The other day I was flipping through the community recreational booklet and noticed discounted annual passes that are available to low-income families. According to Statistics Canada below are what qualifies as low income:


Numbers of Family123456


The first thing that came to my mind, while reading these numbers, was the low dollar amounts. We are a family of 4, if we made $38,691 per year, after tax, we would then be qualified as a low-income family. That’s not a lot of money to go around! Heck, that’s way more than what we have spent in the last few years. We spent a total of $51,144.77 in 2017 and $47,566.96 in 2016.

Being someone that writes about personal finance and financial independence retire early (FIRE), couple more questions popped up in my head…

If we only made $38,691 (after tax) in a year, can we possibly get?

Can you FIRE with low income?


Living with low income

Can we possibly live on $38,691 a year?

As you may know, we have been using a budget system for the last 6 years. There are 6 categories in the budget system – Necessities, Give, Play, Education, Long Term Savings for Spending, and Financial Freedom Account. Each month, a specific percentage of our income is allocated to each category. Whenever we spend money, we’d enter the expense in one of these categories.

A little explanation of the different categories:

Necessities are considered our core expenses. Basically, things that we need every month, like food, insurance, mortgage, utilities, etc.

The Give account is for expenses like charity donations and gifts.

The Play account is for things like eating out, movies, concerts, massages, etc. Basically, these are things that we treat ourselves to, so we can enjoy the present moment. Over the years I have struggled with this account, but I believe I have found a more balanced approach the last couple of years.

The Education account is for things that we spend money on to improve ourselves. I have been taking photography courses to improve my photography skills and Mrs. T have been taking holistic healing courses for her healing practice. We also put Baby T1.0’s preschool fees under this category.

The Long Term Savings for Spending (LTSS) account is for putting money aside each month in anticipation for large expenses. For example, we save money each month in LTSS, so we can go for vacations. We also put the two kids’ RESP “spending” under this account.

The Financial Freedom Account is our retirement savings account. Money in this account is then used for buying investments that would generate passive income for us.

We have been tweaking the percentage for the different accounts over the last 6 years. Each year we adjust the numbers a slightly so we can spend less money and save more.

What if we only spend money on necessities and nothing else? Can we live on $38,691 a year?

Let’s take a look at our necessities spending over the last 6 years.

YearTotal Necessities Spending


According to the table above, if we only spent money on necessities, we would be able to get by with the $38,691 income. But we would not be spending a single dime on things like eating out, charity donations, or vacations. Furthermore, we wouldn’t be saving any money for kids’ RESP.

We would be very careful with every single dollar that we spent on.

Not a great way to live.

What about other families? As you may recall, I recently interview T&D who spent ~$27,000 for the last 7 years. If they were making a low income of $25,921 for a family of two, they would be spending way more than they make.

For my high school friend that became financially independent at age 32, he and his wife spent ~$40,000 per year. Again, they would be spending more than the low income of $25,921 for a family of two.

For Mr. Tako’s family of 4, they had a core spending of $26,639.58 CAD ($2,0496.32 USD) in 2017 which excluded expenses like mortgage and childcare. Their core expenses were below the low-income level for a family of 4, but just like us, exceeded the $38,691 amount once other expenses were added.

For Mr. Money Mustache’s family of three, they spent $39,242.60CAD ($30,193 USD) in 2016 (I couldn’t find their 2017 numbers). This was again higher than the low-income amount of $31,866 for a family of 3. If we subtracted some of the “fancy” expenses like tuition, donations, travel, organic/luxury food, Mr. Money Mustache’s family spent ~$22,000 USD in 2016 or ~$28,500 CAD. Now they would be below the low-income level for a family of 3.

For Joe’s family of three, they spent $64,098.76 CAD ($49,131 USD) in 2016. Just like MMM’s family, they would be over the low-income amount of $31,866 for a family of 3.

It’s not a scientific study, but based on the examples above, even for personal finance savvy families, it’s extremely tough to live on the low-income levels indicated by Statistics Canada.

Is it possible to get by with low income? Yes, it’s possible, there are Canadians that are doing it but it is pretty tough.


Can you FIRE with low income?

The second question I had was whether it is possible to reach financial independence and retire early with low income.

Given it’s quite tough to live on low-income levels indicated by Statistics Canada, I believe it’s nearly impossible to save enough money to achieve financial independence and retire early with low income. For a family of 4, even if we were to manage to spend only $30,000 per year, at $38,691 income level, that meant we could save $8,691 per year.

$30,000 per year spending means we need $750,000 in savings to be financially independent (x25 of the annual spending).

If we were to save $8,691 per year at 8% annual return, it would take us 26 years to reach $750k. If we started the FIRE journey at age 30, we would become financially independent at 56 and could retire early if we wished to.

Sounds good right? But I believe this is a very simplistic view.

First of all, $30,000 per year all-in spending for a family of 4 is extremely low. If we spend $500 on grocery per month, that’s $6,000 a year, or 20% of our annual spending. If we spend $1,000 per month on rent, that’s $12,000 a year, or 40% of our annual spending.

Things start to add up very quickly!

Also, I don’t believe it’s possible to rent for a decent apartment for $1,000 a month anywhere in Metro Vancouver. Maybe in a small Canadian town but most likely not in a major Canadian city…

So while the math says it is possible to become financially independent and retire early with low income, it is really really really hard to do in reality. It takes a lot of disciplines and a lot of sacrifices.

When people start their FIRE journey, almost always the first thing they do is to look at ways to cut down their expenses. I think it makes sense if your annual expenses are high and there are a lot of bloated expenses you can eliminate or trim. However, when your spending is extremely low to start with, I don’t believe it makes sense to reduce it further. Because you will be in extreme savings mode, and that ain’t fun.


How to make more income?

So, rather than focus on cutting down your expenses, focus on making more income. Some of the ways of potentially earning more income are…

Perhaps go back to school and get more educations, so you can get a higher pay job.

Perhaps work hard and get promoted within your company, so you can earn more a higher hourly wage.

Perhaps work at multiple jobs, if it makes sense.

Perhaps side hustles on your spare time to earn more income. If you do that though, make sure that charge a higher hourly rate than your full-time hourly rate. (Why would you side hustle if you can’t earn more than your full-time hourly rate? But that’s another post for another day).

I wholeheartedly believe it’s way more powerful to look at ways to increase your income, so you can save more money each month. Maximize your earning power!

You can FIRE with low income but it is far more effective and more pleasant if you can increase your salary along your FIRE journey.





Written by Tawcan
Hi I’m Bob from Vancouver Canada, I am working toward joyful life and financial independence through frugal living, dividend investing, passive income generation, life balance, and self-improvement. This blog is my way to chronicle my journey and share my stories and thoughts along the way. Stay in touch on Facebook and Twitter. Or sign up via Newsletter