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Mindy: What if earning a median income isn’t a disadvantage on the path to financial independence, but instead, a hidden advantage. Obviously, earning more income is generally better for accelerating a journey to financial independence. However, for those who don’t start out with or currently have a higher income, there are some hidden advantages that if acted upon, can compound meaningfully over time. We’ll be breaking down all of those advantages today.
Mindy: Hello, hello, hello and welcome to the Bigger Pockets Money Podcast. My name is Mindy Jensen and with me as always, is my started working towards financial independence at $50,000 income, co-host Scott Trench.
Scott: Thanks Mindy. I was actually starting out at $48,000 and I felt like I was dished a reasonably good starting hand. All right, today we’re going to be breaking down how somebody with a median income or maybe even a little lower can still achieve financial independence. Obviously, we’re conceding the fact that a higher income is better than a lower income in almost every situation and all the things we’re talking about that a someone at a lower income can do can also be done by somebody at a higher income, but we will argue as well that many of these things won’t be done by people at higher incomes and they are real relative advantages if played correctly by folks who are starting at a lower income because they make sense. They make economic sense to be acted on by someone at a lower income level than they do for somebody at a higher income level. So that’s a subtle but powerful point. We hope to argue it today and get your feedback. And of course, the obvious advantage here is the lower starting salary is going to force you to keep your expenses low, right? Especially if you’re a saver like I am, like Mindy is, but the thing is if you want to save 20 or 30% of that income, you have to spend 60, 70% of that starting salary and that forces real clarity in your decision-making. That means you’re going to choose a very low cost housing setup. You’re going to drive something very affordable. You’re going to keep your fixed expenses very low. And those don’t change as rapidly as your income may over the course of your career. And that is the core advantage. That’s we’re going to be diving into. So Mindy, what are some rules of thumb that are argued in in a lot of personal finance about how much to spend on housing or cars or those types of things at various income levels?
Mindy: So with housing, you want to keep your housing costs at or below 30% of your income. This could be a little tricky. It can take some finesse and some, you know, pulling of different levers. Step number one, have a roommate. Having a roommate automatically cuts your total housing costs in half because you’re splitting that cost with another person. Not having a roommate because I deserve to have my own space after having a roommate all of high school. That’s the wrong mentality to have. Keep your housing expenses as low as possible because you can always change them in the future. But it’s really difficult to go from a luxurious, beautiful apartment that you’re paying all of your extra income into and then going to like a lesser apartment with a roommate, that can be a bigger switch to flip in your mind.
Scott: Growing up, I I observed in a handful of instances folks who lived much more lavishly than my family. We grew up fine. Our my parents were were solid income earners. We had a wonderful middle or probably, you know, arguably upper middle class lifestyle all growing up. It was wonderful. I had a wonderful childhood. But I remember observing friends or other folks in my in my network that seemed to be super, super rich. And not all of them, but a good percentage of them one day blew up. And that wrecked their lives in some pretty horrible ways. And I think that there’s a real lesson here in the that we can bring down to the more relatable level of starting at $45 or $100,000 in salary and those differences. If you can keep your expenses and live well within your means, you’re very unlikely to see that blow up occur in your life and it allows you to accumulate wealth much more rapidly and much more sustainably because those high incomes, especially in, you know, at those elite levels are very hard to sustain consistently through time. And that’s actually I think where people get tripped up. So if you can start out at $45,000 and scale your income to $150 or $200,000 over a 5 to 10 year period, by employing those rules of thumb, you’re probably not going to, you know, double or triple your housing costs when your salary doubles or triples over a 10 or 15 or 20-year career. You’re probably going to keep it relatively consistent the whole way through and that’s a real blessing. That’s a real advantage to you on across your journey, even though you’ll be living a lower standard of living to this higher income counterpart. When or if circumstances change, they’re going to be at real risk and you are not in your situation. And that was certainly true across my career. My career certainly did not always see income years that were consistent. There were a few huge income years and there’s a rising floor across that period, but I certainly did not start out or surpass many of my peers who I graduated college with, for example, until or unless I experienced those bigger pockets as the business was selling years. That’s a, I think an important dynamic to to address in this conversation.
