**Mindy:** Wealth building isn’t just about how much you earn, but how much you save and invest, which is why today, we’re diving into a topic that I think is going to resonate with a lot of people: how to win financially, no matter what income bracket you’re in. Whether you’re just starting out with a low salary, climbing your way up, or already earning a six-figure income, there are strategies that can help you reach your financial goals.
Hello, hello, hello and welcome to the BiggerPockets Money Podcast. My name is Mindy Jensen and with me as always, is my definitely in some income bracket co-host, Scott Trench.
**Scott:** Capital. Introduction, Mindy, just capital. BiggerPockets has a goal of creating 1 million millionaires. You are in the right place if you want to get your financial house in order and achieve some capital gains because we truly believe financial freedom is attainable for everyone, no matter when or where you’re starting. And today, we’re going to discuss how to make the biggest financial impact at 45, 75, and $100,000 a year in income to propel you on your financial independence journey. We’re going to talk about what investment strategies should stay the same between those three income brackets and what should be different as you increase your income.
**Mindy:** Okay. Mindy, so let’s start off with how you would approach a $45,000 per year salary starting today.
**Scott:** Okay, at the very beginning of the intro, I said wealth building isn’t just about how much you earn, but how much you save and invest. And in the $45,000 tax bracket, in the $45,000 income, you don’t have a ton of opportunities to save and invest in large amounts. I want you to first go back to the basics. You are likely at the more of the beginning of your career and you have time on your side, which is what I am assuming. I want you to max out your Roth IRA. The contribution limits for under 50, 2024 is $7,000. That is a little bit over $500 a month. I want you to figure out how you can take $500 a month and put it into your Roth IRA. I think that would be a huge benefit for you right now.
I also want you to look at your company’s 401k options. Do you have a 401k? Do you have a 403b? If you’re a government employee, you may have a 457 plan. So I want to know what your company is offering as far as a match to your 401k because we are looking for ways to invest, and when your company matches the money that you’re putting into the account, that’s, we call that free money here. I want you to take advantage of every free dollar you possibly can. So, if your company has a Roth 401k option, I think that’s a great thing to look into as well.
Scott, the difference between a Roth and a traditional account is that you pay the taxes now on the Roth, and then it grows tax-free and you withdraw it tax-free down the road. So if you’re 20, 25, 30 years old, you have a long runway for this to grow tax-free. If you’re 45, 50, 60, you don’t have as much time for that to compound and and grow in the Roth plans. You also might be making more money, in which case reducing your current taxable income could be your goal. That’s what my goal is.
But if you are making $45,000 a year, let’s say you’re spending 25 or 30, you’re paying taxes on it. There’s just not a ton of money left over, and I hate to say left over, to contribute to these accounts. Again, assuming that you’re a younger person, I’m going to encourage you to look at side income, side hustles, so that you can generate more income to more easily fund that Roth IRA and potential 401k contributions. Scott, what are your tips for people making $45,000 a year?
**Scott:** I’m gonna get way more aggressive than what you just said there and say, look, if you’re making $45,000 a year, you’re just getting started, or something drastic needs to change if you want to achieve financial independence, because you ain’t achieving financial independence in a hurry making $45,000 a year. So, the whole game becomes, how do we change the fact that you’re making $45,000 a year, which is fundamentally incongruent with the achievement of very early financial independence, like 10, 15, a minimum here.
So, I would be throwing out a lot of the long-term saving and investing advice. The question is, how can we get expenses extremely low and build up a cash position, which allows us to exploit the next set of opportunities? And how do we gear up for the career pivot or entrepreneurial venture or house hack that can actually begin exploding income?
I was in this position to start my career. I was 23, making 48k a year. That’s more today, adjusted for inflation, of course, than 45k. It’s about 60k. But in that situation, my day was I would get up, make my own breakfast, pack my own lunch, drive or bike to work in my Corolla, if I was driving, or on my $250 bicycle that I purchased from a coworker, if it was a nice day and I could bike. And in the evenings, as soon as I stopped, I would Uber or tutor or figure out a way to earn side hustle income. And this way I saved up about 20k by living with a roommate to be able to make the next big investment.
