Excellent follow-up to an article written in the New York times on how to save money. Apparently, the suggestions the writer made were viewed as too draconian. They included:
- diverting 10 percent of your income to savings before anything else
- ignoring raises and putting them into savings,
- learning to cook,
- never borrow money to pay for a depreciating asset,
- find a partner and stay together
The end result, argued commenters, is that the writer’s suggestions were not practical — how can you live off only $40,000/year? The answer was to cognitively change your lifestyle from the consumerist one in which we are raised.
Stretching to save a little more yields a double dividend. You accumulate more assets and you lower the amount you will need in retirement because you will not have the habit of spending extravagantly to feel fulfilled. People who save a lot get used to a lower rate of consumption while working, so less money is needed in retirement.
So here is the challenge — if you are making $40,000/yr, that comes to about $561/week after taxes. If you divert 10% to savings, that leaves you just with $509/week. Can you live off that? If not, perhaps you need to reconsider if you are living above your means.
Try this: for a week, try to list everywhere you spend cash or use your credit card. That premium coffee habit is costing you $50/mo alone. Is the frill that important?
- Never pay a real estate agent a 6 percent commission.
- Buy used things, except maybe used tires.
- Get on the do-not-call list and other do-not-solicit lists so you can’t be tempted.
- Watch infomercials for their entertainment value only.
- Know what your credit reports say, but don’t pay for that knowledge: go to www.annualcreditreport.com to get them.
- Consolidate your cable, phone and Internet service to get the best deal.
- Resist the lunacy of buying premium products like $2,000-a-pound chocolates.
- Lose weight. Carrying extra pounds costs tens of thousands of dollars over a lifetime.
- Do not use your home as a piggy bank if home prices are flat or going down or if interest rates are rising.
- Enroll in a 401(k) at work immediately.
- Postpone buying high-tech products like PCs, digital cameras and high-definition TVs for as long as possible. And then buy after the selling season or buy older technology just as a new technology comes along.
- And, I’m sorry, I’m really serious about this last one: make your own coffee.
Wow, if i made $40,000 a year, i’d be RICH!
If you and your spouse each made $40,000/year, you would be the richest 25% of US household in terms of yearly income. Actually, if you each made $24k you would be richer than 50% of the rest of your fellow Americans.
I hate to tell you it costs us $850/month to live in a trailor. We do not make ends meet. We pay one thing one month and something else the next. We carry the utility bill to the day before they are going to cut us off, otherwise we can’t put enough gas in the car to get to work. It is utterly ridiculous. I bet the people that say $40000/year is rich have never had to live off of it. My husband, my daughter and I have to live off of $40000/year and it is near impossible. We are always 30 days from being homeless and believe me the homelenders threaten that every time they call. They start calling every month on the 5th and do not stop until a payment is set up. We don’t even fork out the cash for health insurance. For us, that would be a luxury!
Sara, you are not alone in your daily financial struggles. The top 50% of US households bring in $48k/year.
The media portrays America as buying Fuji water and Starbucks everyday, but this is ridiculous and not the case.
Keep it up and stay strong.
See, my husband, daughter, and I live off of 40k a year as well, my income only. And we do just fine. We live in South Florida, arguably one of the most expensive real estate markets in the nation. Our rent is $950/m, and that’s before the ridiculous electricity bills… not to mention gas prices. I just don’t understand how you could be struggling so much and paying less for everything. I’m not saying that we’re able to go buy whatever we want whenever we want, but it seems silly that you’re so close to failure every month and you feel like it’s everyone’s fault but your own.
Owning up to the problems you’ve caused yourself is the first step to financial freedom. Trust me.
Becky, any specific tips on making each dollar count?
i know it’s much later but i hope it’s still useful!
1st, we have enrolled in a wholesale club for 50/yr and that allows us to buy food in bulk for cooking (esp dry goods and meat for stews, etc), as well as baby formula (a lactose intolerance means soy only! $$$) and diapers (omg expensive!) We eat at home all but 5 times a month, and don’t drive anywhere except to go shopping or to work.
