ajacobs6 wrote:Many people are underpaid, and living paycheck to paycheck. What was your story for breaking out of this cycle?
In most cases, is the solution really just a higher salary and higher savings rate?
Or is there something else that people should consider? Other forms of income maybe. I may never have millions of dollars in my lifetime, and it's hard to imagine how it is even possible with the average American career.
You've answered your own question - if you're an average American, with average household income and average savings, you will never meet that goal.
If your question instead is "Does a higher salary and higher savings rate mean you can break out of this cycle?" I think you've had many anecdotal stories that say yes. But I would add that these are not average people nor average plans.
- Get a first class education, but don't be over-educated. So I got a 4 year degree.
- Graduate with minimal debt. I worked 30+ hours a week all through college, and graduated with $3k in loans. Which were paid off within a year.
- Work hard, and pursue promotions. I joke that every time I've been ready to leave a job, they kept me by giving me more money. I have left jobs anyway, but my bosses have always been sad to see me go. Staying in one job for more than 3-4 years probably means that you're underpaid for your market. And if you don't leave, they will never be motivated to assess your salary, and pay you equitably.
- Marry someone who works hard, too. My DH also has a 4 year degree, and has been employed since he was 17.
- Be willing to buy a house, and stay in it, for at least 10 years. RE transaction costs are a drag on your ability to save, as is a huge mortgage. Get a mortgage that is not more than 2.5x your annual household income.
- Be willing to learn how to DIY on home and auto maintenance. We've saved tens of thousands of dollars over 30 years by being willing to DIY. Taking care of what you own can save lots of emergencies through the years.
- Stay married.
- Automate your savings. Aim for 15% of gross income to retirement, and another 5% to liquid savings. Invest via low-cost Index funds, and minimize churn, turnover, taxes, and commissions.
- Drive your cars at least 8 years each, preferably for 10 or more.
- Budget for fun. It helps you stay married.
We've had some pretty amazing vacations - 4 weeks in Europe on a shoestring, 2 weeks in the Caribbean for our 25th anniversary, house boating on Lake Powell...You can totally splurge on these things if you've already taken care of the basics.