So that’s the goal. I would forget the Roth or the 401k or whatever, and I’d just stick cash in a savings account because the problem isn’t whether which vehicle you’re taking, you’re taking. The problem is that even if you saved all of the $45,000, you wouldn’t achieve FIRE in the next 10 to 15 years on that, unless you got pretty lucky from an investment standpoint. So we need to increase that income. With that cash position and the very low-cost lifestyle, I would be looking for an opportunity within the next six months to a year to dramatically accelerate that income. If that was in the current position, that’s one thing, but probably unlikely. I’d be looking for a sales gig or an opportunity to go to work at a startup, or I’d be thinking about the small business world and how to maybe acquire or get into that if I could partner with somebody, but I would be stockpiling cold, hard cash in the form of digital savings in the bank account, of course, in the checking or savings account, and I’d be looking to use that opportunity.
So, example of what that could look like. You earn $45,000 a year, you try to save $10 to $15,000 of it in an emergency reserve, maybe 20, and then you produce, you go after a house hack. The ideal house hack, I would say, in Denver, Colorado at this moment, or where I’d be sniffing around for opportunity, is I’d be looking for a four or five bedroom house in a specific part of town called Aurora, near a medical campus. I have this all located. You should get this specific for yourself over the next six months to a year while you study this in your market, wherever that is. I’d be looking for a four to five bedroom house with two to three baths. I’d be looking for a large yard that would enable or allow the option for an ADU to be constructed. And I would be thinking about, can I live in that house and rent out the other bedrooms? Can I live, can I construct an ADU and live in that and Airbnb the house? What are my options there to be able to provide a really good opportunity?
I’d also be looking at assumable mortgages in that particular area of town. It may be different in yours. There’s a lot of assumable mortgages which are perfect for somebody in this position because you don’t need as much income to qualify for an assumable mortgage if it has that last year’s low, you know, or 2021 or previous lower interest rate mortgages. So I’d be getting really aggressive about those things and and stockpiling cash to enable myself to make that career or house hacking pivot because the investing doesn’t make sense at this phase, it’s way out, it’s dramatically outweighed by the opportunities to switch career or house hack, which the cash directly enables by giving you some cushion there. So, how do you feel about that very different answer, Mindy?
**Mindy:** I will agree to disagree. I am still, I like what you’re saying about stockpiling cash and taking advantage and, you know, reducing your expenses. You said you packed your own lunch, you biked to work, you did side hustles and you had a roommate. I have heard story after story from people who aren’t on the path to financial independence who make $45, $50,000 a year and go out to lunch every day because that’s what all their coworkers do. They drive to work in that brand new car that they bought for high school or college graduation because they deserve it. And they don’t do side hustles because I’m in my 20s, I want to live my life. And they don’t have a roommate because they had roommates all through college and they just want to be by themselves. And that’s, those are choices that they’re making. I’m not sure if those are choices that they’re making consciously understanding the financial impact. I think those are choices that they’re making based on, you know, wants instead of needs.
So, I see where you’re coming from. I love that advice. I still want to go back to the Roth IRA. If you are young, you have so much runway to grow tax-free, that is a gift. Also, get an HSA. But I think that the bottom line, Scott, is that income needs to increase if you want to reach financial independence. And at $45,000, there’s just not a lot of extra to be putting into your a lot of extra to be putting into your wealth building, which is why your tip about reducing your expenses is really, really, really key.
**Scott:** Stay tuned for more on how to change up your investing strategies with more income, after a quick break.
**Mindy:** Let’s jump back in.
**Scott:** And I’m literally saying, if you’re trying to go retire traditionally, you can retire traditionally by saving 10, 15% of that 45k salary and investing it in a Roth IRA. Dave Ramsey, Ramit, all these other great personal finance folks, they’re great resources for that, and you should do that. But if you’re trying to FIRE, if you’re trying to retire early in 10 to 15 years, don’t do that. Save a bunch of cash and use that to manufacture opportunities. Don’t blow the cash, but just stockpile it for one year. And I promise that if you couple that with reading 30, 50 business books in your spare time and tons of side hustles, the opportunities that emerge for you will be better than a 10% stock market return on average around there for that. Do I promise? I don’t know, but I would way rather take that bet, and that’s what I did when I was in that position. And I and I think that it will pay pay off really handsomely to have that cash stockpiled rather than having a little bit of money in that first Roth.
