Where do I find financial advice for low income earners?
October 30, 2013 9:39 AM Subscribe
I understand there isn't much money in providing it, but where is the advice for people who make an income lower than 30k that doesn't involve pooling income with a partner with similar goals and income (Dave Ramsey), or assuming that this period is merely a temporary bump on a road that leads to eventually becoming solidly middle class (Suze Orman's YB&F)?
As someone between a poverty level and lower middle class income, I could use some financial advice, but all I receive in conventional - and even the unconventional "early retirement" - forums from people who make around 40k per person is "Have you tried making more money?", which is essentially "Let them eat cake." I'm simultaneously told of the power of compounding interest and that it's best to start early, but also that I'm too poor to consider retirement investment (at an income that's fairly common among younger people) and would be best served by accumulating more debt to make a higher income. So, what am I supposed to be doing and where would be some good places to start? I've read a bit and haven't found anything geared towards people in my situation, despite the fact that it's not particularly uncommon.
As someone between a poverty level and lower middle class income, I could use some financial advice, but all I receive in conventional - and even the unconventional "early retirement" - forums from people who make around 40k per person is "Have you tried making more money?", which is essentially "Let them eat cake." I'm simultaneously told of the power of compounding interest and that it's best to start early, but also that I'm too poor to consider retirement investment (at an income that's fairly common among younger people) and would be best served by accumulating more debt to make a higher income. So, what am I supposed to be doing and where would be some good places to start? I've read a bit and haven't found anything geared towards people in my situation, despite the fact that it's not particularly uncommon.
I'm unclear why you're not taking the "start early, save as much as you can" advice and ignoring the parts that don't suit you. The early-retirement-type advice for cutting your spending works for anyone trying to live on a lower income. Much of the investment strategy advice is the same, too - figure out if it makes sense to save tax-deferred (if you have the option) or not (if you don't expect to be in a higher tax bracket in retirement, pre-tax may be better than, say, a Roth IRA). Pick funds with low fees, leave your money in, don't try to game the market.
Do you have a more specific question? Or are you just as baffled as I am at a lot of people's income expectations?
posted by momus_window at 9:54 AM on October 30, 2013 [1 favorite]
Do you have a more specific question? Or are you just as baffled as I am at a lot of people's income expectations?
posted by momus_window at 9:54 AM on October 30, 2013 [1 favorite]
There are plenty of independent financial advisor who work on an hourly rate rather than sales commission. We've got one, and while unlike you we're a married couple, similarly to you we're supporting our entire household on a marginal single earner, lower middle class income.
And you are not too poor to consider retirement investment, that's a load of crap; I've made payments as low as $25 a month to our retirement account.
posted by DarlingBri at 9:54 AM on October 30, 2013
And you are not too poor to consider retirement investment, that's a load of crap; I've made payments as low as $25 a month to our retirement account.
posted by DarlingBri at 9:54 AM on October 30, 2013
When you are starting out it really isn't that complicated.
Step 1. Build up an emergency fund. Make you first goal $1000, or some number that would give you a cushion against a surprise car repair or minor medical bill. Then try to build it up to a couple of months of living expenses.
Step 1.5 - Start saving for retirement, even if it's only $25 a month. If your job has a 401K commit at least enough to take full advantage of any company match. If you don't have a 401K open an IRA account at Vanguard and set up an automatic transfer from your checking account. Vanguard has pre-set up portfolios based on your expected retirement date. Pick the one that matches up with your age and start investing.
If you can't afford to do either of those then you really do need to earn more or spend less, or both.
posted by COD at 10:03 AM on October 30, 2013 [2 favorites]
Step 1. Build up an emergency fund. Make you first goal $1000, or some number that would give you a cushion against a surprise car repair or minor medical bill. Then try to build it up to a couple of months of living expenses.
Step 1.5 - Start saving for retirement, even if it's only $25 a month. If your job has a 401K commit at least enough to take full advantage of any company match. If you don't have a 401K open an IRA account at Vanguard and set up an automatic transfer from your checking account. Vanguard has pre-set up portfolios based on your expected retirement date. Pick the one that matches up with your age and start investing.
If you can't afford to do either of those then you really do need to earn more or spend less, or both.
posted by COD at 10:03 AM on October 30, 2013 [2 favorites]
Poorcraft is a great book, and the sequel for travelling is coming out soon.
