In this article I will give you a financial freedom guide on low income. As stated before in my other articles, financial freedom is not about having lots of money, but about how you manage your money.
This financial freedom guide on low income will show you how you can quickly move towards financial freedom even if your income is low. I will show you how you can reach your income goals without necessarily needing large amounts to do so.
First things first, we need to define what financial freedom is.
Financial freedom is the status of having enough income to pay one’s living expenses for the rest of one’s life without having to be employed or dependant on others. Income you earn without having to work a job is commonly referred to as passive income. Wikipedia
This definition shows us that financial freedom will mean different things to different people. For one person, an income of $500 – $1,000 is more than enough to cover their living expenses without them having to worry about a thing.
For another person, however, financial freedom may be $10,000 or $100,000 per month, sometimes more. Financial freedom is an individual benchmark.
I dig into this deeper in these articles:
Let’s now get into the step by step methods that you can implement to get well on your way towards financial freedom.
How Can I Save Money With a Low Income?
The following are methods that I learned and teach others. They come from books that I have read and are working out well for me. I suggest you pick one that fits your circumstances best.
In a study of how millionaires in America have built their fortunes, the authors of the book The Millionaire Next Door discovered that most self made millionaires had one thing in common and that was that they managed their money very well.
The key then, really isn’t how much money you make but how much of that you get to keep and put to work for you
The 6 Jars System
I learned this system in the book Secrets of the Millionaire Mind by T. Harve Eker. In this system, he teaches a money management system where you place money into 6 separate jars or accounts.
T. Harve Eker went through years of serious financial challenges in his early to late twenties and failed in multiple business ventures.
It was during this time when he had to move back in with his parents, because he had failed once again, that he turned his life around. One of his Dad’s wealthy friends taught him a simple but powerful wealth principle.
He said to him:
“If you want to be rich, do what the rich do”
This seemingly simple interaction was the turning point in his life and led to him learning the principles that turned him from failure to multi-millionaire within 2 short years.
He developed the 6 Jar method of money management which is responsible for taking him from rags to riches. It goes like this:
Jar 1 – The Financial Freedom Account (10%)
In this jar or account, you put 10% of all the income you get. This money is going to be grown into your golden goose which earns you money at a consistent rate of return. You will want to earn at least 10% per annum from this account.
For example, if your financial freedom amount is $1,000 per month, you want to grow you FFA to $120,000 which earns $12,000 a year or $1,000 per month.
Jar 2 – Short Term Savings For Spending (10%)
Your next 10% goes into this account. Here you are saving for purchases in the short to medium term like new car, phone, PlayStation and other such things that you want to purchase in the short to medium term.
This account can be split up into 2 parts in a situation where you are saving up for 2 things at the same time. In this case, you put 5% in each jar.
Jar 3 – Giving Jar (10%)
In this jar, you put in another 10%. This money goes towards your church or a favourite charity. I am teaching my 8-year-old son lessons on entrepreneurship and giving and I must say the giving part is one of his favourite after the money-making part of course.
Whether you are a religious person or not, there is a power that is found in giving away part of your income and the richest people in the world understand this very well.
The biggest philanthropists on the planet include Bill Gates and Warren Buffet. At one time when Warren Buffet was 2nd on the richest man list after Bill Gates, he actually donated money to the Bill and Melinda Gates Foundation.
This is what the Editor of Forbes magazine had to say in 2008 about this event:
“The amazing thing about Buffett going to the top of the list is that he did it at a time when he was giving away his money,” said Steve Forbes, the magazine’s editor in chief
Giving releases some powers that cannot be explained away scientifically and it will be to your benefit to adopt this.
Jar 4 – Play Account – 10%
This account is your play account where you get to blow everything in it at the end of each month. Take yourself to that fancy restaurant. Go to that weekend getaway or anything else that you consider fun.
This is the part that feeds your mind and soul. It has been discovered that when the mind is not given the opportunity to let loose and enjoy itself at regular intervals, it will sabotage your efforts in wealth accumulation.
You will accumulate money and one day lose it all. It’s because you are not taking the time to feed your soul. You don’t want to do this.
We’ve all heard the stories of people who hoard money while living like paupers and dying never having had enjoyed their money. In some cases they have been discoveries of millions of dollars hidden away after their passing.
Jar 5 – Education Fund (50%)
The money in this account goes towards developing yourself through books, courses, seminars and so forth. If you want to be financially free and do it quickly, one of the things you need to make a habit of is continual self-development.
Doing this regularly places you in the top 3 per cent of the population of the world. It has been said that if you read 4 books on a specific topic you automatically become one of the top 3 per cent of the world’s population who are experts on that subject.
Jar 6 – All Other Living Expenses
This part of your fund goes towards your rent, food, bills, necessary clothes and all other day to day living expenses. Make sure that these all fit within this 50%.
This may mean cutting down on some living expenses and downsizing your accommodation but if you to hit your financial goal quicker, you will want to do this. It is well worth it down the road.
To get a comprehensive understanding of this system, I encourage you to read Secrets of the Millionaire Mind
Now to continue with our financial freedom guide on low income, we will now look at the 30% system.
This system I learned from Jim Rohn through The Ultimate Jim Rohn Library. He has a simpler money management system that he teaches.