Mindy: Well, and something else that might not be readily apparent in these lower income years is that you don’t typically have a job with a lot of responsibility. You have a lot more free time. Your 40 hour a week is a 40 hour a week. Maybe it’s 45 hours on a real busy week, but you’re not expected to work 70, 80, 90 hours a week at these more entry level salaries. Now, Scott, when you were the CEO of Bigger Pockets, did you ever have a 40 hour week?
Scott: Nope.
Mindy: More like 60, 70, 80 plus hour week. That’s what you exchange for that higher income. So, what you can do is go and put in your 40 hours at your company and then you can look into side hustles, side jobs, other ways to generate income. And this is where your entrepreneurial spirit can really shine. Look into the ways that you can generate income that work with your strengths. You can be generating $3 to $500 a month which adds four to $6,000 a year to your income. At a $45,000 salary, this is like an extra 10% that you’re just making in your off times. This can be weekends, this can be evenings. What are your strengths? We just did a really amazing episode with Nick Loper about how to choose a side hustle that works with your strengths so that you can make the most money in the shortest amount of time.
Scott: When I was starting my career, right, I wanted to get into real estate investing. I was making $48,000 a year or about $24 an hour would be my hourly rate across a 2,000 hour work year because you’re right, it was it was 40 hours. In fact, because I was non-exempt, I was not permitted to work more than 40 hours. I had to badge out of the building at around exactly 40 hours a week or they would pay me overtime and I got a conversation with my boss. That’s how 40 hours that job was. And and all jobs should be if they are in that range because they’re non-exempt at that pay level. So anyways, there is more time in my day that was available. And so what I did with that time is I went on Bigger Pockets. I listened to the Bigger Pockets podcast. I read Mr. Money Mustache blog. I looked at properties. I met with real estate agents. I put in the 500 hours that I believe is a requirement, a baseline requirement to be baseline competent in analyzing your first rental property and committing a meaningful amount of capital to that. That same opportunity set is not realistic or desirable for my friends who graduated from college at the same time as me and went on to become doctors or hotshot lawyers. They’re earning too much and their hours are too long to justify spending that extra time to learn about these alternative ways to build wealth. Of course, they had a better head start than me in terms of building wealth out the gate, but that advantage is also real where now I’ve developed a skill set as a real estate investor. And by the way, if I had become a CEO of another company, for example, it would have been very hard to justify diverting attention away from CEO job duties or family to learn the ins and outs of buying a duplex and analyzing it for cash flow and CAPEX and learning how to screen tenants and all those types of things. But because I’ve already paid that price early in my career, it just stays with me for the rest of my career. I know how to do that. I can invest in real estate forever without having to repay that initial educational price. I have to do some some refreshing and those types of things to that. But that’s a real advantage that stays with me, right? I got great feedback from somebody who was a doctor who used to argue that doctors probably not good candidates for real estate investors they earn so much. And he’s like, well, look, when I was a resident, I was doing this and making this little money and doing this. I’m like, absolutely. In that case, you paid the cost, the educational cost when your time was very cheap. And now when it’s expensive, you still retain that benefit, you of course can invest in real estate across your lifetime and reap those rewards. That’s a real advantage or relative advantage for a lower income earner versus a higher income in the early parts of one’s career is because your time is less valuable, the ROI on self- education is way higher and you can stack up advantages every time, right? Again, not saying that it’s better to earn less than more, I’m saying these are ways to play the hand of a lower starting salary relative to a higher income one if you’re in that situation.
Mindy: Yes, when you are earning less money, you have more free time to invest in yourself and in your future. You don’t have the money necessarily to invest in the stock market and real estate, but that’s okay. You’re setting yourself up for when you do have the ability. That’s a great point, Scott. Okay, Scott, what are some other advantages of not having a higher salary?
