The secret to living well on $40K a year

If broke folks are making fun of the way you live, perhaps you're doing something right.

By MSN Money Partner Oct 6, 2011 8:38AM

This post comes from partner site U.S. News & World Report.

 

US News on MSN MoneyAs Washington politicians debate whether earning $250,000 a year makes a family rich, special education teacher Danny Kofke has come up with a much lower threshold for wealth: The father of two says that his family of four can live well on his $40,000 a year salary -- and you can, too.

 

He explains how in his new book, "A Simple Book of Financial Wisdom," a follow-up to his first book, "How to Survive (and Perhaps Thrive) on a Teacher's Salary." US News spoke with Kofke about how he manages to stretch his income and his tips for others trying to do the same. Excerpts:

 

It's pretty impressive that you have supported your family of four on less than $40,000 a year. How did you do it?

 

This took long-term planning. Raising a family of four on my teacher's salary would be next to impossible if we had a huge mortgage and a lot of debt. Before we had children, my wife, Tracy, was a teacher, too. We had a plan for her to be able to stay at home once we had children. We weren't exactly sure when this would happen (this is for The Man Upstairs to decide), but we had an idea on when we would start trying.

 

We ended up being married four years before Ava was born. During this time, we tried to live off one of our teaching salaries and used the other one to pay off debt and establish an emergency fund. We were not sure how long Tracy would be able to stay home -- we initially aimed for one year -- but were able to have her stay home for six years and work part time for one. We were able to do this even after having our younger daughter, Ella, three years after Ava. The key for us was the long-term planning.

 

Can anyone really succeed at this?

 

I do feel that almost anyone can. I know there are some that earn a lot less than I do or have more debt but I feel they can work towards this, too. I am not a financial major or a chief executive of a company. I have never even taken a financial class in my life. If this 35-year-old school teacher can learn the basics of money management and finances, then others can, too. Post continues after video.

Tell us some of your more unusual advice, that we might not have heard before.

 

I think the biggest thing I have learned is, if broke people are making fun of you and laughing at your ways, then you are doing something right. It was difficult to get mocked when Tracy was working and we chose to live off one salary while others were spending like there was no tomorrow. Many people told me to get off my wallet and spend money.

 

Pride is sometimes a hard thing to swallow, but I knew that many of these people were not making smart financial decisions and these decisions would eventually come back and hurt them. I don't know if it is unusual advice but, when making financial decisions, you have to do what is right for you and not be influenced by the many temptations that surround us.

 

What's the hardest financial rule for you to follow personally?

 

Living below my means is the toughest rule for me to follow. There are so many temptations -- Madison Avenue spends billions of dollars each year to get our money -- and sometimes I want to buy things I know I should not. When this occurs, I allow myself a 24-hour breather and, if I still feel strongly about buying that object after this time, I will discuss it with Tracy. The great thing is, after I let the emotional aspect have time to go away, my more rational side speaks to me and I make a sound decision.

 

How are you teaching your children about money?

 

Once my older daughter, Ava, turned 3, we had her do simple household chores so we could teach her how to handle money. I am not a fan of rewarding others for things they should be doing anyway, but I did make an exception with Ava since my initial goal was to teach her money management skills.

 

We started with chores that were easy for her to complete: cleaning her room, brushing her teeth. Every night, we would check off the chores that were completed, and every Friday we added them up and she was paid. We called this money what most parents do: an allowance. No matter what you call it, make sure your child does the work to earn the money.

 

After Ava got paid (she could earn up to $1 each week), she had three jars: Give Away, Savings and Spending. She first put 10 cents in the Give Away jar, 25 cents in the Savings jar and the remaining amount in the Spending jar. This worked so well for us. When we were at the store, often Ava would see something she wanted. We never had any arguments; we would simply say, “We’ll have to go home and see if you have enough money in your spending or savings jar to buy it.”

 

Ava has used the money in her Give Away jar in numerous ways. One year there was a little girl at my school who lost her father shortly before Christmas. Ava used her Give Away money to buy this little girl a stuffed animal. Ava actually came to my school and delivered this to her personally. Another year, Ava used this money to buy canned food for needy families in our community. This past Christmas, there was a family at her school that was struggling. Ava used the money in her Give Away jar to buy them a gift card to a local grocery store.