Jim Rohn dropped out of school and didn’t go to college. As a young man, he figured that he didn’t need to continue with school as he had found out how to take care of himself.
Life showed him otherwise and a few short years later, he found himself with a family and financial mess. His turning point came when one of his friends introduced him to a wealthy businessman with the words
“You need to meet him, Jim. He’s rich but easy to talk to”
Thus began his journey to wealth as he was mentored from rags to eventual riches. Tragically though, his mentor died a few short years later but the things he taught Jim stayed with him for life.
These are the principles he teaches throughout The Ultimate Jim Rohn Library. One of the many things he teaches here is his money management system. He says that of every dollar you earn, you should keep 30cents.
70% of your income goes to your everyday living expenses but the other 30% should be distributed in the following manner:
10% Goes To Giving
I won’t beat a dead horse here but you see how much the wealthy value giving. Jim advocates giving towards your church, favourite charity or as alms.
10% Active Capital
The next 10% goes towards what he calls active capital. This is money that you put aside with the aim of looking for things that you can invest in to produce an income. You can save up to buy a vending machine that pays you money regularly.
You can buy and hire out a popcorn or ice cream machine for example. The sky is the limit and I’m sure you can look into opportunities around you but the idea is to have something that earns you money which you can then re-invest into other higher-paying projects.
When you do this, you will discover that you can quickly have a situation where you can easily earn more and more money and all in a very short space of time.
What I need to point out though is that for many of us, it will be difficult to start off and do this consistently because of the conditioning we have been accustomed to.
We can overcome this by pushing ourselves to do this process over and over again until it becomes a habit. We are creatures of habit and, fortunately, habits can be formed.
I have seen the power of habits through people around me with good money management skills. They may not earn a lot of money but are able to do a lot with the little money they earn.
10% Passive Capital
The final 10% goes to passive capital. This money can be invested long term at a steady rate of return. Like T. Harve Eker’s approach, consider this your Golden Goose which lays golden eggs.
Continue to nurture and feed this through your active investments and you will see your wealth grow substantially over time.
You can start off with investing in stocks and work your way towards diversifying into investment real estate once you can put up a down payment on an investment property.
One thing that the wealthy have in common as far as their portfolio is concerned is real estate. Think long term and work your way towards financial freedom.
Unfortunately, Jim Rohn passed on in 2008 but he left a large footprint in the business field and life in general. Fortunately, he left us his life-changing wisdom. Check out The Ultimate Jim Rohn Library to learn about Jim Rohn’s life-changing phylosophies.
Let’s carry on with financial freedom guide on a low income. Next up we will look at them:
The 10% System
The last system I want to discuss is found in the book [eafl id=”26″ name=”Richest Man in Babylon” text=”Richest Man in Babylon”]. It is the simplest system in nature and would also be the easiest to follow. What you do here is put aside 10% per cent of your income.
Over time, these savings will grow and you then look at ways of actively growing this amount but you don’t start spending any of the money until you can at least achieve financial freedom passively.
This system in particular has been credited with building massive fortunes by quite a lot of people. The biggest appeal is in its simplicity.
You will discover that when you remove 10% from your income and set it aside, you fare no worse than if you had the full amount. What’s your financial freedom worth to you? Are you at least willing to set aside just 10%?
If you do this for 10 months, you would have set aside a full month’s salary which you can then use to invest in active income sources
Pay Yourself First
When we talk about saving and investing, many of us think of the money left after we’ve paid everyone else. We settle the bills and budget everything else, then, after all is said and done, we invest or save what is left.
If you are reading this article because you are looking for financial freedom guide on low income, then you will usually have nothing left to save and invest and the vicious cycle continues.
One common trait with the above 3 money management systems is that all three teachers of these systems insist on paying yourself first.
If you don’t do this, you will never get out of the rat race. Just in case you don’t understand what paying yourself is, it simply means that the money that goes towards your investments and savings should come out first.
Take out that money right off the top and then allocate what’s left towards other expenses.
I also understand that it you might be so stretched that you say you can’t afford to put aside 10%, 30% or 50% of your income as the systems described here detect, I totally understand.
What I would advise is take away the zeros and start saving 1%, 3% and 5% and then work your way up gradually. The idea is to create a habit with small amounts then build-up to the amounts described here.
Finally, as we get towards the conclusion of this financial freedom guide on a low-income article, I will talk about the 3 step process that will move you towards financial freedom faster.
3 Step Process
1. Go Through Your Expenses One By On
Calculate how much you are spending on everything and look at how you can cut spending. Save money for investing.
2. Study Everything You Can on Stock Market Investment
Study people like Warren Buffet and others, look for a lane then run with that lane. Ask yourself this question “Can you handle volatility?” If your answer is no, stick to savings and save up to a level where you can invest on Real Estate by providing a down payment.
3. Invest in Stocks
There are 2 ways that you can earn from stocks. The first one is stock appreciation where the value of your stocks increases with time and the second way are dividends which are paid out at intervals, for example, every 3 months.
That’s it for this financial freedom guide on a low-income article. I hope that what I shared here has left you off in a better position than before. I would like to hear your thoughts in the comments section below.