Again, if you’re trying to get there very quickly. There’ll be time to catch up that Roth and 401k later when we really go after our income. But that’s a huge, like this is I’m I’m literally suggesting that, you know, you go through 30 to 50 business books during this time period, side hustle a lot, and really treat the situation of earning 45k as an emergency and that the next year that is going to be going up and there’s going to be an opportunity set that will emerge that will allow me to make much more than that on a go-forward basis, if you want to FIRE well in advance of traditional retirement age. There’s no really way around how to FIRE with 45k.
The answer is, and you’ll find a lot of people here on BiggerPockets Money who fired starting from an income of $45,000. You’re going to find very few who never materially changed that starting point of $45,000. That’s also a frustration people say is, oh, this person made 150k. Well, guess what? If you’re capable of saving 30, 40% of a $45,000 salary and you read a bunch of business books and you listen to podcasts, you will accumulate first tens and then hundreds of thousands of dollars in assets, maybe a million dollars in assets.
People who are capable and disciplined enough to amass and then effectively manage a million dollars in assets often have job opportunities and can drive much more value than that at businesses to get and earn more money. So this will all work together and compound. It just needs to start with a major pivot and new orientation around that, I think, and the aggressive accumulation of cash to seize those opportunities.
**Mindy:** Scott, now let’s look at a $75,000 income. You’re making, I I would say significantly more than you need to live off of, especially if you’re able to live off of this 45,000. I think you’re making significantly more than you need to like, bare bones live. I know there’s people that are gonna say, oh, I can’t live off 75. Okay, great for you. But these are people who are living off of 75. What would you do differently at a $75,000 income than you would or recommend at a $45,000 income?
**Scott:** So I think that the game has changed a little bit at $75,000 and it depends on the type of income, right? So if you’re a salesperson making $75,000, well, there’s opportunity to really expand on that and that changes the way I think about investing a little bit more than, for example, a teacher who maybe is making $75,000 between their base salary and summer gig, for example, in there. If you’re in the teaching profession, for example, with that $75,000 in combined income and benefits, again, including the summer job, I know that many teachers do not earn $75,000 per year, especially earlier in their career. But that’s a case where I would say, okay, now let’s go down the ladder of these retirement accounts and say, okay, how do I provide, how do I put this into tax-advantaged accounts like the Roth, like the 401k, like the HSA? I know that teachers actually have different versions of those here, but I think that that’s where I’d be thinking about. I’m going to use these tax-advantaged retirement accounts, maybe in the off time I’m going to be thinking about maybe a real estate project every couple of years, save up some cash for that, but I’m going to be moving down that stack and thinking, can I get to 30, 40% of the income? And yeah, you can probably FIRE in about 17 to 22 years starting from a standing position if you’re able to save 30, 40, maybe get approaching that 50% mark on that income. Which of course will get easier as the investments pile on and add a little bit more income on top of that that base salary. So that’s one approach.
If I’m going to be a little bit more aggressive about this and I’m in more of that sales approach or I’m expecting my career to accelerate at a faster clip, maybe I’m, you know, on the corporate finance track and I’m thinking that the 75k today should be bumping up against 100k, 100,000 in three to five years. Okay, maybe now I’m actually thinking about this is the more aggressive period of my investment career and I’m going to start saving up as much cash as possible and getting a couple of those rental properties done now so that by the time I fire in 15 years or 10 to 15 years, I can, they’ll be a little bit less, more lightly leveraged and producing a little bit more cash flow. So that’s how I’d be thinking about it in those kinds of maybe two different types of scenarios. One that’s a little bit more static at 75,000 and one that’s more on a trajectory that’s moving me towards six figures or beyond.
**Mindy:** I like what you’re saying there. Did you say index funds? Because I think at 75,000 you should start be starting investing in the stock market.
**Scott:** So let me let me put this, I’ll I’ll restate this. If I’m in the more static progression in my career, I’m not expecting my income to surge over the next two to three years. Then I would be investing in index funds or thinking about those those types of investments. The the decision about how to invest really depends on my aggression and timeline here.
Let’s say that I’m a teacher and my pension is going to mature in 20 years. Well, I’m probably not going to retire in 15 years, even if I’m capable of doing that, because I’m giving up one of the best assets of that profession. I’m probably going to be thinking about a more passive approach that’s going to get me there with a lot less headache. Maybe at that point I’m going to invest in index funds.
