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Related topics: family, budgeting, frugal, spending, Donna Freedman

An MSN Money reader took issue with one of the couples I profiled in "How to become a one-income family." The couple had lived on $30,000 for a while but were now bringing in as much as $70,000 because of a successful at-home business.

"Please write an article that shows what a real family living off of $40,000 a year can do," the reader scolded.

So I did. In fact, I'll show you two:

  • 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.

Image: Donna Freedman

Donna Freedman

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.

Savvy spending and a certain amount of sacrifice let them live in ways that mirror their personal values -- and they do it debt-free. Here's how the two couples make it on a lot less than some people think you need to survive.

Strategy 1: Know where every dollar is and where you want it to go.

The families chose to live on less -- the Kofkes so that Tracy could be home with their children, and Halloran and Magai so that they would have more time for family and artistic pursuits.

The biggest tool in their frugal arsenals is careful attention to spending. Danny Kofke clears about $2,200 each month. Major monthly expenses include:

  • Mortgage: $850
  • Food: $466
  • Roth IRA: $250
  • Internet/TV/phone: $160
  • Utilities: $150
  • College funds for their daughters: $100

That leaves about $200 a month for everything else, from gasoline to new shoes. The Kofkes are OK with that.

"We may not have it all, but we have enough," says Danny, 36, the author of "How to Survive (and Perhaps Thrive) on a Teacher's Salary."

Amy and Jack have similar expenses:

  • Mortgage: $900
  • Food: $400
  • Retirement: $833
  • Internet/phone: $170
  • Utilities: Heating and cooking are wood-fired

When the Kofkes want something special -- a 50-inch HDTV, two diamond bands for their 10th anniversary -- they tighten their belts, save up and pay cash. Both families manage some travel to see relatives. Amy and Jack own cellphones and iPods. The Kofkes have satellite television service for that HDTV.

Tracy, 39, earns money here and there by painting murals and banners, providing child care and teaching art classes. Half goes to savings and half shores up the budget. But since that income is unpredictable, they budget to live on Danny's salary alone.

"We know where every single dime goes," Tracy says.

Strategy 2: Start with cheaper housing.

Housing is generally the biggest drain on any budget. After two years of teaching abroad, the Kofkes bought a home in Florida. A couple of hurricanes later, they moved to Georgia. They bought a three-bedroom place: less house than they qualified for, but big enough for their needs and small enough to be affordable. A 15-year mortgage helps them pay it off faster. (Assume that's always better? Read "The 15-year vs. 30-year mortgage debate.")

Amy and Jack left expensive Seattle in 1999 and headed east in search of a duplex with some land, figuring that a tenant and a garden would lower their costs. They found an old triplex set on three-eighths of an acre for a scant $38,000 -- and financed only $18,000 thanks to a generous first-time homebuyer grant.

Their original mortgage was $125 a month, far less than the property taxes. That changed recently when the couple took out a home equity line of credit to do major renovations. (See today's home equity rates.) The mortgage is now $900, but two tenants kick in a total of $550.

Inexpensive housing is a must for people with irregular income. It also lets the couple divert one-third of their earnings to retirement accounts.

Strategy 3: Get creative about meeting needs.

The books stay balanced thanks to a mix of old-time and modern frugality:

Tracy gets a ton of children's hand-me-downs from friends. She makes some of her girls' clothes and all of their Halloween costumes, and sometimes does a little sewing for pay.

She watches sales carefully and estimates she saved $1,600 last year by using coupons. Danny carries his lunch to work every single day. The family will enlarge its garden plot this year.

They hang on to their vehicles, a car bought new nine years ago and a used minivan they got when Tracy went back to work briefly in 2005. Both will be driven until the wheels fall off.

Jack and Amy buy only used vehicles, including one truck for work-related tools. His arborist business provides all the wood they need to heat their home, a huge advantage in their cold, snowy region. Most clothing comes from thrift or consignment shops. They buy health insurance from a state program that offers coverage for small-business owners.

The family has a large garden and supplements it with fruits and vegetables from an Amish produce auction. (Sample price: butternut squash, 50 cents each.) Sometimes Amy stops by a farmers' market at the end of the day to propose a trade: the couple's unsold strawberries or bok choy for some jars of homemade jam or kimchi.