If my salary is low, is financial independence impossible for me?

A common response to the investment journeys shared by our readers is, Is financial independence impossible on a low salary?

We can’t sugarcoat the truth:  Yes, a high-paying job, a sought-after skillset, and an impressive CV make a big difference to the wealth we can build over time. To be precise,

If Income minus expenses minus debt >> 0 financial independnce is highly possible

For example, a salary of Rs. 3 lakhs a month, expenses of Rs. 75,000 a month, and no debt imply an invisible surplus of at least twice the monthly expense. If this entire sum can be earmarked for financial independence, achieving this at least a decade before normal retirement is possible.

Sadly, expenses will always look big for those with a low income, and what they can spare for investment will also be small. Even normal retirement (say by age 60) will appear to be a distant dream.

The “usual” thumb rule for normal retirement is to invest at least 75% of monthly expenses (that will continue in retirement) each month. This includes mandatory EPF/NPS/Annuity contributions. See A simple thumb rule for retirement planning.

So, what is the way out? Easier said than done, but that is how it always is.

Let us not get bogged down with talk of a corpus equal to 30X or 45X multiples of current annual expenses and redefine financial independence as being able to manage a frugal lifestyle after retirement, even if it is a few rungs lower than our current lifestyle. Then we look for ways to increase our income.

1. Can you find a way to upskill yourself?
2. Can you take up additional assignments, impress clients and hopefully open some doors for you?

This means you get to sleep less with no time for leisure. Are you willing to do this? Are you willing to take on some risk to change your life? It is more possible than probable, but you must write your own odds and form your own inspiration.

Here is some proof:

• My journey: From Rs. 30 bank balance to financial independence
• From ration rice and torn shoes to top performer in the oil and gas industry
• How to Make More Money In India: Forty real examples

Also, see:

• Have You Ever Taken a Chance in Life?
• If you don’t take risks, you cannot change your financial life!

Even if you did not do this, you could manage to achieve a reasonable degree of financial independence by age 60-65, provided

• You “invest” and not “save” whatever you can in a disciplined manner. Your portfolio needs 50-70% equity. You must have the temperament to withstand years of loss to ensure your corpus has a reasonable chance of beating inflation.
• You do not increase your lifestyle when your income increases.
• You do not get into debt. Yes, forget about that dream car or even dream house. Sorry, not everyone gets to enjoy everything. When on a budget, dreams will have to be prioritized and re-shaped.
• You are lucky. Sadly, luck always plays a role, but we must get out and knock on doors (try).

Financial independence is not an impossible dream with a “low salary,” but it cannot be immediate. It will take much longer and require significantly higher sacrifice, sweat, and toil.

All this said, the sad reality is that many of us are unlikely to be financially independent in our lifetime. This does not mean we give up on it. Earlier, we discussed building wealth across generations by investing right.

Often, trying to change our family’s social station may take two to three generations. My parents did everything they could to support me for 13 years after school so that I could get a career and not a job. Their sacrifices changed our family’s social status. They, too, built wealth across generations.

So don’t give up on your dreams. Try to increase your income; take (reasonable) risks with your career and your money; put your head down and work/invest without expectations—change may take decades. Even if you don’t become financially independent, at least you can set up a pedestal for your children to soar. And that ought to be just as fulfilling and no less of an accomplishment.