Can a family of four live well on less an income of less than $40,000 a year? Donna Freedman of MSN Money profiles two families who say “yes.”
- Tracy and Danny Kofke, an at-home mom and a special-ed teacher, live near Atlanta with their daughters, ages 3 and 6. Adjusted gross income: just over $36,000.
- Amy Halloran and Jack Magai, a freelance writer and an arborist/choreographer, live near Albany, N.Y., with sons ages 7 and 12. Adjusted gross income: about $30,000.
A lot of people live on less than that. In fact, both families are still well above the current federal poverty guideline of $22,350 per year for a four-member family. I chose them because they live in or near large cities, rather than in the deep (and cheap) countryside.
If you can own a home and raise kids in metro Atlanta on $36,000 a year, as the Kofkes do, you obviously have something to teach. And even though Halloran and Magai lucked out with cheap housing, their annual income is slightly less than the federal minimum wage for two people.
It’s nice to see stories of how this IS possible and how the two families made choices that work with their priorities. I make more than $40K a year but a whole lot less than some of the families usually featured in these money series. What’s great is that there is always something I can learn or some inspiration I can draw from all these stories, no matter how much more or how much less I earn than those profiled.
In Donna’s article, the two families offered five strategies for how to stretch an extra dollar, which can be implemented by people of all incomes to one degree or another.
Strategy 1: Know where every dollar is and where you want it to go.
Knowing where every dollar goes is important if you are either 1. on a limited income or 2. have big saving or debt pay-off plans. I cruised along without a budget for a while, and then I realized I needed to make some changes so I at least have an idea of where my money went.
Strategy 2: Start with cheaper housing.
One of the reasons why I can max out my retirement accounts this year is because I have very cheap housing. In fact, my rent is less than 15% of my gross income (most experts recommend your housing costs stay under 30%). There are a lot of ways to lower your housing costs, including sharing a space with roommates, buying multi-unit housing and renting out rooms, live in the not-so-trendy part of town, live in an older building, live in a building with few amenities, etc.
Strategy 3: Get creative about meeting needs.
I’m not so sure if I am “creative” about meeting needs. In fact, I’d say this is one of the areas where I can definitely improve on – starting with cooking at home more often. I do, however, get really cheap haircuts at a local beauty school.
Strategy 4: Get even more creative about meeting wants.
My level of “creativity” tops out at finding a really inexpensive Thai massage place ($40 an hour!), using restaurant.com coupons for eating out, and cashing in my credit card points for Sephora and Banana Republic gift cards. Oh, I also try to always buy quality clothes / shoes on sale or at off-price retailers such as TJ Maxx or Loehmann’s. Do those methods count?
Strategy 5: Stay true to your goals.
This is great advice, no matter if you make $40K or $400K. My goals are a sound financial retirement, future home ownership, a successful career, and meaningful personal relationships. One could argue that good money management skills play into all four.
How are you doing on these 5 strategies?