Building Wealth On A Moderate Income

Most people here are in the tech industry and probably have been making a six-figure salary from the beginning. You might not find anything worth following here but those of us in different fields move up slowly and might benefit from my experiences. There is no magic formula, most of it is discipline, frugal living, delayed gratification, and not competing with others.

We all think that higher-income equals to higher savings. This is true in most cases, but a lot of wealth-building also depends on our saving habits (and a bit of luck).

This morning, I checked our net worth and I was a bit (pleasantly) shocked to see 7-figure which prompted me to write down our financial journey to million-dollar net worth. We are in the early 40s (I am 41, DH is 43), have two children (7 and 5), and no substantial extra income. My husband and I met when he was a graduate student and I was a postdoc. I have been in the USA for 15 years now and married for 11. Out of 15, first 9 years, I made less than $50,000 (between 35-50k) and our combined income for first 5 years of marriage was ~ $80-90k, for a year we made ~140k, and for the last 5 years, we both have been making six-figure salary (our annual income fluctuates according to the federal funding we have). We do not have any help from either side of parents. We have two children; both were/are in daycares. Our kids also do extracurricular activities (Martial arts, Gymnastics, Ski lessons, private swim lessons, camps, etc.). My son now goes to a public school and DD is still in preschool/daycare.

So how did we build our personal net worth? A few things first:

1. If you are a two-income family, try living on one income and use the second income for savings/ fun experiences. If you are a high single income family, try living on 50-60% of your income.

2. Everything is negotiable. I have always negotiated salary, moving expenses, etc. Negotiating car prices is a common practice but you can also negotiate a better price for kids’ activities if pay in full for a year. We received a 20% discount for paying the Martial arts fee for our son for a full year. Negotiating the internet and phone bills is a good strategy. When it comes to insurance, we like to stay with our insurance company that we have built a good relationship with instead of changing. I still call them occasionally to see if they can find a better rate for us and they usually do. When we bought our house, it was sellers’ market and houses were going off the market within 24 h with higher than asking price so negotiating a lower price was out of the question but we did ask the seller to leave all appliances which he agreed to. It saved us a few thousand $ because we didn’t have to buy a refrigerator and Washer/Dryer immediately.

3. You don’t need to be a financial guru to save. We don’t buy individual stocks/shares. We spend pretty much no time balancing our portfolios. All our retirement funds are in Target Retirement funds (2045 retirement funds). We have CDs that earn ~2% interest for some money and some we keep in savings (~1.5% interest). That’s it!

4. Saving early is the key! If you earn an income, save a percentage of it. It doesn’t matter how little, just put away some money. We were lucky that we lived in SE and Midwest for the first 6 years of our marriage, the lower cost of living helped us save. We have also been earning (even if it has been low) for half of our lives. I started receiving a scholarship from 9th grade (State toppers received scholarships back then and I topped in 8th and 10th board exams), and real (ish) salary starting from graduate school (qualified JRF) + I had decent scholarships for abroad studies through DBT/Johns Hopkins during my PhD. By the time I earned my Ph.D. (at ~26) and started a postdoc, I knew how to handle money. I let slip my frugal habits when I first moved to USA and was coming out of the abusive marriage but thankfully it didn’t do much damage. My DH worked during summers throughout school and saved the little money that he earned. We have been earning for over 15 years.

5. Don’t lose focus on what is important to you. For us, traveling/India trips, monthly lunches with our lab members, and helping my family financially is very important. If by doing this we save a bit less or it would take another 1-2 extra years to pay off the mortgage, we are fine with that.

Lesson 1: Pay yourself first. Ever since I got my first job in the USA, I have been saving in retirement accounts. When I started postdoc, retirement seemed far away but my university offered a 6% match and I put 6% in the 401a. My husband has been saving in ROTH IRA ever since he started working as a technician before starting grad school and continued throughout graduate school. I started saving in ROTH IRA after we married. Before we had kids, we also saved in our individual 403 and 457b plans. Since joining our new jobs ~5 years ago, we have been putting 15% towards retirement (with a 15% match from the employer, total 30%), maxing out our ROTH IRAs and putting money in 529 college plans that we started right after kids' birth. We also have FSA and HSA plans and invest through HSA. Take home message: Saving early (even a small amount) can help build wealth because of compound interest. Neither of us had any debt (except for my car payments) when we got married and that helped too.

