Avoiding Debt

To Achieve Debt Freedom, Your Income Matters

Income matters when you're trying to become debt free

The personal finance world is an amazing place to learn how to save money and work toward financial independence, but income isn’t discussed enough.

At the end of the day, you can save all you want, but your income matters… It matters a whole hell of a lot.

Much like Lord Voldemort, in the world of personal finance blogging, he who makes a high income shall not be named. (shrug)

The fact of the matter is, your income matters when you’re writing your financial story.  It’s the hero, the antagonist and at times the dreamy crush…

“Being able to live on less than $30,000 a year VS making $30,000 a year and being able to live are a hell of a lot different”

The ability to survive on a low income lacks the safety net your oh-so-frugal friends often forget to mention. 

Your income matters because it allows you to recover faster, save more, and, well, worry less.  How do I know this?

Well, I’ve lived a life of not having more than a few dollars in my bank account to having our household hovering around $200,000 a year.

I’ve seen both sides of the coin, and this side is a lot freaking easier!

Cut Your Expenses, Duh!

First off, there isn’t anything wrong with making a lot of money.  If you pick a strong career field, study hard, and work harder… you’ll be rewarded with an above average salary. 

If you’re not currently earning an above average salary, you might think you can trim your expenses to make up the difference.

This is true to a point, but you can only trim so much before you’re eating dog food, selling your clean urine for extra cash, and living in a tent.

Living on as little as possible is hailed as the holy grail of financial advice.  Cut cable, stop drinking lattes, shop at Aldi’s, and reuse toilet paper… Do what it takes!  It’s the only way!

Maybe you can cut your annual spending down to $15,000 a year.  But what if you make $20,000 annually… You’re not going to move the needle much, right?

If you’re able to cut your expenses down to the same $15,000, but your household is earning $100,000 a year…you’re going to march down the path to financial independence like a freaking peacock. 

Strut. Your. Stuff.

Cutting your expenses is an intelligent financial move, although it’s not the golden ticket like it’s made out to be.

Related: How We Saved $532 a Month!

can you become debt free on a low income?


Your Income Will Help You Recover

When I was a new RN living in Pittsburgh, PA, I was broke.  At the time, I was making around $39,000 a year.  After taxes and insurance, I wasn’t bringing home a whole lot of money.

I also wasn’t very financially intelligent at the time.  My rent was about 40% of my take home pay.  I had a car payment, gym membership, and who knows what else I was paying for each month… it’s still a blur.

I was walking a financial tightrope and I didn’t have an income safety net below me.

I remember in a period of a few weeks, my washing machine broke, my car needed some repairs and my computer died. 

The bills weren’t huge, but I was one of the 40% of adults who couldn’t cover a $400 emergency.  The financial setbacks found a home on my credit card.

My minimum payment continued to rise, which further reduced the amount of money I had available each month and the problem compounded upon itself.

Recovering from financial mistakes is a hell of a lot easier when you make more money.  I’d argue that it’s easier to pay off a substantial amount of debt with a high income than it is to pay off a moderate amount on a moderate to low income.

For example…  Would you rather dig a lake with a backhoe, or dig a 10ft x 10ft hole with a shovel?  The hole is a lot smaller, so it should be easier… right?

Debt Be Gone

As my wife and I were paying off our $109,000 of consumer debt, we made a lot of mistakes.  We’d pay off our credit cards and then run a balance back up again. We did this over and over again… Progress that was quickly followed by set backs. Snip snap, snip snap, snip snap!

” You have no idea the physical toll, that three vasectomies have on a person. ” – Michael Scott

If you’re not a fan The Office just move right along… don’t over think that.

At this time it wasn’t an income problem, it was a spending problem.  Back then, our household income was around $145,000. 

Once we gained control of our spending, we quickly paid off the remaining $60,000 in about 16 months.

The time from decision to success was exponentially shorter because of our ability to break the backhoe out and dig ourselves out.

Related: How We Paid Off $109,000 of Debt!

Compound Away

Your income matters even more when you begin investing.  Compound interest is an incredibly powerful wealth building tool. The thing about compound interest is that it’s more apparent if you have more money invested.

10% of $10,000 is $1,000 annually. 10% of $100,000 is $10,000 annually and 10% of $1,000,000 is $100,000 annually. As you can see, it quickly becomes a wealth building monster.

Your path to financial freedom will ride the wave of compounding interest.  If you’ve got a strong income, compound interest will quickly become your best friend.

I wouldn’t be a PF blogger if I didn’t site some compound interest statistics involving the S&P 500.

Compounding is FUN!

If you’re able to invest $12,000 a year in the S&P 500 for 20 years, you’ll have $613,921.44.   Not too shabby, right?  You’d have a pretty amazing nest egg.

Now, let’s assume you and your spouse are able to max out your 401ks and invest an additional $5,000 a month. 

The scenarios that makes this possible are vast, but let’s say you have a household income of about $200,000 a year and you live a rather frugal, simple life in a low cost part of ‘Merica.

In this example, you’d be investing roughly $8,167 a month.  Toss that in the same compound interest calculator (bee boop)

You’ll have roughly $5,013,896.37!  Whoa… 

Your income will make your path to financial independence faster and easier.  Will your ability to accrue a large nest egg be related to some hidden gem of knowledge?

NO!  It will be related to the fact you have a strong handle on your spending, live in a low cost of living market, and make good money! 

Perhaps I’m killing my PF dreams here, but there isn’t a magic bullet to financial freedom.  I don’t have a dream to sell, just some hard work and many small boring financially intelligent decisions over a long period of time.

Why your income is more important than being frugal

Is Your Income Everything?

Your income matters, but it’s not the only tool in your financial freedom tool kit.  It’s the hammer, while a frugal lifestyle and money management/budgeting are the nails.  Your income is important, but there are some accessories you’ll need.

After all, there are plenty of professional athletes and lottery winners who enjoy a massive income and still go bankrupt in a short period of time.

Fun facts:

  • 70% of lottery winners are bankrupt within 5 years.
  • 78% of NFL athletes are bankrupt or under tremendous financial stress within 2 years of retiring
  • 60% of NBA athletes are bankrupt within 5 years of retirement

It’s apparent that having a lot of money helps but, like the once wealthy folks listed above… you can blow through money faster than Tony Montana can consume a bowl of cocaine.

Partner that with a substantial income, a frugal lifestyle, and a solid written budget, and you’ll be busting down the door to the debt free party like the Kool-Aid Man.  Ohhh Yeeeaaa!

Your Income Matters: Final Word

Achieving debt freedom isn’t a race.  I wasn’t racing you, and you shouldn’t be racing me.  The same goes for our story.  

Although a dramatic, Rudy-esque, come-from-behind story is an enjoyable one to tell, it’s not the case for most financially independent folks.

Realizing that your income matters and working to increase your salary will be a massive part of your financial success. 

Your income will help you recover from past financial mistakes, prevent future mistakes, and recover from any mishaps that manage to sneak in.

Income matters when you begin investing.  It helps compound interest work faster and ensures you’ll achieve success at a rapid pace.

Your income will ensure you’re able to achieve financial independence, break away from your 9-5, and live the life you desire.  It’s not the only tool, but it’s arguably the most important tool.

Use your time to find ways to increase your income whether it’s through side hustles, a new job, or a new career field.

You’re not too old and it’s not too late.  The next 5 years are going to pass by whether you’re working to improve your income or not.

Don’t look back and wish you had started.  Start.  Find a way… because income matters.

How are you going to increase your income before the end of 2019? Let us know in the comments!

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