Scott: One additional one, right? Again, using that framework of me as a non-exempt employee, only permitted to work 40 hours versus a higher income earning peer who might have been putting in 50, 60, 70 hours, is I could side hustle. So I did. I drove for Uber. I tutored. I attempted a winter tire rental business and a winter gloves business. They failed. Trench’s Tes is still available on the internet somewhere I think on Facebook if you want to go look at it. I printed off a bunch of t-shirts and my mom bought one or two of them, I think. I still have a stack of them somewhere, right? And those those didn’t work. They were kind of comical failures one by one and one until they did work. until the house hack began to to to really pay off, right? Until I one day wrote a book, which I would call as part of that component, until, you know, over time, these these bets sharpened my mind, showed me what worked and what didn’t work, and allowed me to play a cascade of them as CEO at Bigger Pockets, for example, over time that didn’t all work. Many failures, but some did. And so that those tales, this concept that, you know, a few activities out of hundreds are going to pay off is very hard for people to grasp and it makes all the sense in the world for somebody who is earning a lower income like I was at the beginning of my journey to play those cards one by one by one and get those learnings early in my career. And it probably didn’t make as much sense for my peers who started out making well over $100,000 within the first year or two of their careers. That’s a real advantage. Again, I’m like, I I can I keep saying this to concede the YouTube people saying, hey, you know, what is this guy talking about? You know, it’s much better to earn a higher income than in a lower income. Of course, of course it is. But that’s these are real relative advantages that we can play with, that we can begin to leverage if we are starting out with a lower income early in our careers.
Mindy: Yes, when you are earning less money, you have more free time to invest in yourself and in your future. You don’t have the money necessarily to invest in the stock market and real estate, but that’s okay. You’re setting yourself up for when you do have the ability. That’s a great point, Scott. Okay, Scott, what are some other advantages of not having a higher salary?
Scott: One additional one, right? Again, using that framework of me as a non-exempt employee, only permitted to work 40 hours versus a higher income earning peer who might have been putting in 50, 60, 70 hours, is I could side hustle. So I did. I drove for Uber. I tutored. I attempted a winter tire rental business and a winter gloves business. They failed. Trench’s Tes is still available on the internet somewhere I think on Facebook if you want to go look at it. I printed off a bunch of t-shirts and my mom bought one or two of them, I think. I still have a stack of them somewhere, right? And those those didn’t work. They were kind of comical failures one by one and one until they did work. until the house hack began to to to really pay off, right? Until I one day wrote a book, which I would call as part of that component, until, you know, over time, these these bets sharpened my mind, showed me what worked and what didn’t work, and allowed me to play a cascade of them as CEO at Bigger Pockets, for example, over time that didn’t all work. Many failures, but some did. And so that those tales, this concept that, you know, a few activities out of hundreds are going to pay off is very hard for people to grasp and it makes all the sense in the world for somebody who is earning a lower income like I was at the beginning of my journey to play those cards one by one by one and get those learnings early in my career. And it probably didn’t make as much sense for my peers who started out making well over $100,000 within the first year or two of their careers. That’s a real advantage. Again, I’m like, I I can I keep saying this to concede the YouTube people saying, hey, you know, what is this guy talking about? You know, it’s much better to earn a higher income than in a lower income. Of course, of course it is. But that’s these are real relative advantages that we can play with, that we can begin to leverage if we are starting out with a lower income early in our careers.Mindy: Yes, and to all the the people that are saying, oh, well you should just earn a higher income. Not everybody has that ability right now to just say, oh, well I am making $40,000 a year, but I’d like to make 70. So I’ll just go find a job that pays me 70. Do that instead of these items if you can do that, of course. Yes, if if you can just like if you’re just stagnant in your career and there’s other opportunities for you to make 70, yeah, of course go make 70. But if you can’t, if you are in the $40, $45, $50,000 income bracket right now, these are the things that you should be doing to take advantage of this. What do we call this the unfair advantage? Your unfair advantage making $45,000 a year is that you have more time to start looking into side ideas. Maybe one of these side ideas becomes a whole actual job and you can replace your income and that would be awesome, but maybe it just gives you a little bit extra income to cushion your salary, to start a an emergency fund, to start investing. It shows you what you like to do, what you don’t like to do. It shows you opportunities. You’re not going to have these same opportunities when you’re making $100,000 a year, which is more income, yes, of course, but you’re not going to have these same opportunities because you don’t have the same amount of time. And maybe you decide that side hustling is awesome and maybe you decide that you want to go back and get your degree or get some certificates or something so that you can make more base salary. But either way, this gives you options and options is the name of the game.
