Can you FIRE with low income?

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 Family 1 2 3 4 5 6
Income $20,822 $25,921 $31,866 $38,691 $43,883 $49.493


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.

Year Total Necessities Spending
2012 $26,210.52
2013 $26,343.00
2014 $29,058.96
2015 $31,256.88
2016 $29,831.40
2017 $33,887.68


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.





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22 thoughts on “Can you FIRE with low income?”

  1. As one of the couples mentioned, I feel obligated to point out that our $27,000 annual spending includes over $9,000 every year worth of extravagant travel to Europe every summer and Asia every winter, which we obviously would curtail if our income was only $25,000.

  2. It’s an interesting idea, but like you say I don’t think you could enjoy saving for FIRE on a low income much at all. Quality of life would be low and stay low. I spend about $40,000AUD per year, and about $26,000 is expenses other than housing. I think that yearly amount ($40k) is similar to the median Australian about my age and it give a very decent quality of life. Once I get into the property market I’ll feel like I’m contributing more directly to my own wealth 🙂

    New site design is great Bob!

  3. You will get more bang for your buck by increasing your income, although the challenge for many people is not allowing the lifestyle creep that raises their expenses right along with their income. This is a good high-level view of things though, and like you said it is possible but it would be really difficult at those income levels. In our area, we pay $8,400 per year just in property taxes and that is on the low-end because we bought a very reasonable house that was smaller and cheaper than most. The average in this area is easily $10-15k in property taxes alone, which of course can be mitigated by renting.

    When I made $40k per year shortly out of school, we saved but it wasn’t a lot and it was more difficult. As our income increased, we kept our expenses reasonable (in my opinion) and now can save a lot more–but as your analysis shows, we do outspend the low income thresholds.

    • Exactly, it’s easier to increase your income since after optimize your expenses so much, it is extremely hard to cut down the expenses without depriving yourself.

      Wow $10-15k in property taxes, that’s CRAZY!!!

  4. Theres no question it would be really tight, but as mr tako stated there would also be other subsidies. Here in Canada the baby bonus can be pretty high. A friend of ours is a stay at home mom and her husband doesnt make much but with 2 kids they get over 800$ a month in baby bonus. You just put that money itself away and in 20 years that adds up to a nice chunk of change. Throw in the 8k your talking about and bam 17,600 a year invested!

    no question though that would require some grinding with grocery price matching and hand me down clothing etc etc.

    It is doable, but as you mentioned its probably easier to focus on boosting that income

    cheers man

    btw site looks good!

    • Thank you passivecanadianincome about the site look.

      Yes I forgot to include the Canadian Child Benefit, that’s completely tax free and is tied to your income level. The additional money will help with saving for retirement or child education.

      • I know someone who does the same. They save 100% of the government money they get, which is substantial as they have 4 kids. They were able to do it for several reasons or as Moneyaftergrad says, due to white male privilege (she’s big into that stuff – also hates Jordan Peterson but I dirgress). One is the husband bought a place before the huge run up in prices (they just sold it for an insane 400,000 dollars he paid less than a 100 grand). He works in construction so he was able to renovate the whole house for next to nothing, She is a huge YNAB user so on and so forth. They were also able to make a sideways move to a much larger house by buying a run down fixer upper.

        All of those factors means they can FIRE on a low income and large family.

  5. Your income doesn’t matter if you waste it- I see people all the time at my work driving newer financed Mercedes or Audi’s but can’t pay their insurance or they have 2/3 mortgages on their $1M houses and leveraged to the hilt. If they had any semblance of self control they would be much better off. I knew a guy who worked as regular staff at a fish store who was a saving machine- he cut up scrap paper to use as a notebook and walked everywhere, set his savings up for automatic investments and never, ever missed a contribution. If he needed money, he just worked more hours. In the end, it’s not how much you make, but what you keep.

    • Exactly. If you earn $500k a year but you spend $490k, you’re not better off compared to someone that earns $50k a year but only spends $30k a year. It’s all comes down to your savings rate.

