You Can Reach Financial Independence Even if You Don’t Earn 6 Figures

By  Opher Ganel

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Wouldn’t it be awesome if there was a real method to get rich quickly?

Unfortunately, the only ones who get rich from get-rich-quick schemes are the scammers who sell them to people desperate to escape poverty.

Worse, our own governments are part of that problem—the lottery—which has variably been called a tax on the poor, on fools, or on the financially illiterate.

The problem is that the only (legal) way for you to make a lot of money is to provide a great deal of value. This isn’t impossible, but it does usually take a long time.

How Much Does One Need for Financial Independence?

If she was still around, my mom would equate that question to one of her favorites, “How many yards of cloth do you need for an orphan’s suit?

Nonsensical, right?

The wearer’s family situation has no impact on the amount of cloth needed, while his size, which does, is left unstated.

Financial independence isn’t determined by a set number of dollars. It depends on your personal situation—the balance between your passive income and your expenses. You can have a $5 million net worth, but if your long-term budget is $250k, you can’t stop working yet, so you’re not financially independent. On the other hand, you can have less than $750k saved up, but if you can live on $50k a year and get $26k from Social Security, you can stop working tomorrow.

Your Path to Financial Independence

Whether your FI (or FU) number is $1 million, $2 million, or any other number, there are several ways you can reach it. Ideally, you want to combine several to maximize your chance for success and reach it as early as possible.

Here’s a step-by-step guide.

Step 1

Review your spending in the past year and identify which things on which you spent money didn’t bring you enough enjoyment to justify the amount spent. Then either cut those out or replace them with something less expensive that would bring you the same or higher level of joy.

Next, see if you can reduce your major expenses by, for example, house-hacking (renting out a room in your house, buying a duplex or quad and renting out the unit(s) you don’t live in, etc.), moving close enough to your job (or business) that you can comfortably live with one car instead of two or with no cars instead of one.

By reducing your current expenses, you free up more money that can be set aside and invested toward your financial independence. It also makes the next step easier.

Chad Budy, Senior Investment Advisor, Aptus Wealth Management says, “I work with quite a few millionaires who never earned 6 figures in their lives. I firmly believe everyone has the capability to become a millionaire, you just need the discipline to create a budget and stick to it.

Investing as much as you can into your employer’s 401(k) or 403(b) plan, who hopefully matches at least 4%, is your first and best option. Once you max that, make sure you have 6 months of living expenses in a savings account.

Once that’s done, invest any surplus through dollar-cost averaging, investing the same amount every month, so you buy more shares when prices are low and fewer when prices are high. That reduces your average share cost.”

Alexis Woodward, CFP®, CDAA™, Co-Founder and Wealth Advisor, Blend Wealth agrees, “You don’t have to make 6 figures to be a millionaire at retirement, but you do need to have a plan and execute it. The best thing is that your plan can be as simple as spending less than you make, investing the rest, and sticking with it as long as possible.

It helps to reach out to a financial planner to define your goals, determine the exact savings amount you need to retire when you want, and begin to implement your plan as soon as possible!

Step 2

Look far into the future (whether a decade or several depends on your age, your current net worth, and how long you’re willing to keep working toward your FI point). What do you expect to need to spend money on, what do you expect to want to spend money on that will bring you joy, and how much? You can use a handy Wall Street Journal tool fixing its few shortcomings as described there.

The lower you get your current budget, the less money you’ll likely need in your long-term budget, which reduces your FI number. For example, if you needed $80k last year and reduce that to $70k from this year on, you’ll be adding that extra $10k per year toward your investments, but will also likely reduce your FI number by more than $285k! This assumes a 3.5% safe first-year draw.

If your long-term budget is $100k, your financial independence number (I leave it to you to decide whether you call it your FI number of your FU number 😉) is about $2.86 million. If you’re expecting a $30k Social Security benefit, that reduces your portfolio draw to $70k, which drops your FI number to $2 million.

However, if you can reduce your long-term budget to $65k, and expect that same $30k from Social Security, your FI number just dropped by half to $1 million. That would be how much you personally need to reach your own financial independence.

Paying off any high-interest-rate debts you may have is especially important for this, including especially credit card debt, unsecured debts, and possibly student loans. You can figure out your best way to achieve this here.

