One of the assumptions a lot of people make when thinking about their income is that it will always go up. There’s this general belief that the amount you are earning today will just naturally increase.
The thing is, this isn’t always true. Your income isn’t necessarily going to stick to a single trajectory. In reality, it can go up or down. Family obligations might move you to part-time work. You might get laid off. Or you get injured. Or maybe you hate your job and decide to take a different career path. Life gets in the way and we can’t know what the future holds. I can almost guarantee that a total market index fund will grow over the course of 10 or 20 years. But I can’t guarantee that your income in 10 or 20 years will be higher than it is now.
This is one of the reasons it’s so important to live on significantly less than you earn. You never know what the future might hold and there are no guarantees that you’ll be earning more next year than you earn now. But if you’re living on less than you earn, you can ride out any volatility that comes with your income.
Your Income Might Not Last Forever.
I think my own experience is a good example of how your future income isn’t guaranteed. I started my working career at a large law firm making $110,000 per year. That number eventually rose to $125,000 per year after three years at the firm.
Like almost every young lawyer, I had a large amount of student loan debt too. But who cares, right? This gravy train was never going to end.
I saw this type of belief a lot at my law firm, with my fellow associates living it up and spending with the assumption that they would just keep making this type of salary forever. I personally never understood this type of thinking. It’s fairly common knowledge that big law firms have a high attrition rate. An entering class of new associates might number 20 people. Only 1 or 2 of those people are realistically expected to become partners at the firm making the really big bucks.
On the other hand, the typical big law associate (like myself) will move on to some other type of work within the first 3-5 years of practice. They might go in-house to work for a company, or they might move to another law firm, or they might move into the public sector.
One thing is pretty certain – when you leave the big law world, it’s pretty likely that your income will not keep rising at the same rate. For many people, it will likely fall, at least for a little bit. This is especially true for lawyers that make the switch into public service, which is a common route.
This is why it always I’ve always thought that young lawyers should never act like they’re making the big bucks. The gravy train isn’t guaranteed.
Living On Less Allowed Me To Handle My Own Income Volatility.
In June 2016, I left my law firm job of 3 years and took a position as a government lawyer. I made the switch primarily for personal reasons. I was having issues at work and saw an opportunity to do something that looked to be more satisfying to me from a professional standpoint.
Switching jobs and moving into public service came with a major pay cut. I went from making $125,000 per year to making $75,000 per year – a massive $50,000 pay cut.
But I was able to make this move because I realized that my income wasn’t guaranteed to move in a straight-line trajectory. When I made the decision to search for a new job, I was already on track to pay off my student loans by June 2016. Rather than live the lifestyle of a person making six figures, I had lived as if I was making much less, knowing that my income could drop at any moment. And when my income did in fact drop by $50,000, it didn’t matter to me. I had been living on so much less than I needed that I could handle the change in income.
Live On Less And You’ll Still Have a High Savings Rate If Your Income Drops.
Despite a $50,000 per year pay cut, I still manage to maintain a high savings rate. This was another benefit of understanding that my income would not always rise. I could take the pay cut and it would have absolutely no effect on my lifestyle at all.
In fact, despite taking a $50,000 pay cut, my anticipated retirement savings for the year has dropped by only $1,925. How is that possible?
- The first thing I did was pay off my student loans. I knew that if I was going to start a new job, I wanted to start fresh with no student loan obligations. $87k of student loans gone. Poof!
- In 2016, I was on pace to max out my 401(k), max out my Roth IRA, and max out my HSA, for a total of $26,850 saved towards retirement. My big law firm gave us no match on our 401(k).
- Despite my $50,000 pay cut, I’m still on pace to save $24,925 for retirement (or over $2000 per month). The state gives us state employees a 6% match for our pension and we’re required to contribute 5.5%. That’s 11.5% the state requires us to save for retirement by law, which is pretty darn good actually.
- I then did some math and added in another 10% of my income into a 457(b) plan. I plan to increase this number at some point, but right off the bat, that’s 21.5% of my pre-tax income put away into tax-advantaged retirement savings.
- I made no changes to my Roth IRA or HSA – I’m still maxing them out at $5,500 and $3,350 respectively (the contribution limits in 2016). Add it all together, and I’m still saving a ton of money, despite taking the huge pay cut.
