10 Ways Real People Save More and Pay Off Debt — On Less Than $45,000 Per Year

financial success

You reach the end of another financial success story and find out the victor’s “secret to success” isn’t really a secret — it’s a six-figure salary, a handout from well-off parents, or some other stroke of luck.

“Who are these people?” you wonder. They don’t look like you or anyone you know, and they usually earn way more than the average U.S. salary of $44,668, according to the Bureau of Labor Statistics.

To find the road map to financial success without a six-figure income, I talked to four average earners who are well on their way. Find out how they are saving money and paying off debt.

1. Learn to love the lean lifestyle

All the average earners I spoke to share an important trait: a frugal streak with an unwillingness to pay for things they don’t need or value.

Amber Westover is a debt expert for review website Best Company. Before landing her current job, however, she worked as a teacher for five years. She saved $25,000 during that time despite earning an annual salary of just $38,000 at its highest.

Westover credits her lean lifestyle to smart saving habits, including:

  • Distinguishing between wants and needs. “Before buying anything, I ask, ‘Do I really need this?’” Westover said.
  • Finding ways to pay less. “Movie theaters in my area have discounts on Tuesdays,” Westover continued. “I look for these and other similar deals to help save money.”
  • Knowing when to do without. “I bring lunch to work rather than eating out,” said Westover.

2. Focus on the ‘why’ behind your frugality

Katherine Pomerantz, founder of The Bookkeeping Artist, offers money mentorship for creative entrepreneurs. She and her husband, a Ph.D. student, gross around $38,000 per year and manage to save $400 to $600 per month.

Pomerantz credits their significant savings to a frugal way of life.

“We simply don’t have a lot of the material things married couples usually have,” Pomerantz said. “We share a beat-up old car and still trip over each other in a cramped one-bedroom apartment.”

This lifestyle comes with inconveniences, but Pomerantz uses those small frustrations to maintain momentum toward her money goals.

“That cramped apartment is great motivation to save up for a house,” Pomerantz explained. “Wanting a flashy car is great motivation to work harder in my business. Living below our means forces us to confront our financial situation in a very real way because the ‘pain’ never quite goes away.”

3. Make a plan for your money

Angalena Malavenda is an online PR specialist for digital agency Web Talent Marketing. She carefully sets and follows a budget to make the most of her $35,000 annual salary.

Malavenda calculates limits on different spending categories in a spreadsheet and tracks all her expenses with the help of Mint. “By doing so, I can see what money is going out in each category,” she said.

This process helped her keep her spending on track with her goals and free up $850 per month. She used those leftover funds to pay off a $6,000 car loan in just seven months.

4. Work backward to budget for big goals

In addition to tracking expenses, your budget should allocate funds for your financial goals. To figure out how much she needs to set aside for financial goals, Pomerantz works backward.

“My husband and I talked about our long-term goals, calculated how much we needed to save every month, and worked backward to budget our expenses,” Pomerantz explained.

Here are some steps you can use to do the same:

  1. Identify your goals in terms of both dollars and time. For instance, you might want to build a $3,000 emergency fund over six months or pay off $5,000 in credit card debt in a year.
  2. Calculate the monthly amount needed to reach that goal. For instance, you’d have a $3,000 emergency fund after saving $500 per month for six months. Paying off a $5,000 credit card balance in a year would require payments of around $417 per month.
  3. Set aside money for your goal in your budget. Then follow through with transferring that amount into savings or sending in an extra payment each month.
  4. Roll with the punches. “We made some adjustments to ensure we could live in reasonable comfort,” Pomerantz said. “This system works surprisingly well.”

5. Paycheck in, savings out

“Setting aside savings first” is Westover’s secret to financial success. The first thing she does when she receives a paycheck is transfer what she wants to save into a separate savings account.

Westover also adopted the mindset that what she saves is off limits.

“Once money enters my savings account, I never touch it unless I reach my designated goal,” Westover explained. She recently used $13,500 from her savings to purchase a car in cash.