If I’m in a more aggressive pursuit of financial independence, I don’t have those types of timelines and I just want to get there as fast as possible, I’m probably weighting much more heavily towards real estate in the early years because real estate comes with the benefits of leverage and that compounding and I’m thinking about maybe I’m going to take the 401k match, maybe I’ll max that HSA, but I’m probably going to be, if I’m having to make trade-offs here, which most people at the $75,000 per year income range are going to have, I’m probably thinking if I want that portfolio, you know, at my end state of maybe a million in real estate, maybe a million in stocks, it’s a great idea in my view to buy that real estate earlier in the journey because you get the benefits of leverage, and by the time you want to retire, the portfolio will be deleveraging and you’ll be able to get more cash flow from that as you paid off the mortgage and as as rent growth has come on. So I would probably weight towards real estate first and then as I get closer to financial independence, really focus on that stock portfolio in these tax-advantaged accounts.
**Mindy:** We have to take one final break, but stick around for more on maximizing your income when we’re back. Welcome back to the show. I want to look at $75,000 a year. I’m thinking that your job has a little bit more responsibility. So you have more obligations to be at work, to be doing things for work, and you have less free time. I don’t see side hustles as a really big part of your wealth building journey at 75,000 and above. I see more, unless you have some like rockstar side hustle that is taking little time or you know, easy to automate. I’m looking more at passive income streams. The the stock market is a great go-to, especially when you don’t want to be doing real estate. Syndications, if you can get a really great syndicator, if you can get a really great product, if you can get a really great property, syndications are a great source of passive income. I also really like private lending. That’s one of my favorite ways to generate some pretty good income. They’re short-term loans that I am doing, like three-ish months. We had the authors of Lend to Live, which is a BiggerPockets book, on the show a few months ago. They both have different ways of looking at their the way that they lend. They lend, one of them lends more to the person than the deal and one lends more to the deal than the person. I am definitely on person more than the deal side. I lend typically lend only to people that I know can pay me back.
**Scott:** How do you, how much capital do you need to privately lend?
**Mindy:** I do private, I have done many private loans at around $50,000.
**Scott:** Okay.
**Mindy:** I have done private loans at higher amounts, but that is, I don’t think that’s necessary to get into private lending. There’s also a lot of ways that you can lend without being the middleman. You hand the money to the middleman and they they take care of it and that’s a way to get into it at lower amounts.
**Scott:** You don’t like private lending at 75,000?
**Mindy:** I was just thinking, you know, I’m putting myself on the, I know that you can you can do this with less capital, but I’m just putting my hat on of, I earn less than $75,000, I’m listening, and I’m like, well, can I really actually buy a $50,000 loan on a rental property? Is that even possible? And then do I have the capital to do that in liquidity at that point in time? So I just wanted I wanted to just kind of check in on that to see for those who might think that it’s less feasible to actually pull that off in that income bracket.
**Scott:** Yeah, and that’s a good point. You do have to have some income to lend. You can’t just be like, yeah, I’ll lend you 50,000 and then like, ooh, where am I going to get 50,000 from? I would but I like that as a passive income source. Again, you have to know what you’re doing. You should definitely read that book and learn about this process before you get into it. But I like the passive income streams at 75,000 and above. The stock market, I am always going to be pro stock market. I have done very well in the stock market, but again, in your $75,000 income, this is not a free-for-fall spend whatever you want. Keeping your expenses low, investing intelligently and with purpose. At $75,000 a year, you’re working with other people who are now saying, oh, I got this hot stock tip. There’s no such thing as a hot stock tip. Don’t buy that hot stock. That’s never going to work out. You’re making a good income, I wouldn’t say this is this is fire income yet. It’s fire-able, but your fire journey is going to be longer, especially with how much you’re spending. If you can get your income or your expenses way down, again, house hacking, uh living in a low cost of living area, having an older car, riding your bike to work, living close enough that you can ride your bike to work, there’s lots of ways to cut down your expenses so that you can save more.
**Mindy:** Yeah, I look, I I think that a reality of FIRE that we probably need to just address is like even at 45, at 45, let let’s take the 45 example. If you just saved 100% of your income for 20 years, that’s 900 grand plus the investment returns, maybe you’re getting to FIRE in 20 years. It’s just not enough income. You just can’t do it with that. It has to change. The income has to change if you want to FIRE.