YNAB has free classes that I think are applicable to lower income as well as higher income. You don't have to buy the software to get familiar with their advice and implement it. The four basic rules, if they could be managed on the lower income (if they can't chances are somebody really isn't making enough income for their expenses, and there's not a lot of advice that can help that other than reduce expenses or increase income), would significantly reduce stress. The first parts of implementing the system can be very difficult, especially if someone has been really struggling with debt, but after that it gets easier.
posted by foxfirefey at 10:07 AM on October 30, 2013
YNAB has free classes that I think are applicable to lower income as well as higher income. You don't have to buy the software to get familiar with their advice and implement it. The four basic rules, if they could be managed on the lower income (if they can't chances are somebody really isn't making enough income for their expenses, and there's not a lot of advice that can help that other than reduce expenses or increase income), would significantly reduce stress. The first parts of implementing the system can be very difficult, especially if someone has been really struggling with debt, but after that it gets easier.
posted by foxfirefey at 10:07 AM on October 30, 2013
I wrote a longish response saying about the same thing as foxfirefey about YNAB, so I'll just go ahead and nth that sentiment. The videos, classes, and articles do a fantastic job of addressing how to deal with what you have, particularly on a low or uneven budget. That includes what to take care of first when you don't have the money for everything, and how to meet longer term needs and goals.
posted by moira at 10:18 AM on October 30, 2013 [1 favorite]
posted by moira at 10:18 AM on October 30, 2013 [1 favorite]
(Also nthing that saving small bits at a time is worthwhile.)
posted by moira at 10:20 AM on October 30, 2013
posted by moira at 10:20 AM on October 30, 2013
The advice for people in this income range is budget budget budget. Savings=[Income]-[Expenses], so either income has to go up or expenses have to go down, or both.
YNAB is great, and worth the money imo.
Use your budget to do the following in this order:
1. Build a 6 month emergency fund (either 6 month expenses or 6 months income, whichever you feel more comfortable with); you an also have separate funds for car repair, dog emergencies, health care deductible, etc.
2. Pay off debt (snowball or avalanche method): Unbury.me is a good tool
3. Fund retirement accounts
4. Fund post-tax investments (decide what your goals are and save for those based on your risk profile -- vacation fund, house fund, rental properties, art, stocks/bonds, etc)
Reddit's /r/personal finance and /r/frugal are good resources.
posted by melissasaurus at 10:27 AM on October 30, 2013 [1 favorite]
YNAB is great, and worth the money imo.
Use your budget to do the following in this order:
1. Build a 6 month emergency fund (either 6 month expenses or 6 months income, whichever you feel more comfortable with); you an also have separate funds for car repair, dog emergencies, health care deductible, etc.
2. Pay off debt (snowball or avalanche method): Unbury.me is a good tool
3. Fund retirement accounts
4. Fund post-tax investments (decide what your goals are and save for those based on your risk profile -- vacation fund, house fund, rental properties, art, stocks/bonds, etc)
Reddit's /r/personal finance and /r/frugal are good resources.
posted by melissasaurus at 10:27 AM on October 30, 2013 [1 favorite]
where is the advice for people who make an income lower than 30k that doesn't involve pooling income with a partner with similar goals and income (Dave Ramsey)
I have read/listened to a lot of Dave Ramsey and my conclusion is that while his audience is largely families rather than single people, many many families in his demographic have just one income (and not necessarily a high income at that) because there is a stay-at-home parent. His advice is pretty universal; the numbers just scale up or down proportionate to the income you're starting with. Two caveats, he does stress home ownership which may or may not apply, and he does offer different advice regarding things like emergency funds depending on how many incomes are coming in (e.g., a smaller emergency fund if there are two incomes, a larger one if everything is depending on one income). OK, third caveat, he is a blowhard and he does come out with that "get a second or third job" stuff which is easy for him to say from the comfort of his studio. So you do have to tune some stuff out, but the bones of his program work for everyone.
