This post may contain affiliate links. Please read our disclosure for more information.
In the financial independence community, the difference between your monthly take-home pay and your monthly expenses is called the gap. The larger the gap, the more you have to save and invest.
The best way to grow the gap is to make more money while simultaneously lowering your expenses. In this post, I want to focus on the make-more-money side of the gap equation. Something has been bothering me about that side of the equation, and I’m hoping that writing about it will prove therapeutic. Here we go.
Of Gaps and Thresholds
It’s impossible to pay for current expenses, and save for future expenses (i.e., emergencies, closing costs on a house, retirement, etc.), if you’re unemployed. This same dreary calculation holds true if you’re making a low wage. There’s just no getting around it. In order to have a meaningful gap, you have to make above a certain threshold.
Just where that threshold rests is difficult to say. It all depends on your age, your address, and your fondness for birth control. I wrote a post a couple of years ago exploring the minimum income you would need in the Charlotte metropolitan area to provide for your basic necessities and produce a $500 gap every month. I concluded that an income of $20,800 would suffice—but only if you eschewed car ownership, college, and procreation, and lived in a single-wide trailer with a roommate. Is $500 a month a meaningful gap? It can be. According to the Dave Ramsey investment calculator, a 37 year old investing $500 a month until he turned 65 would wind up with a portfolio worth $512K (assuming a very reasonable average annual return of 7%). Not too shabby, especially when you consider that the median retirement savings for a 65-74 year old is only $126K. So if you’re 37 years old or younger, live in the Charlotte metropolitan area, and have managed to remain childless, you can theoretically do some damage with an income of $20,800.
But what if you’re 50, have a couple of kids, and live in San Francisco? It’s safe to say that an income of $20,800 wouldn’t be able to produce a meaningful gap.
Bottom line: Income is to a meaningful gap what oxygen is to fire. Don’t supply enough of it and the gap will wither or die.
Doing Poverty Right
Okay, I’ve done a wonderful job of playing Captain Obvious: income is extremely important, especially if you want to produce a meaningful gap. But here’s a question that has vexed me for a long time. What if you have no legitimate shot of making an income large enough to produce a meaningful gap? You’re not very bright, the well-paying factory jobs in your community were shipped overseas, or you started a family way too soon and now have neither the time nor money to attend college—for whatever reason, the rest of your life will entail humdrum jobs and the dull agony of living paycheck to paycheck. What advice do I have to offer you? Get a side-hustle? Live in a van? Vote for lower taxes and then wait for the bounty of trickle-down economics? Vote for higher taxes and then wait for the bounty of trickle-down government?
Well, like I said, this question has vexed me for an extremely long time. There is simply no tool in the standard FI toolbox to help those who will forever be plagued by meager incomes. But then yesterday, I stumbled upon a possible answer. While leafing through a design book by Vern Yip, I came across the following biographical paragraph.
It took particular courage for my parents to leave China and come to America, where my mother and father did not speak the language well or understand the culture. My father, a biochemist, took a job as a busboy at the Marriot in Virginia, and my mother washed floors in a bank. These sacrifices were worth it to them in order to give my sister and me a better life. [Emphasis mine.]
“That’s it,” I shouted. “Vern’s parents did poverty right.” They came to America knowing full-well that they would never be more than “menial” laborers. But that was okay. Menial laborers with menial incomes can build decidedly un-menial wealth if they think generationally. In other words, Vern’s parents were playing the long game. Their toil, perseverance, and faith wouldn’t pay off in their working lives, but it would pay off in their children’s working lives—providing, of course, their children embraced their values. And that’s exactly what happened. Vern inherited a culture that is just as conducive to building wealth as privilege is, and because of this, you can bet your sweet bippy that Vern’s current income is way more than enough to produce a meaningful gap.
Final Thoughts
There’s no shame in being part of the working poor. Things happen. The fickle finger of fate turns against you and you will never have enough income to produce a meaningful gap. But there is shame if your children suffer the same fate. Your job is to do poverty right; that is, your job is to make sure your children have the skills, habits, and attitudes to take full advantage of all the tools in the FI toolbox. You do that, and your children wind up financially successful, you can rightly lay claim to being a rich man or woman yourself.
Okay, groovy freedomist, that’s all I got. What say you? Is my concept of “doing poverty right” a satisfactory way for those with severe income limitations to find wealth? Or is it unmitigated flapdoodle? Let me know what you think when you get a chance. Peace.
Leave a Reply to MrWow Cancel reply