Updated on 06.18.07

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

Trent Hamm

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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  1. chazzman2000 says:

    The first thing that popped out to me is the house rental. I’m not sure if the wife he mentions is current or the person he is paying child support. But I would look to rent an apartment rather than a house at this point. In my area, apartment rents are several hundreds of dollars less than a house.

    I personally would contribute more towards my retirement than my children’s college savings. I don’t see why a person would save for a kid’s college education when they are on the hook still paying their own college loans. A 529 plan probably wouldn’t help you out on taxes with your stated income. And your child might get scholarships based on merit or need.

    I would look for extra income or find ways to save money as much as possible and don’t give up hope. Life isn’t a sprint…its a marathon.

  2. I recommend carrying around a small notebook and writing down every penny you spend. It is weird but just by doing that I spend less money.

    On my blog I have posted an article about how to save 100 or more per month.

    The key is to save without feeling deprived. This is a consumer world where peoples wants and needs intertwine and get distorted.

    What are your needs? What are some wants? Good luck.

    Get Clarity first then go from there.


  3. TheLocoMono says:

    It sounds like to me Fred’s first real goal is to become debt-free, in that case, he needs to learn and focus how to become debt-free. I recommend visiting The SImple Dollar for continuous education and picking up the book, The Four Laws of Debt-Free Prosperity.

  4. Lisa says:

    Contribute to the 401K/IRA but not the college fund. It is my understanding that the Federal gov’t does not consider your 401K/IRA when evaluating for financial aid. Instead spend time with your son encouraging him to do well in school and even helping him with his homework. Read to him, have him read to you. If he needs help to go to college, stop contributing to your retirement then and help him. At that point your loans will be paid off, you will be out of debt and could assist him. Even so, don’t contribute more than half and encourage him to work part or full time to pay his half. Encourage him to do this instead of taking loans. He will value his education more. He will get a great sense of pride and fulfillment. As for right now, get the book The Tightwad Gazette and Your Money or Your Life from the library and read, read, read. Next, follow their advice. It will work. Think about about a roommate in your rental house even if it is only for a couple of months to a year. Stop telling yourself about why you can’t and focus on “I cans” and “I wills”.

  5. Bill says:

    Remember you can borrow to fund college, but can’t borrow to fund retirement.

  6. All of this is great advice. I would definitely favor saving for retirement rather than helping the son with college. Your son may be able to get scholarships or even get loans for himself, but you won’t get scholarships or loans for retirement. Also, one of the greatest gifts you can give for your child is being financially independent as you age and they start to live their own lives.

  7. Fred says:

    As the ‘Fred’ in the article, I have to say thanks. You’ve brought forward ideas and perspectives I hadn’t considered before. A point of clarification, however; I, sadly, don’t have the college degree to go with the college loans. Money just became too much of an issue.
    With some of these thoughts in mind, however, I’m hopeful that I can get a more firm foundation and a solid plan for the future. Perhaps my son won’t find himself in such a state when he reaches my age.
    Thanks again

  8. Kristina says:

    First, cut your expenses severely. Get cheaper rent and read this blog to find all sorts of other ways to cut your spending.

    Second, get extra work. Work like an insane person just temporarily. It will be worth it to get rid of the debt ASAP. Get any job you can on the weeknights or weekends. There are jobs that are easy to get that pay surprisingly well – UPS, lawn mowing, house cleaning, childcare, pizza delivery, consulting in your field, etc. You and your wife could be doing extra work whenever one of you aren’t watching your son. Put all of the extra money toward debt and be out of debt in 1-2 years.

    It’s nice to be able to save for college, but it certainly is not mandatory and I would not prioritize this right now in your life. You are not responsible for paying for you son after age 18. Start drumming college into his head NOW. Make sure he’s a good student and generally excels so that he can get plenty of scholarships. And if he goes to a state school, he will be able to afford to attend WITHOUT any debt if he is willing to work part-time while in college and during the summers.
    Good luck!