Scott: Yeah, absolutely. By the way, I want to call it one more item that was a huge advantage, one of those bets. like I used to I forget them after the years, right? all all the things I was attempting at that point in time. But one of them was, I got my real estate license. I’m a licensed broker today. I’ve had it for like seven or eight years and it would be preposterous to get my real estate license on the side while being CEO of Bigger Pockets. But when I was a director of operations making 50 grand at Bigger Pockets, you know, that that was a great use of my extra time. And I’ve been able to carry that license over time and how many thousands of dollars has that saved me. I mean, I I saved me when I bought my permanent house. Mindy, we bought I bought two houses last year, you helped me. I I paid Mindy a pretty solid hourly rate actually to make sure I don’t screw up with the contract because I’m I’m an agent. I’m a licensed agent, but I really want, you know, a real professional like Mindy um watching over that contract making sure I don’t miss stuff. But it’s a very tiny fraction of what I would actually pay a broker to represent me on the side on these deals. I’ll have that same benefit when I sell them one day. That’s a huge advantage and it wouldn’t make sense for somebody who’s earning a much higher pile of money. And I couldn’t have told you back then exactly which one of these or how they would actually spin up. But this concept of survivorship through repetition. The odds that any one of these activities is going to pay off is very low, but across a large number of bets, the probability that some benefit will accrue becomes overwhelming. That’s underappreciated, I think in personal finance and it’s particularly acute for the lower income earner who has some time. This does does assume you have some time as part of this lower income because you’re not in a job that is so demanding, requires 50, 60, 70 hours a week.
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Scott: If you’ve been putting off life insurance, I get it. The old process was miserable. Phone calls with an agent, a nurse coming to your house for a blood draw, then waiting weeks to find out what you’d pay for. That friction is exactly why so many people who should have coverage don’t. Here’s what I believe. Most BP Money listeners need term life and the right move is to build a ladder, a few term policies of different lengths stacked together, so your coverage steps down as your mortgage shrinks and your kids get closer to being financially independent or you get closer to hitting your financial independence number. The thing that makes that practical now is Ethos, a platform that helps you find life insurance all 100% online. Same day coverage, no medical exam, you just answer a few health questions online. Up to $3 million in coverage, some policies as low as $30 a month. So building a two or three-layer ladder that used to take a month of appointments is something you can knock out before your coffee gets cold. Get your free quote at ethos.com/bpmoney. That is eths.com/bpmoney. Application times may vary and rates may vary.
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Mindy: Mindy, what are some things that you were doing now that you’re thinking about it that that that you were doing at a lower relative income that maybe wouldn’t appeal to people that had higher incomes, that wouldn’t present themselves as opportunities.
Mindy: Well, Scott, have you ever heard of the live-in flip? That’s where you move into a very ugly house, you fix it up over the course of at least two years and then you sell it the pretty house to someone else and you pocket all that cash, up to $250,000 if you’re single, up to $500,000 if you’re married. We did this 10 times and now we have decided that we are in our last live-in flip. We don’t want to do this anymore. I don’t want to live in construction zones anymore. I don’t want to do the work anymore. It’s a lot of work. But I can tell you, I counted this up for a presentation a few years ago. I have made more than $700,000 tax-free dollars off of my live-in flips. It’s a great strategy. It’s just is a lot of time.
Scott: Here’s what the irony is, right? That that strategy probably appealed when you were earning a relatively low income compared to many peers you may have grown up with or graduated, you know, college with at that point in time. That house hack however, once completed, the skill set translates directly to the next one. It’s normalized. So even as your income rises or in your case rose, the appeal of the house hack is is still there. and that’s a real advantage that compounds over time. And again, I don’t want to be to dead drum with this, but I will. It’s better to have the higher income and across all these scenarios. But the lower income state does produce these relative opportunities. Here’s another one I’ll I’ll throw in here is lower starting income makes the appeal of at risk compensation that much greater, right? So when I was at Dish Network, I was making $48,000 a year with a small bonus potential. And my salary was going to go up to like something like 52 in in a month or two. And instead I chose the job at Bigger Pockets. Bigger Pockets job came with a $50,000 salary. So there was actually less than I would have made if I’d stayed with Dish Network from a base salary perspective. And Josh had a whopping seven PTO days when I started. So there was a a big reduction in in PTO. You remember that Mindy, the seven PTO days at the beginning?
