Americans aren’t feeling good about their finances. Last year, 16% of Americans said they believed their financial situation would be worse in a year. Now, 28% of the country says they will be worse off in 2026 than they are today. 43% of all families in the US struggle to meet their basic needs. If you are struggling to pay for basic expenses, saving for retirement is probably the last thing on your mind. The median household income in the US is $81,604, which means half of all households make less. If you are someone with an average income, around or lower than the median, how can you build wealth?
Reduce large, unexpected expenses
Before we discuss how and where to invest for retirement, the first, and biggest, problem is creating enough margin in your budget to save something. Those with average incomes and little room in the budget often cut what others consider necessities to make ends meet. This means not spending money on preventative healthcare, regular car maintenance, vet visits, home maintenance, and more. Cutting in these categories will save you money in the short-term, but if you have an average income, they can cost you big-time in the long-term.
Potentially preventing some huge unexpected expenses can really help you get ahead with an average income. There’s only so much you can control, but spending a little more today can drastically reduce your future expected expenses.
Get good health insurance
Healthcare is very expensive, and if you have an average income, it can be tempting to delay going to the doctor or seeking needed healthcare until you can no longer ignore the problem. Make preventative healthcare a priority in your budget. Go to the doctor at least once a year for an annual exam and take care of other problems as soon as they pop up. Not only will your body thank you, your budget will as well.
Quality, subsidized health insurance is an invaluable perk from potential employers. All else being equal, look for employers that offer great benefits to their employees. A good company knows it needs to take care of its employees by offering access to high-quality medical care at affordable prices.
Get pet insurance
If you have pets, make room in your budget to pay for pet insurance if you could struggle to cover unexpected vet bills. Nobody wants to decide between paying rent next month or paying for a life-saving treatment for their pet, but most will choose their pet (78% of Americans would go into debt to pay for their pet’s care). Pet insurance can help you avoid this issue entirely as long as you can make room in your budget for your loved one’s insurance. Pet insurance is much cheaper than human insurance, and for our cats, it is about $20 per month each.
We have been very unlucky with the health of our cats. Just this year, we’ve had hospitalizations for a blood clot, a mystery illness where our cat was refusing to eat, and a rare complication of coronavirus (I didn’t know cats could get a coronavirus, either). We’ve received over $10,000 in reimbursements from our pet insurance this year. Hopefully you never have issues with your pets, but if you would rather have coverage for unexpected medical expenses than paying out-of-pocket, pet insurance is the way to go.
Drive a reliable and affordable car
Vehicles can be really cheap to drive or extremely expensive to drive, depending on what type of vehicle you have and how well you maintain it. Consumer Reports ranks the reliability of the major manufacturers each year, so consider using their list or a similar study to help you choose which brand to purchase. We made a couple car purchases recently and chose Mazdas, which are higher on the reliability list but not as expensive as comparable Toyotas or Hondas.
No matter what type of car you drive, complete all maintenance as scheduled to avoid problems later down the road. Much car maintenance can be done at home for cheaper if you don’t mind getting your hands dirty. Change your oil as the manufacturer suggests, rotate your tires and regularly check your air pressure and wear, and don’t ignore any flashing lights on your dashboard.
Maintain your home
Home repairs can be very expensive, but regular maintenance can help you stay ahead of any potential problems. We have our HVAC system serviced regularly, pest control that visits once a quarter, and have other issues addressed when they pop up. If you are new to the area, talk to your neighbors to see what service providers they use and trust. It’s unfortunately not uncommon for unreputable companies to exaggerate issues with your home and get you to spend large sums of money that may not be necessary. For example, there’s a local HVAC company in town that will almost always say you need a new unit, no matter what your actual problem is.
Whenever service providers visit, take time to ask questions and learn more so you may be able to potentially self-diagnose and fix minor problems yourself in the future. I don’t consider myself an A/C expert by any definition, but I do know how to fix our unit when it freezes over and how to keep that from happening.
If you are deciding between renting or buying, renting is a great way to save money on repairs and maintenance. I love our house, but I miss having someone fix all of our problems at no extra charge when we lived in an apartment. There are many other considerations when it comes to renting vs. buying, which you can read more about here if you’re interested.
Cut other big expenses where you can
Ordinary, everyday expenses have a huge impact on your budget when you have an average income. What you spend on groceries, childcare, dining out, entertainment, and vacations determines how much you are able to invest for retirement. We do believe in paying yourself first and investing for retirement before tackling the rest of your budget, but the reality is that groceries and childcare comes before saving for retirement.
Groceries, dining out, and toiletries normally make up a significant portion of your budget when you have an average income. There is only so much money you can save here, and we would obviously never suggest skipping meals to save more for retirement. But there are ways you can save money on food and toiletries. Shop at a warehouse club like Costco for the staples, which can be especially beneficial if you have a larger family to feed. Buy in bulk if you have the space and if you can consume the items before they expire (I am often guilty of buying larger quantities than I can handle at Costco). Some grocery stores like Aldi, Lidl, and Kroger are cheaper than more “premium” grocers like Whole Foods, Publix, and Harris Teeter.
There are ways to save money on dining out aside from the obvious and unethical (yes, you could go out to eat less or not tip your server). If you typically order drinks when you dine out, try drinking water at dinner and having drinks at home later. When we order drinks with dinner, they tend to add $30 or more to our ticket, including tip. Many restaurants often have deals on slower days, so try going during the week instead of on the weekend if they have any specials. Our favorite local Mexican place has $1.99 Taco Tuesdays, which really can’t be beat.
Families in the US spend drastically different amounts on childcare, ranging from nothing to tens of thousands of dollars (or more) per year. If you are a single parent or if you and your spouse both work, you are going to need some sort of childcare. Grandparents that love children can be a great source of free childcare. Daycare programs range in price, and while it is probably not advisable to enroll your child in the cheapest program available, you can lessen the blow. Some employers offer free childcare for their employees, which is a huge benefit for parents. If you can figure out a way to do daycare 3 days per week instead of 5, you can cut your bill significantly.
Increase your income if possible
Increasing your income can be easier than reducing your expenses in some cases. If you are struggling to cut your expenses and still need to save more for retirement, you may need to make more money (simple, right?). The good news is it has never been easier to make extra income outside of your day job. If you are struggling to think of ways to increase your income, check out this article I wrote last year.
If you are in a role at work where you have room to grow, it’s worth putting in the extra effort and time to get that promotion or raise. If you feel like your career opportunities are limited, it might be time to explore going back to school or getting a certification in a new field. The trades (electrician, plumber, mechanic, construction, and more) are in high-demand in many areas with really good starting pay.
Obviously increasing your income is easier said than done. You can’t snap your fingers and double your income, but if you are willing to spend more of your time working, whether that’s at a side hustle, your day job, or opening the door to new career opportunities, you can increase your income.
Know where to save
Creating more room in your budget to invest for retirement is all for nought if you don’t know where to save. Check out this article I wrote last year for a step-by-step guide of where you should be investing for retirement. The short version is get your employer match first, maximize your Roth IRA and HSA, if possible, then contribute more to your employer-sponsored account, if you have one. If you still have more money to invest after all of that, you can contribute to a taxable brokerage account.
The more money you make, the easier it is to build wealth; there’s no way around it. If you are building wealth with an average income, you have to do your best to avoid large, unexpected expenses, cut other large budget items where you can, and increase your income, if possible. It is still very possible to become wealthy with an average income, and through the power of exponential growth, your savings can compound many times over. By living below your means and saving a little bit today, you can build your great big beautiful tomorrow.