**Scott:** Let’s do the same example with 750. In 10 years, you’re going to save 750 grand if you saved 100% of it and paid no tax on it. It’s still, it’s still fundamentally the blocker for FIRE. So you either have to be on a trajectory to increase that income there or begin taking much more risky or more aggressive or sacrifice, investments, or you have to sacrifice like the house hack. So you’re still in that position. This is not an income level that will support rapid achievement of FIRE, unless you’re going to serial house hack, unless you’re going to live and flip, unless you’re going to make big changes here.
**Mindy:** But I’m still not in the position of saying, you know, that that we can achieve FIRE with 75k in income in a really robust timeline without continuing to make changes on those fronts. You’re looking at at least 20 years, I think, even if you’re saving 30, 40, 50% of that in the stock market and that’s if things go well and the trajectory kind of continues to climb. But I think that that’s still fundamentally the issue here and that’s how I’d be thinking about it even at at 75k.
**Scott:** I don’t even know, moving on to the next bracket, if it changes that much at 100k here. 100k is now, we’re earning a pretty serious income and we, you know, if we save 30 to, if we save 30 to 50% of that, we’re talking about maybe 30 to 40 grand a year after taxes, for example. And that’s going to take you what, 400k, 800k, you know, 400k in savings over 10 years, 800k over 20 years. Um and that’s a pretty, you’re still living a very modest lifestyle at that point in time on that income. So I think we continue in the FIRE journey to have this dependence on these fairly high leverage investments. Remember, our goal here is to achieve a retirement level of wealth way before most people. So 100k, we’re starting to get this much more doable if you do go down the traditional retirement stack ladder. I don’t think you’re going to be able to do it at 75,000. I think you’re going to have to do the live and flip like Mindy, for example, or whatever. You might be able to do it at 100, especially if there are, like we mentioned earlier, good income jump opportunities.
**Mindy:** But now we’re really flirting with that border of, yeah, I think you could get pretty close in about 15 to 20 years if you had a low cost of living and you went down the traditional, you know, money guy or Dave Ramsey retirement planning stack and you said, okay, I’m going to max out the HSA, I’m going to take my 401k match and then max out the 401k, I’m going to if I can contribute anywhere else and maybe save a little bit in an after-tax brokerage account. You could get there with a with a fairly passive investing strategy if you were really tight on the expense side and consistent over a few, you know, a decade or two. Almost about two decades, maybe two decades plus in this route. But I would still be thinking I need to layer in a couple of fairly substantial bets or using my housing as a tool to supplement the journey to FIRE, even at $100,000 a year in income. I think you still have to house hack, live and flip, or think about some other side project like building a real estate portfolio in order to really get there in a reasonable time frame. What do you think about that, Mindy?
**Scott:** I don’t want to agree with you, Scott, because I I see $100,000 a year and I think, wow, that’s a great income. And it is a great income, but I don’t really think that you’re wrong. I’m trying to think back to all the people that we have interviewed who got to a position of zero net worth and then started building and they reached financial independence within 10 years, and none of them made $45,000. None of them made $75,000.
**Mindy:** Some of them started there, but none of them finished there.
**Scott:** Started, yes, but they didn’t finish there. And I don’t think many of them were only, and I do this in air quotes, only making $100,000. They had two, now I’m assuming that 100,000 is household income, not per person.
**Mindy:** We’ve had, we’ve had several couples who have neither of them made more than $100,000 a year.
**Scott:** Dad, neither, but together that’s like 150 or $175,000 a year, which is a much more normal, is not the right word, I know people are going to email scott@biggerpockets.com to tell him that they don’t want me to say it’s a normal income, but it’s a much more normal to-fi income at $175,000 than it is at $100,000. It just takes a lot of money to reach financial independence because you are taking your 35-year career or your 45-year career and you are compressing it. Well, if you’re not going to make all this money for 45 years, you’re going to have to save a whole lot more in order to be able to reach your financial independence goals.
**Mindy:** So, I I don’t want to agree with you, but I think you’re right. I think even at $100,000 a year, you’ve got to focus on keeping your savings rate at 30, 40, 50, 60%. You need to avoid lifestyle creep, especially if you were in that $45,000 bracket and then increased to 100. Oh my goodness, I got, I doubled my income. Now I can spend more. No, you doubled your income, now you can save more. Again, with the goal of early financial independence, you will have to be saving more. And Ramit encourages you to enjoy your best life, live your rich life. That’s great. He’s not wrong, but living your rich life and achieving early financial independence is not really two goals that you can do at the same time. You can live