Another plan that scales well is Elizabeth Warren's All Your Worth. She has great empathy for people with lower incomes and while her earlier work focused on "the two-income trap" this book is equally applicable to singles.
posted by payoto at 10:54 AM on October 30, 2013
I have read/listened to a lot of Dave Ramsey and my conclusion is that while his audience is largely families rather than single people, many many families in his demographic have just one income (and not necessarily a high income at that) because there is a stay-at-home parent. His advice is pretty universal; the numbers just scale up or down proportionate to the income you're starting with. Two caveats, he does stress home ownership which may or may not apply, and he does offer different advice regarding things like emergency funds depending on how many incomes are coming in (e.g., a smaller emergency fund if there are two incomes, a larger one if everything is depending on one income). OK, third caveat, he is a blowhard and he does come out with that "get a second or third job" stuff which is easy for him to say from the comfort of his studio. So you do have to tune some stuff out, but the bones of his program work for everyone.
Another plan that scales well is Elizabeth Warren's All Your Worth. She has great empathy for people with lower incomes and while her earlier work focused on "the two-income trap" this book is equally applicable to singles.
posted by payoto at 10:54 AM on October 30, 2013
An unfortunate truism is that no matter how little or much you take home, your expenses will always consume all of it. The only remedy I know of is to make your first expense investing in yourself. Set a firm, unshakable percentage of your take-home pay you will invest, say 10%. If your monthly take-home is $1500 then $150 is invested. You get a promotion and a raise and are now bringing home $2000 a month, $200 is invested. As for what to invest in, it has to be a measure of your acceptance or aversion to return, risk and fungibility. I would would suggest looking at the products offered by a reputable brokerage (I use Vanguard) and find something that meets your needs and you are comfortable with, including IRA's. But the hard part is being resolute and investing in yourself first, without fail...
posted by jim in austin at 10:56 AM on October 30, 2013
posted by jim in austin at 10:56 AM on October 30, 2013
One book that has helped me and also changed my thinking is: The Tightwad Gazette I've linked to a review, so you can see what types of info are in the book. Published in the 90s (originally as a series of newsletters), it gives tips and tricks to save money, which are particularly useful if you are not spending that much in the first place. A lot of tips on how to save money on food and clothes, and lots of basic recipes. If you are already a frugality expert this would not be for you, otherwise it is definitely worth checking out. She has a "it's not how much you earn, it's how much you save" approach.
Basically the book covers how to looks at all your expenses and find some way to save on them so that you can then save money for an emergency fund/ buying a house, etc...
Many libraries have copies (was originally a series of 3 books) so you may want to go that route.
posted by bessiemae at 11:25 AM on October 30, 2013
Basically the book covers how to looks at all your expenses and find some way to save on them so that you can then save money for an emergency fund/ buying a house, etc...
Many libraries have copies (was originally a series of 3 books) so you may want to go that route.
posted by bessiemae at 11:25 AM on October 30, 2013
Tightwad Gazette is often quite kooky, though.
Your Money Or Your Life is good at providing a framework and a set of concrete steps for evaluating and changing finances; as its subtitle suggests it is very much about "relationship with money" stuff. I was fairly low-income when I read it and found it very useful.
(The usual caveat with YMOYL is: its investment advice of "everything in Treasury bonds/bills" is not so great for long-term growth; when you get to the point that you are investing for the long-term, look elsewhere for better advice. The Bogleheads Guide is a good starting point. Although this may have been revised in the new "21st century" edition of YMOYL; my experience is with the 1993 edition.)
posted by We had a deal, Kyle at 11:57 AM on October 30, 2013
Your Money Or Your Life is good at providing a framework and a set of concrete steps for evaluating and changing finances; as its subtitle suggests it is very much about "relationship with money" stuff. I was fairly low-income when I read it and found it very useful.
(The usual caveat with YMOYL is: its investment advice of "everything in Treasury bonds/bills" is not so great for long-term growth; when you get to the point that you are investing for the long-term, look elsewhere for better advice. The Bogleheads Guide is a good starting point. Although this may have been revised in the new "21st century" edition of YMOYL; my experience is with the 1993 edition.)
posted by We had a deal, Kyle at 11:57 AM on October 30, 2013
Get Rich Slowly has been declining of late, but the earlier articles are very helpful to get you in the right mindset to put a little aside each time you get paid and understanding how that can build up.
posted by xingcat at 12:04 PM on October 30, 2013
posted by xingcat at 12:04 PM on October 30, 2013
I'm a big fan of Gail Vaz-Oxlade. She's Canadian, but full of good general advice about personal finance.
posted by futureisunwritten at 2:43 PM on October 30, 2013
posted by futureisunwritten at 2:43 PM on October 30, 2013
Depending on where in life you are and how you make your money, one of the most powerful changes on a low income could be moving to a place with a low cost of living. $300 rent versus $1000 rent doesn't make that huge of a difference with a high income, but can completely rewrite a budget if you don't make much. And decent houses under $100,000 can bring homeownership within reach on a low income.
