It’s much easier to become a millionaire if you make over $100,000 but what about someone making an average household income (less than $50,000)?
I think the majority of people believe that it’s not possible to become rich on such a small income, but it is and here’s how:
Minimizing Housing Costs
Instead of renting an apartment or house, offer to share an apartment or house with a friend for 1/2 the rent it would cost to rent a place by yourself.
So you would normally spend $1,000 a month on rent, but instead you’re splitting the cost of rent with a friend. This act enabled you to put $500 a month into safe mutual fund or ETF for a total investment of $6,000 a year! After 10 years, the money you save in such investments will be as follows:
| Realistic | ||||
| Growth | Amount | Interest | Annual Simple | |
| Year | Saved | Rate | Interest | |
| 1 | 6,000 | 6% | 360 | |
| 2 | 12,360 | 6% | 741.6 | |
| 3 | 19,102 | 6% | 1146.1 | |
| 4 | 26,248 | 6% | 1574.86 | |
| 5 | 33,823 | 6% | 2029.35 | |
| 6 | 41,852 | 6% | 2511.11 | |
| 7 | 50,363 | 6% | 3021.78 | |
| 8 | 59,385 | 6% | 3563.09 | |
| 9 | 68,948 | 6% | 4136.87 | |
| 10 | 79,085 | 6% | 4745.09 | |
| Aggressive | ||||
| Growth | Amount | Interest | Annual Simple | |
| Year | Saved | Rate | Interest | |
| 1 | 6,000 | 9% | 540 | |
| 2 | 12,540 | 9% | 1128.6 | |
| 3 | 19,669 | 9% | 1770.17 | |
| 4 | 27,439 | 9% | 2469.49 | |
| 5 | 35,908 | 9% | 3231.74 | |
| 6 | 45,140 | 9% | 4062.6 | |
| 7 | 55,203 | 9% | 4968.23 | |
| 8 | 66,171 | 9% | 5955.38 | |
| 9 | 78,126 | 9% | 7031.36 | |
| 10 | 91,158 | 9% | 8204.18 |
Using the Realistic Growth Model above, we can see that after 10 years of using this technique, we would have saved almost $80,000.
At this point, I would take half of that money and buy a multi-unit rental unit. I would then live in one of the units and rent out the other units.
At this point, I’m now a landlord, and I still have almost $40,000 for other types of investments. After one year, I can determine if being a landlord is for me or not. If I don’t like it, I’ll sell it all and put the money in financial investment like stocks, bond, mutual funds, etc.
Saving: $6000 (this varies greatly depending on how many people are in your household).
Minimizing Food Cost
Instead of buying expensive or highly processed foods, why not make eggs, beans and vegetables as a main stable of your food consumption? Eggs and beans are excellent sources of protein, and very healthy for you to boot. I also have a can of peanuts that I munch on for snacks.
You can save a lot of money by growing your own vegetables (and canning them for the winter months). You know exactly where the vegetable came from, and since you grew them, you get exactly what you wanted. No worries about insecticides or some bacteria tainting them! Both cheaper and safer is a winning combination!
Listen to an mp3 player or an audiobook while you work. That way you can enjoy your time tending the garden while you weed, plant, etc (a win-win)!
As a supplement, why not try some extreme couponing too!
Saving: $3000 (this also varies greatly depending on how many people are in your household).
Buying Used or Bargain Needs
Instead of buying everything new, look on Freecycle.org first, then Craigslist!
You want to watch movies or listen to CD’s? Borrow them from the library (if one is close by). If you have internet access, go google what you want to listen to, or play the type of music that you want to listen to on www.Pandora.com. You can watch movies online via hulu.com! Obviously there are also other options… Google them using keywords phrases like “free online movies” etc…
Skip unnecessary monthly costs that add little value! There is really no need for cable TV, or even a land-line if you have an internet router (go with MagicJack, or even Skype).
Savings: $1,000 (this varies too much to predict, so I pick a low number).
Retirement Accounts:
If your employer has a 401(k) take advantage of it! The amount deposited is tax-deductible! Try to at least save 10% ( or at least $5,000)
If you employer doesn’t have a 401(k), put that $5,000 into a Roth IRA!
