This post was originally published in Oct 2018 but I updated it in Aug 2020 including a funky diagram from www.retireby40.org
The answer, of course, is no.
And yes. But mostly no.
Let’s start with no. You’re not gonna get on the housing ladder let alone get to full financial independence if you’re earning £12,500 a year and everything stays the same forever.
Some say that The Dirty Little Secret of Financial Independence is that income matters and FI is harder for lower income earners.
The Escape Artist says:
DUDE, THAT IS NOT A SECRET! THAT RIGHT THERE IS A STATEMENT OF THE BLEEDIN’ OBVIOUS!!
If that was a secret for you, I have some others:
- The Pope is Catholic
- Elvis is dead (no, sorry….he really is)
- Life is sometimes unfair
- Aberdeen Angus Steakhouses are over-priced
- Hitler was a bit racist
Stories like that of The Fireman (who became a multi-millionaire on a fireman’s salary) show what’s possible, not what’s normal. Whilst teachers sometimes leave millions in their wills, that stuff makes the news because its so unusual and unrepresentative.
Frugality is even more important for low earners
It’s even more important for low earners to avoid getting ripped off by the circus of consumerism, advertising and marketing. This is not (just) my opinion, its common sense.
Do I need to explain that low income people have less scope to get away with ridiculous spending? Well yes it seems I do. If you’re on a low income, you’ll spend a higher % of it on basics like energy. This makes it all the more important to make sure you’re on the cheapest tariff. And yet ~60% of people have never switched energy provider and are on expensive standard tariffs.
And if everyone is so poor, why are they buying shit? Those Premier League new season football kits are not buying themselves. High streets and shopping centres are full of people who are financially self-destructing. To quote The Minimalists:
We are spending money we don’t have, on things that we don’t need, to impress people that we don’t even know
When high income, well educated people live like this it’s i) unwise ii) bad for the environment and iii) a bit vulgar. When people at the bottom of society borrow money trying to live like this, it’s a disaster for them.
Low income now does not mean low income forever
Things don’t stay the same forever. You won’t always earn your current salary.
The Escape Artist started his career on £1.07 per hour. I know what you’re thinking: that’s cheating as it was ages ago and doesn’t reflect inflation. That’s true, I haven’t inflation adjusted it into today’s money. But let me tell you…£1.07 an hour was still shit money back then.
OK, so that was just a holiday job. What about when I got my first proper job at The World’s Leading Accountancy Firm? Obviously a man of my talents would be expecting a princes ransom. So how does £12,500 per year sound to you?
So yes, I did achieve financial independence starting from £12,500 per year.
Earning more is not cheating
Income is not set in stone. The best way that people on low incomes can get to financial independence is by increasing their income (as well as holding down spending). This is not easy but its possible with time.
The Escape Artist is here to tell you that earning more money is not impossible…nor illegal…nor unethical. In Earning More Is Not Cheating, we looked at 5 ways you can earn more money:
- Work harder
- Take more risk
- Do something that others can’t (or won’t) do
- Get a side hustle
- Negotiate better
Unfortunately, none of these come with a guarantee. That’s because there are no guarantees.
How would the complainers know what’s possible for other people?
I’ve worked minimum wage jobs but I don’t know what its like to be stuck at that level. My guess is that its either impossible or very hard to get to financial independence if you get stuck in minimum wage jobs. Unless you are Bear Grylls of course.
I don’t labour that point because a) its fucking obvious b) the readers of this blog are intelligent c) I’m trying to help people here and who am I to tell other people what they can’t achieve?
Through my financial coaching over the last few years, I’ve met people of all ages (18-70), careers (from yoga teachers to fund managers to entrepreneurs) and life situations. Women and men from all ethnic backgrounds. That’s how I know what other people can achieve.
The problem with the complainers is that most are so focused on themselves that they have no idea what other people can or can’t do. How would they know what’s possible for other people they’ve never even met?
There is no One True Path
One size does not fit all and there are many different paths through life.
Just as my path to financial independence does not apply to everyone else, nor does yours.
The Escape Artist does not claim to be normal. If I was attempting self-awareness, I would describe my younger self as an introvert with above-average intelligence, above-average
bolshiness determination and below-average people skills.
This leaves The Escape Artist open to accusations of getting lucky. There is some truth to this: working in finance was easier than, say, coal-mining (although it certainly didn’t feel easy to me).
But if you have good people skills you can make more money in sales than I earned…in a wide variety of industries. You don’t need to be a genius to sell, you need good manners, some charm and an understanding of How To Win Friends And Influence People. You can make more money selling double glazing or with your own plumbing business than I earned in finance.
It’s NOT binary!
If you do an Evil Knievel style motorbike jump over a canyon and you land one metre short of the other side, you fall to your death. You either make the jump or you die: that’s a binary outcome.
Here’s another secret: Pursuing financial independence is not the same as doing a motorbike jump over a canyon.
The reason its different is that when pursuing FI, if you fall a few pounds short of saving say 25x your annual spending you do not plunge to your death.
No, you can just keep working a bit longer. Or do a part time job. Or some paid house-sitting or dog-walking. Or cut your spending a bit. Or claim the state pension. Or lots of things. No need to panic at all really.
If you do the stuff on this website, you will get richer. You might just do a couple of years of frugality to get out of debt. Or you might just want to clear your mortgage and then go part-time rather than aim for full financial independence. That is not failure: there is no failure.
Everyone can improve their situation
Financial independence is a spectrum ranging from someone broke at one end and Warren Buffet at the other end. The question is not whether we can all become Warren Buffett. Clearly we can’t.
The real question is whether more people can move away from the sucker end and towards the Warren Buffett end of the spectrum. In other words, can everyone get better with money?
Yes! This is such an important point that its worth repeating what I’ve said before:
Sometimes people tell me that not everyone can get to financial independence. I file that information under “N” for No Shit, Sherlock. Not everyone can run a marathon in 3 hours either…but more people would be able to run 5 or 10 miles if they put down the fucking donuts and went for a run.
The same principle applies with saving money. It’s not a binary choice between being broke or financially independent. How about being debt-free, having your pension set up properly and a years expenses tucked away as an emergency fund? That’s not full financial independence but it would be a massive improvement for most of the population.
Doing nothing is over-rated
Another criticism of the whole FIRE thing is that not everyone wants to live in a trailer in an RV park doing fuck all all day other than blogging, navel gazing and knitting their own lightbulbs. Again, there is some truth in this. As someone smart once said:
“You can retire from a job, but don’t ever retire from making extremely meaningful contributions in life.”Stephen Covey
Continuing some form of paid work (e.g. working part time or working for a charity or on a lifestyle business) makes the numbers MUCH easier. Its hard to save £2 million pounds earning £10,000 per year of interest (at a 0.5% interest rate on a bank account). But its pretty easy to earn £10,000 per year from a part time job or lifestyle business after you’ve escaped from The Prison Camp.
A period of decompression is wonderful but, after that, doing nothing is over-rated. When you realise that, it brings the “finish line” MUCH closer. If there is a “dirty little secret” of financial independence, its that you don’t need to wait until you’ve got >25x your annual spending before making changes in your life.
How can we help people?
Talk is cheap, actions are what matters. The point of FI blogs like this one is to give actionable steps that low / average income people can follow to improve their situation. Turns out it also works for higher income people….bonus!
The question is not whether there is some magic wand that we can wave to immediately make all poor people rich…there isn’t. The question is whether everyone can get better with money?
I think we all can.
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