I get coupons in the mail and print them from the internet also.
My husband stays home to take care of our daughter, saving us the expense of daycare, another car, gas, and work clothes for him.
We are careful in our electricity usage, but florida summers are HOT!
we forgo cable tv in exchange for the internet.
we don’t have a home phone, but we do have a cell phone family plan (with myfaves so we only use about 200 real minutes a month) which means a fairly low cost cell phone bill.
I shop around constantly for car insurance to make sure we are getting the best deal.
when my old car died, we didn’t have enough saved to get a good used car, so we shopped around and got a great deal on a nearly new car that sips gas. my car payment is less then we spend on car insurance. we use coupons to help with maintenance costs.
really, we just don’t overspend. Maybe it helps that we have very little debt. I don’t know. what i do know is that we are in our early 20’s and money is one thing that we never fight about.
Becky: thanks for these tips. I hope others find them useful!
We the American’s are forced to things which are not required.
I ask you a question, Do we need to buy packed food and packed water?
My answer is big “No”. if you can make it to “No”, then you can save lot of money.
There should be classes for how to cook for yourself. How to survive on less income. Once we have this, we will not have any problem.
I don’t think most American’s think in terms of needs and wants like most other cultures. If Americans want it, in their mind they “need” it. We have so much amazing wealth and buying power, and advertising and marketing to meet that demand, that we live in a world high expectations (and low satisfactions).
I celebrate high gas prices and even sporadic running out of gas. I hear that some Americans are “slightly panicked.” Good — I hope they realize and accept their oil and energy addiction. Acceptance is the first step, no?
I just want to chime in and say that I would also consider myself rich if I made $40,000/year. If you’re smart and thrifty, you can do it. I lived off of $25,000/year for the past few years and had about $5,000/year left over to put into the stock market. It really doesn’t take that much money to live. If you have kids to feed, that’s another story — but likewise, you only have yourself to blame for that one!
I have to agree with Becky.
We are a family of three that live off of $45K a year. Our rent is $900 a month. We pay all of our bills on time and are able to save a little each month. We do not have any debt, and I think that is the key.
I am currently a college student training to be a Wind/Energy Technician. I am outlooking possibly 40-50K a year. With the added income of my spouse, I’m still clueless if it will be enough to survive. I don’t plan on starting a family anytime soon. I’m not a very lavish spender, and I am in good health/shape. With the responses to this article, some people say they manage and others don’t. Any advice?
Terrific info=) I will definitely visit soon!
[...] and often they feel like their salary is never enough. In fact, my second most visited post — how to live off $40,000 — lists ways one can make the most of a dollar. But the questions continue, so I thought [...]
I lived off less than $14,000 a year when I was in college (2 years ago) and I had absolutely no debit, did not use credit cards and was able to go on multiple trips to Europe that I paid for myself. Of course it wasn’t exactly comfortable, but I had a roof over my head and food every day and never looked like a hobo. I just don’t understand how people can claim to have such a hard time managing and getting by, and yet throw away their money at the grocery store on prepackaged food, cigarettes, soda, etc… I think it’s about priorities and DESIRE. If you want to live well on a small amount of money then you can make it happen…
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5, 10, 11 & 15
MAKE ME THE HAPPIEST PERSON EVER!!!
I am 22 and me any my girlfriend have been living on 18-22k per overall and I have no issues, no back bills or anything. Plus the fact that I love electronics and do several expensive sports. I also care for our 22 animals with no problem (Here are some of them http://gallery.ultimind.net/06052009_Animals/index.html)...
Im so tired of hearing people my age go get cars with payments of 350++ and rent apartments that are way over priced because they dont research or budget… Then they wonder why they cant afford anything, it bothers me to no end. It bothers me even more when people who are making more than me cant make ends meet and some even tweak the system to get food stamps and cheaper housing and such, AND HALF THE TIME STILL HAVE ISSUES KEEPING UP…
I hate people…
I can’t even believe this issue is still being discussed in America today. As a man in my early 20’s, and going to community college with absolutely no other income besides my measly Pell Grants and subsidized loans of 1700$ a semester with *some* side income from web design, I find ways to make ends meet.