Mindy: I do. I also got those and I negotiated up to get an additional unpaid week because seven was not going to be enough for me.
Scott: I remember that. I was jealous. Anyways, so so I joined bigger pockets, but the thing was the $50,000 base salary also came with the opportunity to sell advertising on the podcast. the advertising of the podcast was kind of hodgepodge and not not sold through and not not streamlined. and over the next few years, that produced an enormous opportunity for me to sell those ads. If I had started my career, if I’d been paid 100 grand, I would have said no to that opportunity and I would have fallen behind within two or three years. And that’s a real tradeoff that’s not apparent to a lot of people. I think a lot of people optimize for base salary and don’t optimize for, you know, bonuses or equity or the things that can truly make enormous differences over a long period of time. I talked to somebody recently who was considering a job and they were asking about how to negotiate the salary. And I said, you don’t need the salary. Who cares if the salary is I’m going to make this up for different numbers, but who cares if it’s 165, 175 or 185? It doesn’t make a difference in your life, but if you go in and say, you know, I’ll take the 165 actually. Take my salary down 10 grand, but make my bonus 30% instead of 15% if I hit my numbers. What kind of signal is that sending to your employer? How much does that derisk your position in a down market? And on average, how much is that going to compound to more total compensation over a long period of time? What if as part of that you also asked for a little bit more equity because you’re you’re noticing on the salary. As a CEO, if someone said that to me, that’s a real consideration. I’m going to be a little taken back and I’m going to say, that’s interesting. Yeah, I’ll move in that direction. We’ll we’ll negotiate the numbers there. That’s what I did across my time at Bigger Pockets. and oh my god, that paid off way more than if I had asked Josh for a slightly higher base salary and negotiated that. I mean, it’s it’s it’s incomparable. And that’s specific situations specific, but because I started at that low salary, whenever my base salary got above some multiple of that, it felt like plenty. And so I could I could always then continue optimizing for at risk compensation. I think a lot not enough people consider that and it’s a real side effect of starting at a lower compensation level in your career. Do you imagine a lawyer asking their their say, you know, like talking about this like it’s all salary on that front, but if you said, no, I want to I want a contingency fee on one cases. That’s where these guys make dollars. and I feel like it’s just rarer in the industry. And so I think that’s that’s a there’s a real catalyst there that that compounds over your career. And again, it starts from having very low base expenses and those low base expenses may in many cases derive from relatively lower starting points.
Mindy: Scott, something that I’m trying to articulate here and I and I know you’re going to be able to fix this for me, but a lower starting income and yes, more income is better, but a lower starting income means wth opportunities without giving up perceived tax advantages. So the tax bracket, let me explain this. The tax bracket right now from zero to 12,400 of income is at 10% for single filers. From 12,401 to 50,400, you’re at 12%. You jump up to 22% at $50,401. And this is for 2026. If you’re making $70,000, you’ve got $20,000 worth of income that’s being taxed at the 22% bracket. And for a lot of people in the FI community, that giant jump from 12% to 22% gives them a lot of anxiety, a lot of tax anxiety, but paying the 12% tax bracket can make it a lot easier in their mind to say, oh, I’m going to put money into the Roth and pay taxes at the current rate instead of going into the higher tax bracket.
Scott: Yeah, I I can’t remember them now, the the specific tax brackets, but I think with the standard deduction and my income, it was like, yeah, of course I’m not going to max out my 401k. I’m going to take my match and then I’m going to take everything else after that and either build after tax liquidity or put it in the Roth. In my case, I I biased towards after tax liquidity. But it makes it very easy at that lower income level to just forego 401k. It’s just not worth it for those tax benefits um at those low levels. There’s no there’s no complicated decision- making process. At 22%, it’s like right on that bubble that makes it a hard decision for a lot of people who are thinking about what is the right strategic choice for me to build wealth and a lot and the a lot will default to the 401k unless they have a specific alternative use for those proceeds. So that’s that’s another one of those little advantages that that that compound here, you know. And then that person all of a sudden has a few, you know, few tens of thousands of dollars of liquidity after a few years that maybe their their their peers who earn a little bit more or earn a lot more, but also spend a lot more and maxed out their retirement accounts don’t have. And that leads to business or networking or job hopping opportunities that offer lower pay but much bigger upside um that we just discussed.