Summary
Without even cutting into vacation spending, We are able to save $10,000 and with retirement contributions another $5,000 for a total of $15,000 savings.
So with what I mention above that’s $15,000 a year that we could be saving on our way to becoming rich. If you continue to keep focused, it would be fairly easy to become a millionaire in a bit over 30 years.
Best of luck to you,
MR
Nice article and you make a very good point! Pretty much “anyone” can build themselves a substantial amount of money with only a few “simple” steps as you suggests.
Also, that’s very good you’ve develop some “passive” streams of income through renting (although some people say renting is more active than actually working at their day job).
One thing to keep in mind is that perhaps people who make less than $50,000 per year don’t necessarily need $1 Million because they have a lower “acceptable” standard of living than is implied by the generic $1 Million goal most people set.
Good point about the acceptable standard of living.
If splitting rent with my SO counts, then I’m doing all of these. We spend $25 a week on groceries by buying basic, mostly vegetarian staples you mention. We selected the smallest housing option we could find for lower costs and to encourage a reluctance to shop. You’re right! It really does work; we’ve made a ton of progress with our savings.
Great story! While I didn’t do badly, I would have done a bit better 🙂
It’s good to see someone doing what I should have done!
Wow! Very detailed and obviously you’ve put in a lot of thought into this MR!
I love the detailed breakup on housing, which is also quite practical! Excellent post!
Thanks! This is my “if I could do it over again” wishlist!
At least I will teach my kids how to do it right 😉
Housing is HUGE.
Yeah, I could have played the housing play sooooo much better than I did. Oh well, maybe in my next life…
Oops..hit submit by accident.
As I was saying, housing is the biggest one, in my opinion. I never lived alone. I always had roommates, parents or a significant other that I split expenses with. Even when when my husband and I first bought our house we had an extra roommate for a while.
You also forgot cars. I think that’s the second biggest budget buster for people I know who are dumb with money. You have money problems and you leased a toyota highlander? Then they get discouraged when reducing the dumb nickle and dime stuff is not moving the needle.
True, I had a lot of friend that were car-foolish over the years (check out my articles on Pig1 and Pig2)…
Not to mention the soaring gas prices associated with driving too…
The number one reason Mr. BFS and I can save so much is that our housing expenses are so low! Great post MR!!!
Thanks 🙂
You’re going great by the way, perfectly balanced!
But doesn’t everyone deserve that new car? LOL
I think breaking down the numbers could really help people
I’ve bought two new cars, one for me and one for my wife. From here on out I’m going with previously owned (unless I strike it rich).
Small changes yield a big difference in your savings. Just taking your lunch to work can save quite a bit.
Very true!
I think keeping a tight focus on the small expenses make accounting for the large expenses much easier!
Great post. But one thing i faced while cutting down my expenses was not living ‘life’. I think it’s important but not always easy to find that balance. As for roomates, as facing that question right now… My gut instinct doesnt always find the right roomates. Have any tips? The last roomie i had… Way back in the day.. Stole my checkbook to forged my name to cash them at her work.
I was lucky, I had roommates in college that were mostly high school friends. So I knew them and they knew me… I still kept my bedroom door locked though 🙂
Nice ideas. You’ve laid out a very straightforward game plan that almost anyone can use to start down the path. The key in my mind is to get the ball rolling.
With my kids (it’s too late for me), I’m going to give them a shove 🙂
The key is to focus on such areas! You might not file my solution, but perhaps you can think of something equivalent or better.
Don’t underestimate the options out there…
It simply takes thought and motivation like you have elegantly pointed out in this detailed post. Again, it is simple but not easy for most people.
Well said, very well said 🙂
I so support the cooking with eggs. I love french toast and flan.
producing eggs and beans at home requires tremendous amount of space in the backyard. Can you find such property for rent? Rent would have costed me $2000 for that. Hence in my mind all three points are valid, but point 1 and two can’t go together
My DH and I earn less than $50,000 and on our way to wealth anyway. It is not what you earn but what you save. There are so many ways to save, but people choose not to. Wealth is a lifestyle choice, most often.
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