“My income is quite low. Is there any hope for me? How do I create a retirement corpus?” is a question we often receive.
The rules of personal finance are the same regardless of income and net worth. Those earning less feel like they will never have the experiences or wealth of those who earn more. Sorry to be blunt, but that is how the cookie crumbles.
Excuse me for stating the obvious: Forget about early retirement. Most people will not become financially independent at normal retirement (55-60).
- For this, we need to invest an amount equal to at least 75% of expenses (that will continue in retirement).
- For this, income minus expenses should be a big enough number.
- For this, the income should be big enough
- Expenses should not grow as fast as income
- Debt should be kept to a minimum
- We need luck and providence to escape huge expenditures or frequent unexpected recurring expenses due to health/hospitalization etc.
These many stars must align (at least) for an ordinary guy to become financially independent in retirement. I am sorry to say this will not happen for most people.
We will have to try our best: increase income as much as possible, work our backs off, etc. Investing in that small cap fund will not save anyone unless the investment amount is large and grows larger consistently (in a risk-managed portfolio)
You might think that is demotivating. I think we must know how difficult a goal is so that we have the necessary seriousness and make the necessary sacrifices to attain it. Having false hope is not productive.
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If you want to do something productive, you must make peace with your income and what you can achieve. Yes, one should try to increase income by all means, but this is easier said than done. So until it is done, one must accept the golded adage, “live within your means”.
So this means an extremely frugal lifestyle to eke out something for investing. This is the simple hard truth. Those who don’t accept it must face the music when their income stops.
Making peace with your income or living with your means also extends to financial goals. This means early retirement is out of the question. Normal retirement could also be out of the question unless you are extremely careful and avoid “upgrading” your lifestyle as your income increases.
Do not assume you can compensate for the low investment with high returns and take on more risk or waste time trading. Instead, focus every minute you can spare on increasing your skills and income. Invest the extra income to build wealth.
Finally, I recommend not socialising too much with those who earn more than you unless you can use the opportunity to your advantage (exposure to opportunities, etc.); otherwise, not much good comes from this.
I apologise for being blunt and painting such a grim picture; I am afraid it is the hard truth. You are often caught between a rock and a hard place when you lack the means.
You can get out of there, but it will take a lot of toil and sacrifice. So do not despair. Put your head down, work and invest in a disciplined manner. Maybe, just maybe, things will get better sooner than later.
The 2023 French Women’s Single’s Final is on as I write this, and the quote etched on the Rolland Garros stadium tells you what it takes.
Victory belongs to the most tenacious.