This is a question I get asked a LOT. How do I save for financial independence on a low income? There is a common perception that if you have a low (or lower) income that financial independence and early retirement are just a far off dream that would never happen. But alas! I’m here to tell you that is most definitely NOT the case. You may need to work a little harder, but it’s definitely not impossible.
The thing to remember is that even if you can’t retire 20 years early – would you not like to retire, for example, 5 years early? That’s still a whole 5 years that you don’t have to work and can spend time doing what you love and spending time with your family! Food for thought?
Bear with me on this one but it’s probably the most important step you can take…
Change Your Mindset.
This is super cheesy but completely true; you won’t achieve anything with a scarcity mindset. This is something I struggled with for a long time, as I didn’t really appreciate that a simple mindset shift could have such a big impact. I learned this eventually and it honestly completely changed my life. I would say you should think of the quote “Whether you believe you can or you can’t – you’re right”. If you don’t think you can achieve it, then you will keep re-iterating that within your mind.
Starting Small Is Ok
Most people seem to think that you can’t invest or build wealth unless you have thousands of pounds at your disposal. But what they don’t take into account is that even if you start small, you will build those necessary habits, and you’ll still be further than others.
Even if you get into the habit of investing 10% of your income – that’s still going to turn into a lot more money than those who don’t invest anything!
This is essentially free money when you have an employer match, and you can use this to retire about 10 years before state pension age – already a big win!
A lot of younger people nowadays will opt out of their pension schemes, but quite often they overlook just how much this can provide them. The fact you can access this 10 years ahead of state pension, means that if you build up a decent enough nest egg you can stop working 10 years earlier than your peers!
Even with a low income, though – perhaps you access this 5 years before state pension age and partially retire? There are so many options. Most employers will offer pretty decent schemes so definitely look into your options!
Prioritise Debt Payoff
If you have any sort of consumer debt – make sure you are overpaying this regularly and throwing everything you can to get this cleared. You’ll be surprised at how much you can achieve when you don’t have a big gloomy debt cloud hanging over your head!
What can you eliminate from your budget – at least for a while? Use that money to pay off debt, save up an emergency fund and then start investing. (or all 3!)
For example – do you need that gym membership, or could you workout at home for a while? Do you really need a tv license, or could you make do with just Youtube and Netflix? (for those who are still in denial – if you don’t have an aerial plugged in and you don’t live stream content and you don’t watch bbc iplayer then NO, you don’t need a tv license).
Side Hustle Where Possible
Most people think that when you work full time you don’t have time for any other jobs but I’m living proof that this isn’t the case! And even if you have a full time job, and kids, there are ways to side hustle (for example, survey sites or user testing). Even if it only makes you an extra 50 a month – that’s still 600 a year you can put towards goals
Reduce Your Food Costs
Where possible, work to set yourself food cost challenges. Maybe one week a month where you have a VERY low budget ? There are so many ways to reduce food costs, you just have to find what works for you.
Think buying yellow sticker, bulk buying, meal planning, food inventory keeping etc!
Ask For Discounts
From mobile phone bills to utility bills and more, make sure you’re checking if you are on the best tariff for you. I actually managed to cut my heating costs by about £20pm by changing the tariff I was on.
Most companies will also not want to lose you, so rather than letting things roll over into new contracts – ask for discounts! Insurance is a prime example of this where renewals of the same policy are often much higher than taking out a new policy!
Use Cashback Sites
These days you can pretty much use a cashback site like Quidco for any purchase – and it all adds up pretty quickly. From groceries to electronics, whether you make an extra £1 or £20 for the purchase, that’s still money to put towards your financial goals that you wouldn’t have otherwise had!
Make sure you don’t fall for lifestyle inflation if and when you get payrises. Lifestyle inflation occurs where you if you get a payrise you automatically adjust your lifestyle to fit in with that payrise. Extra food? Better food? Maybe a nicer car or more holidays? But since you’re already used to living the life you are current living, the BEST thing you can do is just invest the difference in pay. And you really need extra money, then use 50% and put away 50% of it – but never just use 100% unless you are living really below the poverty line and racking up debts for your current lifestyle.
Could you change your living situation for a while? This is likely only applicable for people without mortgages but maybe you could move in with parents for a while? Even if you have kids, that means some free childcare 😉 if you’re alone – living with housemates could also be a potential option to explore. Sharing the bills and lowering rent is huge and considering housing makes up the majority of people’s spend this could be the biggest game changer for you. It may not be ideal but just think of the benefits!
At least most of the time – people think being vegan is expensive, but if you do it with whole foods rather than processed foods it’s actually much cheaper. You’ll do your wallet a favour, and the planet 😂
Start Investing (even if it’s small amounts)
When you’re investing small amounts, definitely don’t pay for expensive platforms. Even if initially all you do is set up a Freetrade account and put in to ETFs like S&P500, you’ll be way ahead of the game. The S&P500 averages a return of about 8% per year. And if you’re worried about risk – the chances of all 500 companies going bust is pretty much zero. You pretty much can’t achieve FIRE without investing so getting comfortable with it is really important.
And finally…. motivation is key. Keep reminders everywhere of what you are trying achieve. Personally, I set my phone and laptop backgrounds, and keep mood boards and other items all around me to keep up motivation for my goals!