You can also look into whether you can live more comfortably for less by moving someplace that:

  • Is safe
  • Is close to family
  • Has a lower cost of living
  • Has lower taxes especially on Social Security benefits and retirement income
  • Has moderate weather
  • Has lots of things to do that you’d enjoy and that aren’t expensive

Step 3

Increase your earnings by doing one or more of the following.

  • Invest in yourself by getting trained in something you’d enjoy doing and that would make you more effective and productive at work (some employers will not just cover the cost of such training, but will even pay your regular salary for time spent in training).
  • Figure out what you can do to make your supervisor’s job easier and volunteer to take on that responsibility. This will make you indispensable for your supervisor, which may lead to a (higher) raise, possibly with a promotion.
  • Figure out what you enjoy doing that solves a problem that people want solved or provides something they want and build a side hustle around it. This could be a service you provide (e.g., dog walking, personal shopping, etc.), writing on a website that pays for content (e.g., Medium’s partner program), making craft items and selling them (e.g., through Etsy), finding small treasures at garage and estate sales or on Craigslist and reselling them (e.g., on eBay), etc.
  • Start your own business. This is the extreme end of the previous point, wherein you make enough through your side hustle that it makes more sense for you to give up your 9-to-5 job because you’ll make enough extra from your business by being able to concentrate on it, that you’ll more than replace your salary (don’t forget to account for any and all benefits your employer covers, including at least the employer side of Social Security and Medicare taxes).

Step 4

Invest for passive income. Every dollar you reduce from your expenses, and at least half the extra dollars you bring in, should go to investing for your FI. This investment can and should be properly diversified, tax-efficient, and with a risk level aligned with your personality (so you don’t panic-sell when, not if, the market crashes) and your time horizon.

The main avenues you should consider are:

  • Stock mutual funds and/or exchange-traded funds (ETFs)
  • Real estate
  • Growing your business (if and when you have one)

Most experts recommend including at least some allocation to bond mutual funds or ETFs. While I personally don’t invest much of my portfolio in those because the bonds’ historic inflation-adjusted returns are minuscule, your personality and personal situation may make them a valid option for you. This is especially so if you’re getting within a few years of when you’ll want to call it a career and/or are willing to take longer to reach FI in order to reduce the ups and downs of your portfolio.

Over time, as your portfolio grows, its returns will become a larger part of your overall income. Ultimately, once it grows to more than 28.6x of the difference between your long-term budget and what you may be getting from Social Security, pension, and/or annuities, you’ll have reached financial independence.

You Don’t Need to Be Earning 6 Figures to Reach Financial Independence

As I show here, if your income never grows above $84,500 throughout your career, you can still build a nest egg of over $3 million after adjusting for inflation!

The short of it is that you need to start early (e.g., when you’re 20), set aside 10% of your likely meager income at that point, then, each time you increase your earnings, divert half of the extra income to your long-term investments. If and when your income drops, reduce the amount you set aside by half of that income decrease.

If you’re not comfortable with an aggressive investment stance, subtract your age from 120, and let the resulting number be the percentage of your portfolio that you allocate to stock mutual funds or ETFs.

The Bottom Line

There are multiple paths to financial independence, and if you use several of them, you’ll need less time to achieve it. In brief, those paths are becoming more frugal, increasing your earnings, investing for passive income, and building a successful business.

Disclaimer: This article is intended for informational purposes only, and should not be considered financial advice. You should consult a financial professional before making any major financial decisions.

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About the Author

Opher Ganel

My career has had many unpredictable twists and turns. A MSc in theoretical physics, PhD in experimental high-energy physics, postdoc in particle detector R&D, research position in experimental cosmic-ray physics (including a couple of visits to Antarctica), a brief stint at a small engineering services company supporting NASA, followed by starting my own small consulting practice supporting NASA projects and programs. Along the way, I started other micro businesses and helped my wife start and grow her own Marriage and Family Therapy practice. Now, I use all these experiences to also offer financial strategy services to help independent professionals achieve their personal and business finance goals.

Connect with me on my own site: and/or follow my Medium publication:

Disclaimer: To make Wealthtender free for our readers, we earn money from advertisers, including financial professionals and firms that pay to be featured. This creates a natural conflict of interest when we favor their promotion over others. Wealthtender is not a client of these financial services providers. Learn how we operate with integrity to earn your trust.