How To Reach FI On An Average Salary

Have you ever felt like you can't relate to a lot of the prominent voices or people in the personal finance community? As a young church pastor, I have to admit that I often felt this way.

When I heard people who were making six figures talk about all the money they were putting into their retirement accounts or their incredible savings rates, I'd start to feel a little frustrated inside (and dare I say, a bit defensive?).

"Sure," I'd say to myself, "I could do all those things to if I made that kind of money."

Letting Go of the Excuses

However, over time I began to realize that I was just using my salary as an excuse for not finding creative ways to spend less and save more...and make some more on the side.

When my wife and I finally decided to stop using our household income as an excuse for not reaching our financial goals, it changed everything.

And we started kicking butt!

Killing It With a Below-Average Salary

The latest data shows that the United States median household income is $70,784 as of 2022. I can honestly say that I've never brought anywhere close to that kind of income home from my day job.

Yet we've been able to buy a home, pay cash for both of our cars, save up a year's worth of expenses, contribute heavily to our retirement accounts, and take family vacations.

Are we at a 50% savings rate yet? Honestly, not yet. But we're working towards it. And we're hoping to buy our first investment property early next year.

The point? FI is possible for the majority of folks who are making average salaries.

Reaching FI On An Average Salary

While I'm certainly no guru, these are six things that, in my experience, you can do if you want to reach FI on an average salary.

1. Keep Housing Costs Low

For most people, housing is their biggest monthly expense. Buying too much house can prevent you from being able to reach your other financial goals. Aiming to keep housing costs at no more than 30% of your budget is a great start.

This is easier said than done, though, especially if you have an average income and fall in love with a beautiful house. But if there's a heavy price tag that would make you 'house poor', it can hinder the rest of your FI goals.

Be Patient

When we were shopping for our first home, we looked at hundreds of houses before we finally found the right deal.

And, yes, we did have several difficult discussions all along the way. At different times, we both fell for houses that would have caused us to break our 30% rule but we had to stick to it. We needed to hold each other accountable.

When we did finally find the right house, we were thrilled we waited. Our mortgage is currently only 22% of my day job take-home pay. Because our mortgage is so affordable, we have more free money in the budget to throw at other goals.

Other Ways To Reduce Your Housing Cost

But what if you already have a mortgage that's too high? That's OK. You can find solutions. For instance, why not try house hacking or renting out a room in your home on Airbnb to reduce your housing cost?

Get creative. You can do it!

Related: How To Get Started With House Hacking

2. Avoid Car Payments Whenever Possible

When you send $200-$500 a month towards a car payment, it is difficult to find extra money to save in your 401(k) or IRA.

Buying used and paying for repairs out of pocket when they pop up will generally save you thousands of dollars.

I bought my current car for $1,500 and it's already lasted me three years with nearly zero maintenance issues. Yes, I know that's an extreme example, but if you're patient, you can find some amazing deals.

If you are going to buy used, try to find a car that has a reputation for being reliable. This will give you a better chance of limiting your annual repair cost.

Related: Longest Lasting Cars On The Road Today

3. Live Off One Income

If you are a married couple who both work, choosing to live off of one income and saving the other can make a huge difference in your savings rate.

By the time my wife got her first job, we had already gotten used to living off solely my income. Instead of adding wiggle room to all of our budget line items, we decided to continue living off my salary and we used her income to save towards the down payment on our first home.

We were able to save a lot of money fast using this strategy.

After our first son was born, my wife ended up choosing to stay home with him. Thankfully, since we had never used any of her income for regular expenses, this move didn't squeeze our budget at all.

Now, five years later, she is again earning income by managing our family's Airbnb. And once again, we are strictly putting her income away in savings.

Related: You Can Pursue FI--Even On One Income

4. Increase Your Saving Percentage Each Year

When you have a small income, it can seem impossible to put 30-50% of your take-home pay into savings.

Rather than do nothing, start with an achievable goal. Perhaps right now you feel like saving 5% or 10% is about all you can handle, and that's perfectly fine. A small amount is better than no amount.

To make sure that you do save, set up automatic withdrawals for that amount each and every month. You want it to be something that happens without you even thinking about it.

Then, after a year of investing that much money each month in low-cost index funds, raise your savings rate. Perhaps you could raise it another 5% or $50. What matters most is that since you're already used to saving something each month, it won't feel nearly as painful to save a little more.

Continue to do this each year until you've reached your target savings rate. We've used this little hack for the past five years, and so far it's worked great!

Related: 50 Ways To Improve Your Finances By 1%

5. Add a Side Hustle

Side hustles are beyond a doubt one of the best ways to help you reach FI on an average salary.

There are tons of side hustles that you can start today. And don't be afraid to get creative. Melanie Lockert, the founder of DearDebt.com, discovered a lucrative side hustle as a "brand ambassador."

She shared how she began with this side gig and the kind of money she was able to make:

"I worked concerts, sporting events, and trade shows. One long weekend of work would mean several hundred dollars. It was my primary side hustle for a long time and can be a lot of fun if you like to talk to people. I started on Craigslist, then signed up for marketing agencies, and joined brand ambassador Facebook groups."

And that's not the only unusual side hustle that we've heard people share. When we interviewed Timika Downes on the podcast, we learned all about her six-figure side hustle.

And what was this amazing side hustle? She bought a lice clinic. Yes, you read that right.

Even if you don't plan to buy a lice clinic anytime soon, in today's "gig economy," your side hustle possibilities really are endless.

And once you do add a side hustle, try living off your day job pay and putting your side gig income away in savings.

This is what I do with my side hustle money. And what is my side hustle?

You're reading it. My freelance writing income just outpaced my day job this month. And, so far, we've been able to save every penny.

Related: Why A Side Hustle Is FI's Secret Weapon

6. Remember, the Math of FI Works Regardless of Income Level

As Jonathan and Brad explain in the Pillars of FI, if you can save 50% of your income, your path to FI will be 10 to 15 years.

Another benchmark they mention is having 25 times your annual expenses in investments. Once you've reached that number, market returns should be enough to cover your expenses for the rest of your life.

Here's the key--these numbers work no matter your income level.

That's actually really good news for people who have average salaries. Why?

Because it means that you have less income to add or expenses to cut before you are able to hit the 50% savings mark. So apply all the steps that we've discussed and try to hit those benchmarks as fast as you can.

Then sit back and let the math take care of the rest.

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