Lesson 2: Budget doesn’t have to be restrictive and it should make sense. I don’t budget extensively. No envelope system or coupons for us. I tried monthly budget for a while but something will come up and throw off the budget. Then I learned about the yearly budget and had better luck with it. Instead of every month, we sit down at the beginning of the year and decide what our priorities are: long term, short term, and immediate goals. Once we have a general idea of what we want to save for, we check our annual expense (credit card, debit card statements) and divide it by 12. That is our rough monthly expense. We also look at different categories to see where most of our money went and try to cut back if we see overspending. Once I have this knowledge, I figure out what our monthly savings should be and I transfer that amount in the separate savings (high-interest savings) account as soon as we get paid. The rest is for monthly spending and extra money in that account if something comes up. The annual budget helps me account for the insurance, Camps fee, travel, birthday presents, Christmas, and other misc. that won’t happen on a regular basis. It also helps when we go over our estimated spending in one category, we just cut somewhere else. For instance, if we spend more on eating out one month, I won’t spend on clothing that month to balance. Take home message: Budget works well when expectations are clear and there is room for emergency expenses.

Lesson 3: Living below your means doesn’t mean you live a miserable life. Actually it is the opposite. By paying ourselves first, we always have money for our wants. My main spending is on clothing and home organization stuff. My DH’s main spending is on camera equipment. Other than this, we are pretty simple people. We don’t buy branded stuff for kids. I mostly get their clothes and shoes from Ross, Walmart, Kohls, or Zulily. We also exchange kids’ stuff with our friends. Before buying anything big/expensive, I first check the local craigslist. Last year, I found a new in box dollhouse for my daughter for $50 instead of $300 that I was going to pay for it. Similarly, we found mountain bikes for DH and me for $100 total and paid $50 for tuning. We spend money on what’s important for us (I help my sister financially and my parents as needed). By spending money on things that we value while saving on things that aren’t important for us also allow us to enjoy what we have. For instance, we have prepaid phone plans for $35 each which is enough for us while have a cleaning service every other week and sometimes every week.

Lesson 4: Not keeping up with Jonases can help save big time! A mansion, new cars every 5 years, exotic vacations….all sounds good if one can afford it. But knowing your finances and making sure you spend below your means can help in the long run. Right before our wedding, I bought a 2 BR condo. I made sure to live by the rule of buying the house no more than 2.5x of annual income (which is hard on a $40k salary). I had very little money for down-payment and was too proud to take from my then fiancé. It wasn’t the best time but in retrospect, it was a good decision. It was enough space for us. My DH moved in with me and with two incomes and by splitting expenses we were able to save (the mortgage +HOA were less than the two rents we’re paying). I also received a first time home buyer credit which helped with the wedding expenses. When we moved out of the state to start our first higher-income jobs, we didn’t change our lifestyle. We rented the condo to our friends and rented a similar-sized house in our new place.

Lesson 5: Not buying a house that the bank tells you is a fantastic decision. We accepted jobs out of state again 5 years ago and decided to buy a house in the new place. Going from Midwest to the west coast was an eye-opener. We didn’t realize that houses were at least 3x more expensive than Indiana. We decided what we really wanted in the new house and what we can live without- 4 BR, no fixer-upper, good school district, and a backyard was our list of essentials. We found a house that was 6-year-old and was exactly what we were looking for (even though it was expensive at ~3x annual income, although the bank said we could afford a bigger, more expensive house). It had everything we wanted (not necessarily needed)- large sqft so enough room for kids, good size backyard + national forest land in the back means no neighbors behind us…just wilderness and every window have a view of snow-covered peaks, a river flowing nearby)…more than what I hoped for. We sold the condo right before buying the house (with a profit) and were able to put 18% down payment (we wanted to put 20% down but we had taken about 9 months off work (6 months unpaid) after our daughter was born so we depleted some of the savings during that time.

We also waited to buy furniture for our new house until we were settled in and had some savings. Instead of buying everything new, we looked for Estate sales and bought beautiful pieces for a fraction of the original cost. The only thing we spent a significant amount was our custom-built couch (because of circular seating). We slowly made our house home by decorating with our individual taste instead of buying everything at once and depleting our bank account.

Lesson 6: Paying off the mortgage early can save a lot in interest: We opted for a 30 yr fixed mortgage in 2015 and recently switched to 15 yr. We have been aggressively paying our mortgage. Although most financial advisors (and our friends) would suggest keeping the mortgage for as long as we can to get the tax refund and because the mortgage rates are historically low, we still decided to pay off as soon as we can. We both want to be debt-free. If we ever want to change career, we won’t have to worry about two incomes, we will be able to live off comfortably on one. Additionally, most of the mortgage payment goes towards the interest in the initial years so paying more, in the beginning, makes sense.