My salary might have dropped significantly, but I’m still doing alright I think.
If You Understand That Your Income Can Be Volatile, You’ll Never Be Stuck.
When I left my job in big law, I was doing really bad mentally. My motivation was low. I was frustrated with the work. And I was constantly stressed and anxious. I needed to make the change, so when I saw the opportunity to get out of there, I took it.
I wasn’t alone. It seems like everyone complained about how miserable they were at work. The only thing is, not everyone could get out. Many people set up their life with the assumption that their income was at a certain level and that it could only continue to go up from there. If they wanted to do something else, they couldn’t. They were stuck.
I think that if you understand that your income is not guaranteed to always go up and you opt to always live on less, you’ll find that the world really opens up to you.
More Recommended Ebike/Scooters
Check out these other ebikes/scooters I've had the chance to do a review for:
- GEN3 Outcross Bike – The GEN3 Outcross is a solid, affordable fat tire ebike that does a good job of doing what I need it to do. It works great for city riding, giving me a smooth ride in all conditions. It’s works really well as a winter ebike since the fat tires give it good traction over snow and ice. Check out my GEN3 Outcross Review.
- Himiway Escape Bike – The Himiway Escape is an interesting bike for anyone looking for a moped-style ebike. If you’re a gig economy worker, the Himiway Escape is particularly interesting and it’s possible to think of it as an investment, especially if you can opt to do deliveries with the Himiway versus using a car. It’s not cheap, but you can definitely make your money back when you compare the mileage you’ll put on your car versus using an ebike. Check out my Himiway Escape Bike Review.
- Espin Sport Bike – The Espin Sport is a good ebike for someone who is looking for an ebike that feels and rides more like a regular bike. There are many ebikes that are really only bikes in name. In reality, they’re basically electric mopeds. The Espin Sport, by contrast, is a bike you could probably ride without the battery and you’d feel like you’re just riding a regular bike. Check out my Espin Sport Review.
- Varla Eagle One Scooter – The Varla Eagle One is an excellent scooter that can make sense for a lot of people. It can work as a primary mode of transportation. You can use it to work on gig economy apps like DoorDash, Uber Eats, and Grubhub. And it can also be a recreational vehicle if you’d prefer to use it for that. Check out my Varla Eagle One Review.
- Fucare H3 Scooter – The Fucare H3 is a fun scooter and I’ve enjoyed testing it out. For a daily commuter or quick trips or errands, the Fucare H3 is probably the scooter I’ll use. It’s portable and easy to maneuver, so it’s just easier to take on the road when I need it. Check out my Fucare H3 Scooter Review.
More Recommended Investing App Bonuses
For additional investing app bonuses, be sure to check out the ones below:
- M1 Finance ($10) – This is a great robo-advisor that has no fees and allows you to create a customized portfolio based on your risk tolerance. You also get $10 for opening an account. Check out my M1 Finance Referral Bonus – Step-By-Step Guide.
- SoFi Invest ($25) – SoFi Invest is an easy brokerage account bonus that you can earn with just a few minutes of work. Use my SoFi Invest referral link, fund your SoFi Invest brokerage account with $100 and you’ll get $25 of free stock. I also have a step-by-step guide for the SoFi Invest referral bonus.
- Moomoo (5 free stocks) – Moomoo is a free investing app currently offering 5 free stocks (usually worth around $75-$100) if you open an account using a referral link and deposit $2,000. Read my Moomoo referral bonus guide for more information.
- Webull (5 free stocks) – Webull also gives you 5 free stock valued between $3-$3,000 each if you open an account using my referral link. Here’s a guide I wrote about how to earn your free stocks using Webull.
- Robinhood (1 free stock) – Robinhood gives you a free stock valued between $2.50-$225 if you open an account using my referral link.
- Public (1 free stock) - Public gives you a free stock valued between $3-$70 if you open an account using my referral link.
More Recommended Bank Account Bonuses
If you’re looking for more easy bank bonuses, check out the below options. These bonuses are all easy to earn and have no fees or minimum balance requirements to worry about.