 

If Ava continues to apply these lessons in life -- gives away 10% of her money, then saves 25% of it and uses the remainder for spending -- and goes above and beyond in her job, she will be wealthy in more ways than a fat bank account can show.

 

You can also listen to an interview with Kofke: "Surviving on a Teacher's Salary."

 

More on U.S. News & World Report and MSN Money:

VIDEO ON MSN MONEY

145Comments
Oct 6, 2011 10:45AM
avatar

We had originally planned to do the same thing - both teach before having children and then live on just one salary when our children were born - at least until they were in school.  However, our state required that all teachers earn their master's degree to keep their teaching certificates. Therefore we used our savings and started a home business so that we could pay for 2 master's degrees.  At $20,000 each, the cost of graduate school was so high that we still had to take-out loans. 

 

When my wife became pregnant she had planned to take 4-5 years off before re-entering the teaching field.  Although we were still paying on grad. school loans, we had paid-off our cars and had purchased an affordable house.  We could go 4-5 years by applying many of Danny Kofke's thrifty techniques like rarely eating out, planning affordable vacations, etc. all things we had already been doing in order to pay our way through school...

 

However, we then learned that colleagues who had 5-8 years of experience before taking-off to have a family were unable to re-enter teaching.  Once they had 5+ years of experience and  a master's degree they became too expensive for districts to consider re-hiring, especially in the current economy with such a reduction in tax revenue.  It was much more affordable for districts to choose college graduates starting-out at base pay.  This is a well-know hiring practice in most states and the reason teachers stay in the same district  until they retire...

 

In this economy, both of the graduate schools we attended now recommend that students hold-off getting their master's degree until they have secured a teaching job.  The key is to remain as affordable as possible so that you will have a chance at getting hired.  They also recommend making any moves within the first 5 years while you are still affordable...

 

Danny Kofke, the author of "How to Survive (and Perhaps Thrive) on a Teacher's Salary" is no longer living on $40,000 per year.  If you check-out his school district's yearly (step) pay increase plus sales from his 88 page book that costs $10 to download, his salary has gone up considerably.  We supplemented our incomes with a business adventure, so good for Danny.  However, it is no longer true that he ekes by on $40,000 per year. 

Oct 6, 2011 11:12AM
avatar
Rule #1:  NEVER get into debt, for anything.    Interest payments are money tossed down a rathole.   If you can't afford it, you don't deserve it.
Oct 6, 2011 1:00PM
avatar
THIS. This is why I want to find a job so badly - It would take only a year of me netting $1000 a month to eliminate our medical and credit card debt. At that point, we could definitely take care of our current needs and wants on just my spouse's teaching salary. 

(We might be able to max out two Roth IRAs as well, but a pair of 401(k)s would exceed his net income.)
Oct 6, 2011 5:55PM
avatar
I am living Very well on 20k a year and Very happy.
Oct 6, 2011 6:23PM
avatar
I wonder if they gave Ava a tax jar where she has to put in 35 cents of her $1.00?  Now that would be teaching her something.
Oct 6, 2011 6:36PM
avatar
HERE'S ANOTHER LIBERAL MEDIA ARTICLE TRYING TO CONVINCE US THAT WE DON'T NEED ANYMORE MONEY THAN THAT. DON'T ASPIRE TO BECOME WEALTHY, NO ONE NEEDS MORE THAN $40,000 TO BE COMFORTABLE. IF THAT HAD BEEN THE ATTITUDE IN AMERICA 200 YEARS AGO WE WOULD STILL BE LIVING WITHOUT ELECTRICITY AND INDOOR PLUMBING!!
Oct 6, 2011 6:36PM
avatar
i live on disability which totals around $7000 a year....i get no child support and pay literally half my yearly income in rent.....apparently the government thinks that is enough and well...i have been going on this budget since my eleven year old daughter was only one year old....the only thing we really do without are luxuries, and ppl have too many of those anyway.....my dad told me the greatest gift of contentment you can have is to live within your means.....I have to and am quite good at it; I've been poor for so long that I don't even miss those luxuries everybody else cries over not having....i'm just grateful to have what I do and that I am good at bargaining!
Oct 6, 2011 6:41PM
avatar
THE AUTHOR OF THIS ARTICLE MAKES MORE THAN $40,000
Oct 6, 2011 6:43PM
avatar
I WOULD SAY TO THE LIBERAL MEDIA: ISN'T CARRYING OBAMA'S WATER GETTING HEAVY?
Oct 6, 2011 6:47PM
avatar
Heh...  We have a seven-year-old son and an eight-month-old daughter, and we live plenty well on less than $30,000 a year.  We've never bought a new car, fix things instead of throwing them away, and restrict ourselves to one major purchase a year.  When we got married, my parents pledged to help us out when it was time to buy a house; we bought a lovely fixer-upper and have a mortgage under $450/month.  We don't have cable, but do have an HDTV we use for movies or video games.  Sometimes we struggle to make ends meet, but we have time to spend with each other and our kids and don't have a lot of expensive, useless crap lying around.  Funny, my son is perfectly happy with the old toys I played with as a kid.