6. Always know how much is safe to spend

When you’re following a budget with little wiggle room, you need to constantly check in on your spending and account balances. Westover pays all her bills and transfers money into savings as soon as she can so she knows what’s safe to spend at any point in the month.

“Once all of my savings funds are withdrawn from my checking account, the rest is free game,” Westover said. She then has the flexibility to spend as she wants without having to track each dollar closely.

“I like to keep around $100-200 in the account,” Westover said. Once she reaches that amount, she stops spending until her next paycheck comes in.

Find a similar spending system that allows you to easily keep tabs on your current balance, recent purchases, and upcoming costs.

Checking accounts often allow you to set text or email alerts that automatically notify you if your balance dips too low or when you have a bill due.

7. Build and maintain an emergency fund

When you’re earning an average wage, you can’t afford everyday financial setbacks. That’s why it’s vital for you to create an emergency fund.

Pomerantz has always kept some savings on hand. Recently, she fully funded her emergency fund with several months’ worth of income.

“By growing our cash assets, we’ve never been cash poor and we’ve been able to pull through some tough situations without resorting to a credit card,” Pomerantz said.

For instance, Pomerantz recently adopted a dog who needed an expensive medical procedure. “The shelter offered to take her back and help her pass peacefully — but, no, my husband and I had enough cash to cover her bills,” Pomerantz said. And the dog is now doing great.

8. Avoid debt — you can’t afford it

Avoiding debt is another guiding principle that helped these average earners work toward financial success.

“If you have an average or even a below-average income, I think people should focus more on preventing debt rather than paying it off,” Pomerantz said.

In particular, you have to be careful with high-interest credit card debt. Westover spends with credit cards but uses a healthy dose of caution and care.

“I regularly check my credit card balance,” Westover said. And she sticks to this rule: “My credit card balance can never exceed the amount of money I have left in my checking account.”

Westover pays her credit cards off in full each month, often before the due dates, which ensures she never pays credit card interest or gets into debt.

9. Take a balanced approach to paying off debt

For average earners who have some extra money to play with each month, it might seem like paying down debt is the obvious answer.

However, saving or investing extra funds could be a smarter move. Here are some general rules for deciding whether to pay off debt or save:

  • Pay down expensive debt first. Credit cards and some personal loans have APRs of 10% to 20% or higher. Paying extra on expensive debt is an important way to save on interest and get ahead.
  • Consider saving for retirement before you’re completely out of debt. Tax benefits, employer matching, and decent return rates all help your money go further when it’s invested in a retirement account.
  • Save for future purchases, especially if it’s a cost you’d otherwise have to put on a credit card and pay high interest on.
  • Explore debt repayment strategies such as refinancing or debt consolidation. You could lower your interest rate, pay less each month, or both.

10. Focus on growing your income

Lastly, keep in mind that your paychecks aren’t the ceiling on your earnings. You can work a side hustle to make more money now and focus on working toward higher pay in the future.

John Rehm, a digital PR coordinator at 2U, said a second job has helped him get ahead in high-cost Washington, D.C. He picked up a shift every weekend at REI to supplement the $41,000 he earned when he moved to D.C.

“The extra money pays for parking [for] a month or going-out expenses,” Rehm said. “Plus I get great discounts to fuel my love for the outdoors.”

Malavenda also works a side gig as a referee. She puts this extra income to work, making double payments on her car loan and adding any leftover funds to her savings account.

If you take some time to explore side hustle ideas, you could find a new way to add to your income. You also can work toward a raise or look for new job opportunities that could boost your pay.

Although Rehm earned just $41,000 when he moved to D.C, he has since grown his income to $55,000 per year.

You might not be an average earner forever. But even if you are, these real people are proof that it doesn’t take a six-figure income to save and pay off debt. The tips above can be your starting point to grow your net worth and find financial success, whatever your income.

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