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
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:
- 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.
- 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.
- 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.
- 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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1 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.89% APR (with Auto Pay) to 7.89% APR (with Auto Pay). Variable rate loan rates range from 2.47% APR (with Auto Pay) to 6.97% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of Month/Day/Year, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 08/21/18. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at email@example.com, or call 888-601-2801 for more information on ourstudent loan refinance product.
© 2018 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
2 Important Disclosures for Laurel Road.
Laurel Road Disclosures
APR stands for “Annual Percentage Rate.” Rates listed include a 0.25% EFT discount, for automatic payments made from a checking or savings account. Interest rates as of 11/8/2018. Rates subject to change.
Variable rate options consist of a range from 3.27% per year to 6.09% per year for a 5-year term, 4.64% per year to 6.14% per year for a 7-year term, 4.69% per year to 6.19% per year for a 10-year term, 4.94% per year to 6.44% per year for a 15-year term, or 5.19% per year to 6.69% per year for a 20-year term, with no origination fees. APR is subject to increase after consummation. The variable interest rate will change on the first day of every month (“Change Date”) if the Current Index changes. The variable interest rates are based on a Current Index, which is the 1-month London Interbank Offered Rate (LIBOR) (currency in US dollars), as published on The Wall Street Journal’s website. The variable interest rates and Annual Percentage Rate (APR) will increase or decrease when the 1-month LIBOR index changes. The variable interest rates are calculated by adding a margin ranging from 0.98% to 3.80% for the 5-year term loan, 2.35% to 3.85% for the 7-year term loan, 2.40% to 3.90% for the 10-year term loan, 2.65% to 4.15% for the 15-year term loan, and 2.90% to 4.40% for the 20-year term loan, respectively, to the 1-month LIBOR index published on the 25th day of each month immediately preceding each “Change Date,” as defined above, rounded to two decimal places, with no origination fees. If the 25th day of the month is not a business day or is a US federal holiday, the reference date will be the most recent date preceding the 25th day of the month that is a business day. The monthly payment for a sample $10,000 loan at a range of 3.27% per year to 6.09% per year for a 5-year term would be from $180.89 to $193.75. The monthly payment for a sample $10,000 loan at a range of 4.64% per year to 6.14% per year for a 7-year term would be from $139.65 to $146.76. The monthly payment for a sample $10,000 loan at a range of 4.69% per year to 6.19% per year for a 10-year term would be from $104.56 to $111.98. The monthly payment for a sample $10,000 loan at a range of 4.94% per year to 6.44% per year for a 15-year term would be from $78.77 to $86.78. The monthly payment for a sample $10,000 loan at a range of 5.19% per year to 6.69% per year for a 20-year term would be from $67.05 to $75.68.
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the variable rate will decrease by 0.25%, and will increase back up to the regular variable interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
3 Important Disclosures for SoFi.
4 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
5 Important Disclosures for CommonBond.
Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown.
All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 2.28% effective October 10, 2018.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.47% – 6.99%3||Undergrad & Graduate|
|2.57% – 6.97%1||Undergrad & Graduate|
|2.51% – 8.09%4||Undergrad & Graduate|
|3.02% – 6.44%2||Undergrad & Graduate|
|2.50% – 7.24%5||Undergrad & Graduate|
|2.79% – 8.39%6||Undergrad & Graduate|