Lesson 7: Buy a car that you can pay cash for or keep for a long time: A car is a necessity in most US cities and ours is no exception. I bought my first car brand new in 2007 and kept it until last year. My DH got his car as a graduation present from his grandpa and drove until 2017. We sold his car to buy a minivan and recently sold mine to get an AWD SUV that we needed in our mountainous region. Both vehicles are pre-owned (~20-25k miles on both). We also waited until we could pay cash (both were under 25k each). We could have bought new cars sooner but we decided on delayed gratification and saved up first. We were also lucky to get federal funding in year 1 (DH) and year 2 (I) and the extra salary helped us pay cash for cars.

Lessons 8: There is no such thing as free money. A credit card can get you in trouble if not used wisely: In graduate school, one of the students told me that she takes credit card advances because that is why we have the credit limit. She also suggested to never pay the credit card in full “because by keeping balance on the card helps you with a credit score.” I never had a credit card in India and was new to this financial system, I thought she knew better because she had been in the USA for 5 years.

First (and only) time I withdrew a cash advance from my credit card, I realized there was a large fee on my account. I called the credit card company and they explained to me that the credit advance is not free. You pay fees and interest (and very high-interest rate). I never ever took any advances from the credit card again. The same thing goes with the late fees. Make sure to pay the credit cards on/before the due date to avoid a high fee.

Lesson 9: Use credit cards to your advantage. Credit cards aren’t evil if used wisely. I don’t use much cash. All my expenses are either on credit or debit cards (mostly credit cards). We pay in full every month and I check my credit card online almost daily so I know immediately if there is a spurious charge. I use cards with airline miles’/ travel cards and Amazon card that allows us to use points as cash. I usually open an airline card when they have a 60-70k miles offer and if we have a trip coming up. I have used miles to pay roundtrip to India, a one-way trip to four of us to Europe, and twice RT for all of us within the USA. I save the Amazon cash points for birthday/Christmas gifts.

Lesson 10: Know why you are saving. Everyone’s goals are different. Knowing the goal that we are saving for makes saving more fun. Our goal for the first few years was to save enough for the down payment of a house and build the nest egg by putting extra in retirement. Once, we reached that goal, our next goal was to save for new vehicles and pay off the mortgage as much as we can while building college and retirement funds. Our new goal is to save for a vacation home.

Lesson 11: When life throws lemons….Divorce, immigration expenses do add up- A LOT! I had quite a lot of expenses in my first year and a half in the USA: divorce case, green card (GC) application, etc. I didn’t have to pay for the attorney fee for GC (paid through the university) instead I had to pay the Government fees at every step. It only took 6 months on EB1 for my application to get approved which I didn’t expect. But saving consistently throughout the year helped with these expenses. It was hard to plan how much my divorce would cost but I managed somehow, I had to borrow some money from a friend that I returned as soon as I could and lent her some money when she needed and I was in a comfortable position.

Additional Money: We have been lucky throughout our careers. As a visiting graduate student, I received a better/higher fellowship than most students and although I lived in Baltimore, an expensive city, I was able to save for traveling back and forth to India for my defense and move back to the US for a postdoc. I negotiated my postdoc salary and moving expenses every time I moved and that extra money helped with settling in a new place and a little bit of cushion for travel for fun and gifts for my family.

I also received awards pretty much every year with 0.5-5k amounts. My in-laws give us gifts (usually cash) for birthdays, mother’s/father’s day, anniversary, and Christmas (and we reciprocate with gifts) ~$200 for each occasion. This is our fun money for traveling/ experiences etc. We attend a minimum of 2 conferences every year and got to see a lot of places that way. We go to India every other year and my parents come every 2-3 years. I don’t feel I have missed anything by being frugal.

I hope some of these lessons resonate with you and help you save!

I am willing to share our budget if anyone is interested in seeing how we split expenses into different categories.

 

I am glad you found it helpful! I am happy to help in anyway I can.

Absolutely- you have time on your side. Better late than never!

 

Minion- thank you for the great advice. Yes, with all the work and personal travel we have a lot of points. I have used points for business class to Europe. Next India trip will be on points too.

Our 15 yr mortgage is 2.6% and that was the reason to change it to 15, we would have paid off in 12 years on our 30 year mortgage with how aggressively we were paying. Now, we just pay our scheduled payment (and a bit extra to round off). Moving from 30 to 15 only added $100 on the scheduled payment since we paid off a lot of Principal amount already.
We just love to have the feeling of being absolutely debt free. We can get a mortgage for a vacation home but would rather pay in cash.
I am quite risk averse. My uncle lost a lot of his and my dad’s money in stock market and that fear hasn’t left me yet.

 

Thank you!

 

Having a goal helps staying motivated. For me, if I don’t have a goal, I would plan the next exotic trip right away . Having the goal keep me from my impulse spending and helps me look for the best deals for travel without spending too much.

In a way, money is never enough. Whatever we bring home gets spent. So saving first helps build the mindset that this is all the money we have for whatever we want to do.