Mindy: Yes, and again, it’s it’s a mental advantage. I think that there’s a lot of people in America, even in the fi community who don’t understand how tax brackets work. And when you make 70,000, not your entire 70,000 is subject to the 22% tax bracket. It’s each incremental step. But because they are misunderstanding it, I think there’s a lot of people who just default to putting it in a tax-advantaged 401k plan. I know I did this. Carl and I did this and we have maxed out our 401k, traditional 401k forever. We’ve put no money into a Roth 401k and that is going to have big tax obligations for us when we hit RMD age and that’s like, oh, buohoo, what a what a horrible problem to have. You have too much money. But I would much rather leave my money to my kids than give it to Uncle Sam.
Scott: I think you are at particular risk of that one and we’ll have an interesting choice to make because, you know, you could argue about whether taxes should go or how they’re going to evolve over the years, but for you Mindy Jensen taxes are going up one day.
Mindy: Taxes are going to go up. I am going to have a large tax obligation. You’re welcome Uncle Sam. I’m going to give you a lot of money. However, I am working on that and hopefully we’ll be able to mitigate that a little bit. But I mean, I’m 53. How much time do I have before I hit RMD age? Like 20 years, but I still have income because I am also a real estate agent Scott and I am kind of particular about who I work with, but also I just I make a lot of money as a real estate agent because I am really good at what I do.
Scott: Well, Mindy, should we wrap up our our our thoughts here? Can I can I provide some concluding thoughts? Yes, please. So I think the argument that we’re presenting today is of course, more income is generally better. All the things that we just discussed can be done at a higher income as well as a lower income. However, if you are at a lower income and don’t have that option to get those higher incomes, there are real advantages, cards that you can play that are less appealing or not available to some of your higher income earning counterparts in practical sense. and those include self- education. The ROI on self- education is much higher for you because the opportunity cost is lower. Side hustles. The difference in pay between your full-time job and a quality side hustle is likely very small, which allows you to try those profitably, arbitrage your true hourly rate and to experiment over time to get better and better at that. That can lead to real breakthroughs and opportunities. Getting licenses like a real estate license or a notary or a mortgage license or insurance or taking some kind of test or a boot camp for coding or AI, whatever, those are all going to be much more appealing and much more high ROI on your time than they are going to be for your other counterparts. Job opportunities that pay the same but offer major upside are going to be appealing to you in ways that will not be appealing to your higher earning counterparts. and then last, your expenses are almost certainly going to be fixed at a lower peg starting out in your career, which will increase your savings rate if and when you are able to match or exceed the pay levels of your peers who start out at higher income levels. This means that there is a real chance that you’ll be able to leap frog some of those peers over the course of a 5, 10, 15, 20 year career if you pursue many or all of those opportunities simultaneously and hit a few winners over the course of time. Those are really powerful advantages that should not be ignored and they’re what’s available to you if you are starting out at something close to the median income or lower, and your peers are starting out higher.
Mindy: Yeah, you might not think that you have an unfair advantage when your income is on the lower side, but you do. You just have to look for that unfair advantage. Everybody has an unfair advantage and there’s nothing wrong with taking advantage of your unfair advantage or exploiting even your unfair advantage. I like that phrase better.
Scott: Absolutely.
Mindy: For free resources and to sign up for our newsletter, visit us at biggerpocketsmoney.com. and you can find us on YouTube, Facebook and Instagram @ biggerpocketsmoney. All right, Scott, should we get out of here?
Scott: Let’s do it.
Mindy: That wraps up this episode of the Bigger Pockets Money podcast. He is Scott Trench. I am Mindy Jensen saying, farewell, Gazelle.
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