With the U.S. Bureau of Labor Statistics reporting rising costs for essentials like housing and food, it can seem hard to just stay afloat earning $35,000 a year, let alone build wealth.
But the entrepreneur and author Ramit Sethi teaches that a modest income alone isn’t a barrier to financial success. You just need to follow some strategies that fit your situation, make managing money easier and lead to long-term growth.
Sethi suggested these money moves for your paycheck, in one of his YouTube videos, if you’re making $35,000.
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Despite his current wealth, Sethi is familiar with the challenges of juggling bills and closely watching each dollar spent.
“During the first few months out of college, I only made $11,000 working on my own company, and my salary only increased modestly over the next few years,” he said.
He explained that $35,000 leaves you with just around $2,500 per month after taxes. Between trying to cover the basics and handle any emergency expenses, you might turn to convenient high-interest debt and get further off track financially.
For example, if you charged $1,000 to your credit card with a 23% APR and made a $40 minimum monthly payment, it would take 80 months to pay off and cost around $715 in interest.
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Sethi recommended an emergency fund to give yourself breathing room for the unexpected. His approach involves saving 5% to 10% of each paycheck so you have cash for a few months of fixed expenses and don’t need the debt.
To make saving easier, consider temporarily reducing expenses, working out lower rates or payments with creditors, and boosting your income with extra hours or a promotion. And if you need to use the cash in your emergency fund, start saving up again.
According to Sethi, having a lower income puts you at a higher risk of having debt that keeps growing with little extra funds to put toward it. He suggested a three-step process that will help crush your debt and leave you with more freedom and opportunities for your paycheck.
The first move is simply listing all your debts with their balances and interest rates.
“Please know that 90% of people do not do this,” Sethi said. “They just pay what’s in front of them, which is often one of the main reasons they are stuck.”
Next, pick a debt payoff method. You might like the avalanche approach to crush high-interest debt first and maximize your long-term savings. Another option is the snowball method, which is a favorite of Dave Ramsey and gives you quick wins by paying off the smallest balances first.