I realize that this is not possible for lots of you with familiies, and I guess I am lucky in that respect. However, I am having to stick the poor economy out with community college grants and subsidized loans and a decent used car (1992 Honda Accord EX), then I think it’s possible for a lot of older Americans to find ways.
Find a room mate in the family that is going to college to help out with daycare costs, in exchange for a couple of meals and some necessities like lights, Internet, etc.
We don’t *NEED* high-speed Internet, Starbucks, brand new books for college, cell phones, etc. etc.
Those are luxuries. Hell, a trailer is a luxury. Find an economy 2 bdrm apartment or get rental assistance if your income is that low. If you cut those luxuries out then you won’t be floating bills as often (and may be even able to afford a mini-vacation once in a while).
Find other stuff that you can do, which will add value to stuff that you already own. Don’t know how to maintain your own PC? Learn how. Don’t know how to change your own oil or brake pads? Get the knowledge, it’s out there. Can’t make it with 2 cars? Find a way to cut trips and get items that you need while you’re making your commute.
If you have a trailer, then you have a yard as well. Put it to use and grow some of your food… there are crops that you can grow with minimal effort that is worth it. If you’re not going to be using your lawn for anything productive, rip it up and put in rocks to save on water. Just my $.02.
Rob: thanks for sharing. You make excellent points. I hope everyone will read them and benefit from your perspective.
$40,000 for a single adult? Or would this said $40,000 possibly apply to providing for a family of 4? I am a husband/father/sole financial producer of a family of 4.
Some of the comments indicate a family of 3, but you would be the first to comment with a family of 4, and be the sole income provider.
Some interesting stats:
- Nearly 3/4 of married are dual-income.
- The real median income of all households in 2007 was $50,233
http://felfoldi.wordpress.com/2008/02/01/top-us-household-incomes/
http://www.census.gov/prod/2008pubs/p60-235.pdf
Our family of 4 currently lives off of more than $40,000 per year. I would imagine that we could live off of $40k, but it would make certain things difficult. For instance, just having 2 cars with 2 insurance notes adds up quickly. Doctor bills and medication add up b/c kids always get sick from other kids any my wife is epileptic.
We would probably need to move into a smaller living space, which would definitely be doable, but it’s nice to have a little extra space for the kids to run around in.
In 2 years I’m gonna be thinking about education too: are public schools in our area good? will we be able to afford private school? investing in kids education is pretty high on the list.
all of this adds up quickly.
I’ll tell you that even though we live off of more than $40k, we have very little discretionary income. I think humans can always cut out more than they think they can, and the good things in life are friends and family, not cars, restaurants, cable tv, etc…
Craig: I think your statement that “I would imagine that we could live off of $40k, but it would make certain things difficult” is right on the, well, money.
It is difficult to try and live within that amount — with two cars and insurances.
It is difficult to live within that amount — with medical bills.
It is difficult to live within that amount — with a larger living space (and home at that!).
It is difficult to live within that amount — and seek a private school option.
These things — multiple cars, health insurance, home ownernership, private schools — have become in your (and my world) *expectations*. Just 50 years ago, having multiple cars, such large medical bills, or 2400 sq ft house, or even own a house. But now we find it difficult to imagine life without these — necessities of convenience.
Don’t get me wrong I’m not picking on your spending or budget. In fact, I’m in the same shoes as the sole income provider while wife is dedicated to three years of private law school and we have two cars, two scooters, and three bikes.
But ever year we sit down, look at our expenses and decide — did that match with our goals? What can we change? No matter how much we make, we have set a number within which we need to live, and another within we can prosper. So, I ask friends
What is your live number? How much do you need to make to cover all your required expenses and not go into debt? Can you reduce this number?
What is your prosper number? How much do you need to make to cover your lifestyle preference? Do these items match with your life goals?