expenses in half, especially since that’s usually everyone’s biggest expense. I think that’s probably the source of the biggest boost in increasing your net worth.

    I was personally hoping to cut my car costs significantly this year. My car would be 12 years old very soon, and was planning on dropping collision and taking a defensive driving course. I’m still going to be taking the course, but after getting into an accident I will probably be looking at higher insurance with a newer car. Hopefully I can at least get control on the increase!

    1. thesingledollar says:

      It is totally all about reducing housing. The difference in my housing payment is basically what I’m putting into my emergency fund. Sorry about your car — but yes, do your best to bring that increase down!

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