How Do You Save For Retirement When You Don’t Earn A Lot?

Saving for retirement is challenging when you’re young but even harder when you’re 50 or older. Some of us are making great incomes at 50, but I’m NOT. I’m not the only one, so here’s how I save. 

Why The Old Advice Doesn’t Work for Us?

We’ve all heard the saying, “Pay yourself 10% of your income,” or I like this one “At 50, you’re earning the most money at this age.” If you’re making six figures or more, you have nothing to worry about. 

As long as you live on less than you make and invest most of your money, you’ll be fine in 15-20 years. If you didn’t start investing early, you might not have a million dollars, but you will have a comfortable retirement. 

I’m talking about those of us who are earning less than $20.00 per hour. My job at Lowe’s pays me $14.50 per hour, which equates to $27,144 per year before taxes. 

Thank goodness I don’t have children and a ton of debt besides school loans. I’m not sure what your financial status is, but hopefully, this will help you start saving if you’re not already saving for retirement. 

Can You Save Money With A Small Paycheck?

Yes, you can save money, but you won’t be able to save as much money as someone who makes six figures. While it’s true that the more money you make, the more you have to save. 

According to LendingClub, more than 49% of high-income earners live paycheck to paycheck. Why is this? Well, I can’t speak for everyone else. 

But when I earned a decent income when I worked at the post office, I had more bills. This is because I could afford a better car, house, swimming pool, etc. At least, I thought I could afford it when I really couldn’t. 

My financial literacy was different at 20 years old than it is today. As long as I could afford the monthly payment, I was fine. 

Today, I understand that debt robs me of my freedom, time, and money. So I refuse to carry it. 

So, if you’re like me, working at a job that doesn’t pay a lot, here’s how to save for your future. 

Assess Your Financial Situation

Regardless of your earnings, you must know your financial situation. It surprises me when people refuse to take an honest look at their finances. Instead, they stick their head in the sand because they’re embarrassed or scared to learn the truth. 

If this is you, it’s time to realize you don’t earn a lot, but that doesn’t mean you can’t start saving. 

Here’s what to do so you can determine how much you must earn and how much you can save. 

  • Make a list of your fixed expenses (rent, mortgage, utilities, insurance, school loans)
  • List your variable expenses (groceries, transportation, entertainment, subscription bills, etc.)

I use a Google Drive spreadsheet to help me track my monthly payments. If you’re not sure what you spend, then it’s time to use a budgeting app like YNAB (You Need a Budget app) to help you track every dollar. 

I’m not saying to pay for an app because if you’re like me, you hate subscriptions. The app offers a free 30-day trial at the time of this writing. This may be enough time to see where you’re spending your money. 

At the end of the 30 days, hopefully, you’ll be able to cancel the account and use a Google spreadsheet. 

Calculate Your Net Income

Next, calculate your net income. Your net income is the amount deposited into your checking account after taxes and other deductions from your gross salary. 

You can find both your net and gross income on your paycheck stub. If you’re unsure how to read a paycheck stub, visit this site

Once you have your net income figure, jot it down. If you hold an hourly job, you’ll likely make the same amount every payday unless you work overtime. 

Pay Yourself First

Once you figure out your net income, it’s time to pay yourself at least 10% of your take home pay. Most people will have an excuse, I don’t make enough to pay myself 10%, plus I’m already contributing to my employee’s 401k. 

I understand that excuse because I used to say that too. This excuse works if you’re younger, but if you’re 50 like me, we must do everything we can to shovel money into our retirement accounts. 

If we only save 10% of our income, we’d have to work for another 30-40 years, and we don’t have that much time on our side. 

So let me show you how I pay myself first on a small income. 

Paying Myself First on a $14.50 Wage

At the time of this writing, I work 34-37 hours every week and earn $14.50 per hour. After taxes, HSA, 401k, and medical insurance, I net around $796.00 per pay period. 

Subtract Your Expenses From Your Net Income

Once you’ve figured out your net income, it’s time to figure out how much you’ll need to survive. If you’re like most people, you likely live paycheck to paycheck. If so, then you’ll need to find ways to increase your income.

I won’t discuss how to increase your income in this post since we’re talking about how to save money with a small income. 

For example, my last paycheck at Lowe’s came to $796 after working two weeks, after all the taxes and automatic investments. 

As soon as the money went into my bank account, I made the following money moves:

  • Put $260.00 into my emergency fund
  • I invested $250.00 into my Roth IRA

This left me with $510 to pay my bills and use for my daily living. This doesn’t sound like a lot of money, and it’s NOT, given why it’s essential to have a side gig in today’s economy. 

However, after investing in my future self (which isn’t far at all, considering you can start making withdrawals at 59½), I can now spend my money guilt-free. 

Now, I’m fortunate to have a partner who has a job, so I don’t have to rely 100% on my income. 

How Much Should You Invest?

My financial literacy started when I read “The Richest Man In Babylon.” The book talks about paying yourself at least 10% of your wages. Now that’s fine if you’re young, but when you’re starting late, like most of us reading this post, saving 10% of your income won’t cut it. 

Instead, you should save 40-50% of your income. The more you can save, the better off you’ll be. This is because, unlike a 20-year-old, you don’t have a lot of time for your money to compound. 

If you’re familiar with Warren Buffet, the Oracle of Omaha, you know that he started investing at ten. At 30, he was a millionaire. Today, he has amassed an excess of $100 billion. 

I’m not saying you’d earn that much if you had started investing at a young age. However, if you invested in solid investments and held them long-term, anyone could easily become a millionaire in 30-40 years. 

When you’re starting late, shoveling money into your investments is the only way to catch up on retirement. Now, if you can only save 10% of your income, then that’s better than nothing. The point is that you need to start today. 

There’s no more time for excuses, especially if you don’t want to suffer in your golden years. 

Repeat The Process 

The hardest part is getting started because it makes you take a hard look at your finances. However, once you know where your money is going and how much you need to live, you now have a system you can use to grow your wealth. 

Keep repeating the process of investing every payday, and you’ll start to see your investments grow.

Sure, there may be faster ways to wealth, such as buying real estate, but I never had success with that in the past. 

So, for now, I’m using this system to catch up on my retirement. I’ve gone from having nothing saved at 47 to a net worth of over $100k in all my investments in three years. 

Final Word

It’s no fun when you’re not making much money, but unfortunately, you’re not alone. Regardless of how much you’re earning, you can’t make excuses for being unable to save money. 

Remember, it’s not how much you make. What’s important is how much of your pay that you keep. If you’re unhappy with how much you make, spend some time trying to find ways to earn more. 

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