- Chime ($100) - Chime is a free bank account that offers a referral bonus if you use a referral link and complete a direct deposit of $200 or more. In practice, any ACH transfer into this account triggers the bonus. This bonus is easy to earn and posts instantly, so you’ll know if you met the requirements as soon as you move money into the account. I wrote a step-by-step guide on how to earn your Chime referral bonus that I recommend you check out.
- Upgrade ($100) – Upgrade is a free checking account that’s currently offering a $100 referral bonus if you open an account and complete three debit card transactions. These bonus terms are easy to meet, so it’s well worth doing this bonus as soon as you can. Importantly, this bonus says that it’s scheduled to end on July 14, 2022. That means you have two weeks to open your account to be eligible for the bonus. As long as you get your account opened before July 14th, you should be eligible. Here’s a post I wrote with more details: Upgrade $100 Referral Bonus – Step By Step Directions.
- SoFi Money ($350) – SoFi Money is a free checking account from SoFi. They’re currently offering a $25 referral bonus if you open a SoFi account with a referral link and deposit $10. You can also make an additional $300 as well if you complete a direct deposit. This is a good bank that is also 100% free, so you won’t have to worry about managing this account. Here’s a post I wrote with instructions on how to earn your SoFi Money bonus: SoFi Money Referral Bonus: Step By Step Guide.
- Current ($50) – Current is a free fintech bank that’s offering new users a $50 referral bonus after signing up for an account using a referral link.Current is an easy bonus to earn and also gives you access to three savings accounts that pay you 4% interest on up to $2,000. That means you can put away up to $6,000 earning 4% interest. That’s very good and makes Current an account I recommend to everyone. Check out my step-by-step guide on how to earn your Current Bank bonus.
- Spiral ($50) – Spiral is a fintech bank that's currently offering new customers a $50 signup bonus after opening a free checking account with them. The Spiral referral bonus is especially good because it's a free checking account and doesn't require a direct deposit to earn the bonus. Here is my step-by-step guide on how to earn your Spiral Bank bonus.
- Nearside ($90) - Nearside is a free business checking account that’s currently offering a $40 signup bonus and a $50 referral bonus if you open a Nearside business checking account using a referral link. Filling out the application should only take you a few minutes. And the bonus terms are easy to meet. Check out my Nearside signup and referral bonus guide here.
- OnJuno ($100) – OnJuno is a fintech/neobank that is currently offering a $100 referral bonus if you open an account using a referral link and complete a direct deposit of $250 or more. The account has no fees or minimum balance requirements. Even better, the bonus posts immediately after you meet the requirements. If you can meet the direct deposit requirements, OnJuno is an easy bank bonus that’s worth snagging. Check out my OnJuno referral bonus guide here.
- Fairwinds Credit Union ($100) – Fairwinds Credit Union is offering a referral bonus for users that sign up using a referral link. Fairwinds has no fees or minimum balance, so this is a particularly easy bonus to earn. Since this is a smaller credit union, my gut instinct tells me this offer won’t be around long, so if you’re in a position to meet the bonus requirements, grab this bonus before it’s gone. Here is my step-by-step guide on how to earn your Fairwinds Credit Union bonus.
- Fifth Third Bank ($350) – Fifth Third Bank is currently offering new customers a $350 signup bonus after opening a new account and meeting certain requirements. This offer is limited to customers in the following states: Florida, Georgia, Illinois, Indiana, Kentucky, Michigan, North Carolina, Ohio, Tennessee, West Virginia, and South Carolina. If you live or visit one of these states, make sure to take advantage of this high bonus. Check out my post on Fifth Third Bank to learn more.
- Varo ($50) – Varo is a free fintech banking app similar to Chime or Current. It’s currently offering a $50 bonus to new users that open a new Varo account with a referral link. The bonus for this bank is very easy to meet, all you need to do is spend $20 within 30 days of opening your Varo account. Check out my step-by-step guide to learn how to earn this bonus.
- Novo Bank ($40) - Novo bank is a free business checking account that’s currently offering a $40 bonus if you open a Novo business checking account using a referral link. In addition to being a good bank bonus, Novo is also a good business checking account. It has no monthly fees or minimum balance requirements and operates a good app and website. Indeed, it’s the business checking account I currently use for this blog. Check out my post on how to easily open a Novo account.