A lot of the rust belt offers that kind of pricing, and there are parts that have OK-to-decent public transit that means you won't have the expense of a car commute, versus places like Atlanta or Florida where housing can be cheap but a reliable car is essentially required.
posted by akgerber at 8:42 PM on October 30, 2013
A lot of the rust belt offers that kind of pricing, and there are parts that have OK-to-decent public transit that means you won't have the expense of a car commute, versus places like Atlanta or Florida where housing can be cheap but a reliable car is essentially required.
posted by akgerber at 8:42 PM on October 30, 2013
Basically it's down to, you still have to live on less than you earn, it's just even more of a struggle than most people.
Sometimes it's kind of easier, in terms of - can I afford that luxury? No. None of them. No pesky decision making!
If you're poor, you're too poor to be in consumer debt.
If you're poor, you need emergency savings that you don't touch (that's the hard bit!), because you need to not get in debt.
You probably have really crappy accommodation. Sometimes if you do manage to earn a little more, people want to spend it on rent for a better house. Reality is, stick it out in the cheap scummy rentals and shared houses, until or unless you can upgrade for less than 25% of your take home. Seriously, I felt like I'd 'made it' when I hit that, but I was also sticking it out in rental situations at least 1/3 cheaper than most of my friends. Lowered standards, yo.
But I *had* made it, in the sense that I was actually able to save money on my low-low income.
Exception being if Dr's costs from mould etc are outweighing your rent. Find a drier cheap flat. :P
Also, retirement savings are usually proportional to how much you live on now. So, if you have any social safety net at all, it might not take much savings to continue living in the manner to which you have been accustomed.
Most of it's really just, trying to make sure you stay healthy, happy, and have a sustainable life on a low income.
posted by Elysum at 9:03 PM on October 30, 2013
Sometimes it's kind of easier, in terms of - can I afford that luxury? No. None of them. No pesky decision making!
If you're poor, you're too poor to be in consumer debt.
If you're poor, you need emergency savings that you don't touch (that's the hard bit!), because you need to not get in debt.
You probably have really crappy accommodation. Sometimes if you do manage to earn a little more, people want to spend it on rent for a better house. Reality is, stick it out in the cheap scummy rentals and shared houses, until or unless you can upgrade for less than 25% of your take home. Seriously, I felt like I'd 'made it' when I hit that, but I was also sticking it out in rental situations at least 1/3 cheaper than most of my friends. Lowered standards, yo.
But I *had* made it, in the sense that I was actually able to save money on my low-low income.
Exception being if Dr's costs from mould etc are outweighing your rent. Find a drier cheap flat. :P
Also, retirement savings are usually proportional to how much you live on now. So, if you have any social safety net at all, it might not take much savings to continue living in the manner to which you have been accustomed.
Most of it's really just, trying to make sure you stay healthy, happy, and have a sustainable life on a low income.
posted by Elysum at 9:03 PM on October 30, 2013
Absolutely start putting a little money into a Roth IRA. I started late and wish I'd started earlier. This is a must and there's no excuse not to start asap.
If you live in an expensive area, focus on getting your rent down, either by hunting down low income housing in a good area (literally find management companies that handle them and keep bugging them) and eventually buy a house/apt/coop for low income people that's in a good area. I did the first, which allowed me to save and do the second. Research all the government programs out there that can help you. If possible, rent/purchase a low income property with two bedrooms minimum, which allows you to rent out a room to help cover your monthly housing costs.
Keep your credit history and landlord references pristine.
posted by lillian.elmtree at 1:56 PM on November 3, 2013
If you live in an expensive area, focus on getting your rent down, either by hunting down low income housing in a good area (literally find management companies that handle them and keep bugging them) and eventually buy a house/apt/coop for low income people that's in a good area. I did the first, which allowed me to save and do the second. Research all the government programs out there that can help you. If possible, rent/purchase a low income property with two bedrooms minimum, which allows you to rent out a room to help cover your monthly housing costs.
Keep your credit history and landlord references pristine.
posted by lillian.elmtree at 1:56 PM on November 3, 2013
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posted by UncleBoomee at 9:53 AM on October 30, 2013 [3 favorites]