  9. Kathryn says:

    Best wishes to you, Fred. Sometimes the mountain can seem so big that it’s hard to see to the other side, especially if you have to take small steps. It can be hard to keep your goals in mind and to keep going… climbing day after day, grocery trip after grocery trip, looking at EVERY purchase to ask if this is necessary.
    One thing that has helped me is to try to vary my “speciality” every now and then. Some months I really go for the savings…cutting coupons and very careful shopping for the best deals. Then after a while, I try to get that into a routine for a while and concentrate on earning the most interest or highest card rewards. Then, maybe when school is out, I’ll spend some time earning a few extra bucks working or cleaning out the basement and selling old stuff on eBay.
    Reading the blogs help to keep me motivated…to try something new and to keep working at it.

  10. chazzman2000 says:


    I’m not sure if this will work for you or not. But I was looking at UPS’s site (I’ve heard it mentioned several times on Dave Ramsey’s show) and found that UPS will pay about $110-150/week for working from 4AM-8AM and they will also help out with college expenses. This example may not work for you…I only wish I had seen this when I was going to college. :)

    You may want to look to see if your employer (or other employers) will pay for continuing your education. If they do, you can get your student loan into deferment for a little while.

    Keep reading these blogs and keep an open mind on this. You may feel like you are behind…but just being here and putting forward the effort will pay off in the future for you and your son.

  11. MVP says:

    First and foremost, if you’re not already doing it, create a budget that you AND your wife (I didn’t understand if you’re single now or remarried) can both live with, and stick to it. I agree those who said forget saving for your son’s college for now. He may have to look elsewhere to pay for college when the time comes. It’s not the end of the world. Put the student loans on hardship deferral, if possible. Then, start chipping away at the debt, starting with the smallest one. Pay minimum payments on the rest and go from there. Definitely, look for EVERY opportunity to pay off the debt: sell whatever’s not essential (garage sales and Ebay are great), get extra jobs (deliver pizza, work at UPS, work overtime at your current job), and cut your lifestyle to the bare minimum. It’s definitely do-able, although it’s gonna take some hard work and determination. We paid off twice what you owe, on double the income in less than two years. Once the momentum gets going, there’s really no stopping. You’ll be there in no time!

  12. MVP says:

    One more thing: forget about saving for retirement until the debt’s paid off. Some will disagree with me on this, but I feel it’s essential that you get that monkey off your back ASAP. Then, you can plump up your retirement fund to the max once you’re debt-free.

  13. akl168 says:

    As for college, consider community colleges. Most of them have incredibly low tuition, small class sizes, and instructors who enjoy teaching. Do well, get your two-year degree, get a scholarship to a four-year college, transfer your credits, finish up your undergrad.

  14. Minimum Wage says:

    What if you’re a boomer earning $15K with student loan debt? Going back to school probably isn’t an option (and would be highly unlikely to produce a positive ROI) at my age, and I see minimal prospects for a better job.

  15. shawna says:

    You and your wife might want to look into cranking out some articles on Associated Content for some extra money. No need to worry about your writing skills, one look at the site will show you that they will pay for anything regardless of quality. :)
    I made over $400 last month on there. Just a thought :)

  16. ChiaLynn says:

    Shawna, I must spend too much time thinking about my AC articles; I’ve only got a few up, because I feel like they take so long to write. Do you have a link to your CP page? I’d like to check out what you’re writing there.

    Fred, if there is a community college near you, as some others have suggested, there’d be another benefit to taking even a few classes. Six hours of college courses, even if you’re not working toward a degree, will put your loans into deferment. If you have subsidized Staffords, the government will pick up the interest payments while they’re in deferment, which means every payment you make goes to principle instead. You can keep paying the same amount, but make much greater headway on the debt.

  17. Jesse says:

    I found Simple Dollar refreshing when I found it yesterday and stayed up a few hours later reading than I intended to.

    As described in Trent’s history – most of his struggle was a very real learning experience for him because he was eventually motivated to make good. I was shocked to find that he tried to share advice with Fred, rather than “passing the torch” of the struggle to Fred; Fred, put your mind to it.

    Encourage Fred to learn & think for himself financially, because that’s what worked for you, Trent. Don’t try to think for him – then you sound like you’re trying to be a personal finance guru; someone like Robert Kyosaki (are you a Financial Planner?).

    Your site already is helpful (very helpful) without dispensing financial-fix-it advice. You’re not qualified for that, are you? But, you definitely are qualified to share your insights; those are valuable. Maybe more valuable than you know. Cheers.

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