      • check out Financial Samurai’s post on Going broke on 500 Grand a year, the comments are very eye opening

        4 years and counting to retirement

  6. Good post Tawcan and a bright new look to your blog as well.

    2017 Expenses for a family of 3 (2 adults + 1 four year old) in Metro Vancouver:
    Necessities category was around $41,100 (all expenses in CAD)
    Rent + Utilities: $21,600
    Daycare: $9800
    Groceries: $4300
    Car Gas + Insurance + Maintenance: $2500
    Other Living Expenses: $2300
    Phone: $600

    Daycare expense will be lower this year as my daughter starts Kindergarten. Travel, recreation, charity and other expenses add another $20-22k. We are at a level where we can potentially support the necessities from our liquid portfolio assuming a 4% withdrawal rate. Next three to five years plan is to build a portfolio that will support annualized expense of around $50k-60k with withdrawal rate of 3%. We have controlled our expenses, so even considering the move from US Midwest to Greater Vancouver our expenses didn’t increase significantly. This level of overall spending feels like a good balance for us.

    Relatively high family income vs. median and around 60% savings rate has definitely helped to reach this level in our eight years of working life in US & Canada combined. It would have definitely been a challenge to achieve this with low income.

    • Hi bhramar,

      Thank you, glad you like the new design. That’s pretty awesome that your liquid portfolio is almost supporting your necessities. Are rent and utilities part of your necessities amount, or is the $21.6k in addition? Daycare is expensive so it’d be nice to not have to pay that moving forward. 🙂

      • Rent and Utilities expense of $21.6k is part of the $41.1k necessities bucket. All the other expenses (Daycare to Phone) I listed are also included in the necessities. The travel, recreation, charity, etc. adds another $22k taking our total annual expenses in 2017 to around $63k.

  7. It’s absolutely possible to FIRE on a low-income, but to reach FIRE you need a decent capacity to save.

    The trick is to pre-pay as many expenses as possible. We spend about $38,000/year with four of us and that’s only possible because we pre-paid our mortgage and eliminated it a few years ago. Add that one expense back in and we’re closer to $55,000 per year in annual spending.

    Minimizing those big on-going expenses is also important. Reduce on-going housing costs by living small and/or being very efficient with utilities/improvements. Property tax rates vary greatly between cities or urban/rural locations too, so choosing where you want to live can have a big impact. Transportation can also be reduced by buying only smaller used cars.

    It’s definitely possible to be FIRE on a low-income, but to reach FIRE you need to have a decent capacity to save, which can be tough on a low-income.

    • I do think having low-income does make it more difficult because you can’t save as much compared to having a higher income (when expenses are the same). Having said that, there are a lot of things you can cut back on. There are a lot of things you can do to minimize the big on-going expenses and reducing on-going housing costs. 🙂

  8. I think your right Bob — if you only make a low income saving for any kind of retirement is going to be difficult. But there are some advantages you forgot.

    There are low income plans for a ton of things — For example, if we were a low income family I could get free school lunches for my kid (even during the summer!), internet service at half the price I pay today, lower priced utilities, a discounted cell phone plan, lower cost childcare plans, and access to the food bank or food stamp program.

    These things ‘unlock’ in the low income bracket, and I would guess could save a family around $10k a year. So instead of saving only $8k per year you could actually save $18k per year. That’s not half bad!

    I don’t qualify for any of this stuff, but it’s good to know it exists if we ever fall into the low income category.

    • Right I forgot about some of the discounts you can get. We are nowhere close to low income so I don’t know all the different possible discounts. I’m not sure there are discounts for lower priced utilities, cell phone plans, etc for Canadians though. I’m guessing there’s some sort of discounted programs, which should help with the spending reduction.

  9. Yikes, we spent more than other PF bloggers. This year isn’t looking too good either. We’ll have to get back to spending less again. Also, it’s a family of 4. My mom lives with us now.
    I think it’ll be really difficult to FIRE if you don’t make much income. I guess you can game the system to reduce the cost of living, but that’s cheating. At that point, it’s better to focus on making more income.

    • Right family of 4 with 3 adults. I think overall it’s still pretty hard to live at low income and save money for retirement. It’s definitely better to focus on making more money.


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