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Living Well on Less Than $40K a Year: Lessons for Everyone

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.icon smile Living Well on Less Than $40K a Year: Lessons for Everyone

How are you doing on these 5 strategies?

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Thanks to Money Beagle for hosting the Carnival of Personal Finance Opening Day Edition and for featuring my post Bag Lady Syndrome: Do You Have It?

  • eemusings - We definitely live cheap in a small space (which often leaves something to be desired!) I also often get free haircuts – the rub is they take up to two hours…I'm starting to get used to the weird feeling of walking out without paying, too. (I'm aware cuts at good places take time, but I grew up on $10 cuts done in under 30 minutes!) ReplyCancel

  • Grace L. - I just did my end of the month check in at my blog and in march I brought home $1,176.76. (I'm working 2 jobs; one full time and one part time). If you multiply that by 12 you get a yearly income of $14,121.12 and I survive! :-) ReplyCancel

  • CityFlips - I'm a grad student, but I try to live like I'm not a grad student! To make this possible I have to watch every penny!
    1. yes, I know where every penny goes.
    2. I live with my mom. Housing doesn't get much cheaper than that!
    3. I play the "CVS" game to get as many of my needs for free as possible. I stack coupons and buy sale items at the grocery store. I pack my lunch nearly every day. I too get haircuts at the beauty school!
    4. I have to be disciplined about wants. Easier said than done. Credit card points are used towards gift cards for clothes. I'm a crazy bargain hunter! I try to remember to enjoy the things I have and save up for things I want.
    5. My short term goals are to a) pay cash to get my wisdom teeth out this year. b) have $2500 saved up to supplement moving costs. Goals I've already achieved include paying off all credit card debt, saving up for an iPad, and maintaining a small emergency fund.

    ReplyCancel

  • Aleksie - Budgetting has scared me straight, as well as re-assessing my needs and wants. Found out that there are a lot of things I was spending money on that I really didn't need or want, like cable TV. ReplyCancel

  • Perfect Mom - We know people who also make very little. They are happy, but I know their lives are different. We're so lucky to be living where we live, making what we're making, and having the life we do. ReplyCancel

  • krantcents - The key to living cheaply is housing costs. If you can keep that low enough, everything else is a choice. I am not saying it would be easy or the best, but you can find a reasonable choice. ReplyCancel

  • Tea - Strategy 1: Know where every dollar is and where you want it to go. – Good there
    Strategy 2: Start with cheaper housing. – Good there, my housing is about 15% of my gross
    Strategy 3: Get creative about meeting needs.- I don't really do this and I think I'm ok not doing it.
    Strategy 4: Get even more creative about meeting wants. – Lately I've only been doing spa treatments if they're on Groupon, Living Social or YouSwoop. I feel like I'm good in this area.
    Strategy 5: Stay true to your goals. – I feel like I'm really good here. I want to pay off debt and buy a condo. I haven't thought about HOW I want to retire, but I have a 401K and at my age, I think that's enough.

    Great post! ReplyCancel

  • fabulouslyfrugirl - I also have cheap housing (I think mine is close to 8 – 10% of my net income).

    Eventually, I would like to own my home, but right now, it's just a place to sleep and chill. As long as it's clean and safe, I am a happy cat :) ReplyCancel

  • retirebyforty - Our housing cost is high… :(
    It is about 20% of our monthly income, but if one of us quit working it'll be tough to get by. ReplyCancel

    • Well Heeled Blog - I don't think 20% is high! It'd be difficult to get under 20% if you own a home unless you live in a really cheap area or make a serious income. ReplyCancel

  • Edwin@CashTheChecks - It all depends on where you live. I'm sure in some states in the midwest you can live just fine with $40k. But in southern California, dream on, I pay more than $40k on my mortgage interest alone every year. ReplyCancel

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