Big Dreams, Small Income: Financial Planning Without A Large Salary

Recently, Fred wrote in outlining his situation:

I’m 35. I make $30K a year. I lose about $4K of that every year to child support. A divorce (and student loans) has placed me about $20K in debt. The region of the US I live in considers $30K a year a very good income. I have a wife who works part time all year as a bus driver (maybe we’ll be optimistic and call that $12K a year) and filed bankruptcy last year. I also have a 7 year old son, own a beat-up car, and rent a house.

How’s a guy like me, who’s struggling under severe debt, has few options for greater income, but wants to be able to send a son to college and eventually retire, to accomplish his goals?

Fred’s in a situation that a lot of Americans find themselves in at some point during their 20s and 30s. Fred is supposed to be saving for college and retirement, but finding the money for this is like squeezing water from a rock. How is Fred supposed to get ahead? Here are some things I would strongly consider if I were in Fred’s shoes.

Figure out what the biggest goal really is and focus on that. Is the college education the most important goal, or is it retirement? Most would advise not choosing between the two of them, but without a lot of money to work with, one should choose one or the other and try to do that one reasonably well instead of doing both at a pittance. My parents had less income than you did and basically chose to send me to college without major financial support – they bought textbooks for a couple semesters and that was about it.

Live everyday life as though you only made $25,000 a year. Fred mentions that he lives in a region of the country that considers $30,000 to be a very good income. If that’s the case, then living on $25,000 a year should be easily possible. Don’t even allow that extra $5,000 to touch your hands – set up automatic deductions from your paycheck into the accounts that you want – a 529 for your son and perhaps a Roth IRA for retirement.

Learn how to trim some money from your regular expenses. Many people often think they’re doing well with their regular food, electricity, and other bills, but they haven’t sat down and really looked at what they’re spending and whether there are other options. Try making a clear grocery list every time you shop for groceries – and stick to it. Buy items in bulk when it’s cheaper per item. Cut down on junk foods – they’re almost always the really wasteful part of the food bill – learn how to make similar items yourself in bulk and put them in the freezer, making them healthier, cheaper, and tastier.

Here’s an energy example: when you go to buy light bulbs, instead of buying the inexpensive regular bulbs, spend a bit more and buy CFLs – the curly-shaped ones. Stick to the name brand with them, though – Sylvania and GE. Why spend more? They will last for about as long as five incandescent bulbs on average, plus they use significantly less electricity over time. I recommend buying higher wattage CFLs than you’re used to – if you normally get 75 watt bulbs, buy the CFLs that are equivalent to 90 or 100 watts instead.

Always explore opportunities for more income. Many people become complacent with their income at some point in their lives, believing that they’ll never earn more than they’re earning right now, and from the tone of Fred’s comments, it looks like he may have reached that point. Never, ever fall into that complacency, especially with a college degree (which Fred seems to have). Keep your eyes open for opportunity all the time and don’t hesitate to chase interesting ones when they pop up. If you have some spare time, look at starting a side business and even get your children involved, as it can be a way to forge a bond between the two of you.

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