- One Finance ($50) – One Finance is a fintech bank that’s currently offering a $50 signup bonus if you open an account using a One Finance referral link and have a direct deposit of $250 or more. This is a completely free bank account with no minimum balance requirement, so if you can meet the requirements, it’s worth doing. Check out my One Finance referral bonus guide here.
- Albert ($150) – If you can manage to do a real direct deposit, Albert is an easy account you can use to earn a referral bonus. Here’s a review about Albert I wrote. And here’s a step-by-step guide on how to earn your Albert referral bonus.
- Netspend ($20 + 5% Interest Savings Account) – Netspend is a company that provides 5% interest savings accounts. If you sign up using my referral link, you’ll get a $20 signup bonus once you make your first deposit into your Netspend account of $40 or more. That means you get a 5% interest savings account and a free $20 to start! Make sure to check out my in-depth guide on how to set up these accounts.
Kevin is an attorney and the blogger behind Financial Panther, a blog about personal finance, travel hacking, and side hustling using the gig economy. He paid off $87,000 worth of student loans in just 2.5 years by choosing not to live like a big shot lawyer.
Kevin is passionate about earning money using the gig economy and you can see all the ways he makes extra income every month in his side hustle reports.
Kevin is also big on using the latest fintech apps to improve his finances. Some of Kevin's favorite fintech apps include:
- SoFi Money. A really good checking account with absolutely no fees. You'll get a $25 referral bonus if you open a SoFi Money account with a referral link, and an additional $300 if you complete a direct deposit.
- Upgrade Bank. Upgrade is a free checking account that’s currently offering a $100 referral bonus if you open an account and complete three debit card transactions. These bonus terms are easy to meet, so it’s well worth doing this bonus as soon as you can. Note that it’s scheduled to end on July 14, 2022.
- Novo Bank. Novo bank is a free business checking account that’s currently offering a $40 bonus if you open a Novo business checking account using a referral link. It’s the business checking account I currently use for this blog.
- M1 Finance. This is a great robo-advisor that has no fees and allows you to create a customized portfolio based on your risk tolerance. You also get $10 for opening an account.
- Personal Capital. One of best free apps you can use to monitor your portfolio and track your net worth. This is one of the apps I use to track my financial accounts.
Feel free to send Kevin a message here.
Completely agree. This is especially a problem for lawyers who work in the fancy law firms. You start at a high salary and after a few months everybody just assumes it will continue forever. I see plenty of young lawyers spend the first 1-3 of practice mishandling their money. It’s hard to completely blame them as it’s very stressful being a first and second year associate. You need to unwind and there has to be some balance to working all the time and actually enjoying life. So while I don’t advocate for those lawyers to go home and watch Netflix every night, I do try to point out that the gravy train may not last forever and that if they make smart decisions like living with roommates for the first few years they can make solid progress in setting up their financial future. Once you’ve done that, the world really opens up – just like when you decided to jump from the firm and take the state attorney job. Could you have done that if you had another $100K to pay off?
Definitely true. Biglaw is definitely one of those jobs where you have to anticipate that your income will probably go down at some point, assuming you aren’t the type that wants to stay in biglaw forever. Once I got that debt paid off, I really felt free to leave biglaw. Meanwhile, I have a ton of friends who are stuck. They complain about horrible biglaw is, but they can’t do anything about it.
I’m in the midwest, so our biglaw market rate for 1st year associates was 110k, so it wouldn’t have been possible to pay off another 100k in the time I did. For anyone starting law school or considering becoming a lawyer, you need to carefully consider what sort of income you are expecting to make with your expected debt load.
Excellent post- spot on! I only wonder if those that need to hear this message are reading personal finance blogs…??
Thanks!
If your income is very low, government gets in the way of living on less. For example, government has regulated or legislated out of existence many minimalist housing options. Which is why 11 million low-income renters spend at least half their income on shelter.
Love the moral behind this. A lot of young tech Bros think this way as well. A co-worker of hubbys bought a Tesla new and drive himself to Mexico. Right before that, he quit is job. It was about self discovery….to me it sounded like financial suicide! You’re hot tech commodity, I get it, but you haven’t starved yet to understand what you did! (Rockstar move tho. Hah!)