One caveat, though:  Our kids, while they have a college fund, will probably have to work or earn scholarships (which is probably a good thing).  On the down-side, we don't exactly have a lot of money socked away for retirement.  Medical care?  Yeah, that's a different debate...
Oct 6, 2011 6:54PM
avatar
7 years ago, I had $3000 worth of debt and lived with a relative.  I got two jobs (one full-time at $11/hour and the other part-time at $7.50/hour) and paid off my debt in 4 months.  I quit the second job and purchased household items and saved money for an emergency fund.  Then I moved out on my own.  Since then, I have gotten raises over the years.

I live in San Diego on $39000 a year.  San Diego has such a high standard of living.  However, I am single mom with a 10-year old daughter.  We live in a duplex and I have a 2008 car that I purchased this year.  In addition, I am paying for Orthodontic work for my daughter.  I always give a portion of my income for missionary work (between 11 and 21 percent of my gross income). 

I have a budget in excel that keeps me on track.  I know exactly what I can spend each month.  I always put away an amount in savings no matter how small.  Before I know it, I have saved a good amount.  I always am able to use my savings for emergencies.  For example, when my 1995 car broke down this year, I was able to put a large enough down payment on a newer car to make my monthly car payments fit within my means.  We have even gone on nice vacations.  All the while, I never had to dip into my emergency fund which is 3 months worth of living expenses (the recommended amount).  I only have a credit card to build credit.  Other than that, I have never used the credit card to spend above my means.  It does take discipline but like everybody else says here, it's great not to have debt. 

That's me but I just want to thank all you teachers out there!  What a sacrifice you make for our kids!

Oct 6, 2011 7:02PM
avatar
Some rich idiot GOP must have written this.Sure, my son and I can survive (barely) on $20K a year.  But, I can't put aside anything for retirement savings or college for him. We have no health insurance, so who knows if either of us will make it until retirement. Twelve years ago, I read an article on how a single parent had to earn $ 27K a year just to get by.  The cost of living has gone up a lot since then but wages are not keeping up.
Oct 6, 2011 7:13PM
avatar
I don't believe a teacher is making $40,000 in this day and age. But lets pretend. They used one $40,000 wage to pay off debt while living on the other one. Sounds like ' The Secret to Living Well on $80,000'
Oct 6, 2011 7:16PM
avatar

i raised my son and paid 275 a month child support for another, on

28,000 a year and after the kids needs, there was nothing left, nothing.

I borrowed money for dental for my son. My kids never got to do a lot

of things that other kids got to do, but they turned out ok. i never had a vacation

during my working years, there is nobody that worked any harder then me,

5 and half days or longer, so i am not going to worry about class warfare or some

millionaire who is crying about taxes or some hedge fund prk, who is making tons

of money and paying less taxes, gth pubs, gth.

Oct 6, 2011 7:26PM
avatar
40k per year?  What about any book advances and residual monies? 
Oct 6, 2011 7:43PM
avatar
Wow ... Well, I am a wed-mother.  My husband needs prayer to get his life back on track.  Oh, and I am not on welfare.  In fact, when I was first on my own and received Medi-Cal, health insurance thru California government, I cancelled the Medi-Cal as soon as I got my job now, which started at $14/hour.  We should all be careful not to judge, billcccc.
Oct 6, 2011 7:48PM
avatar
Thankfully, I manage to live well on 50K .
avatar

Great, now tell me how to live on 10,000 a year.  barrowing from peter to pay paul.  not being able to do anything for recreation.  Hoping no one in the family will get sick, because you are still paying off the bills from the last time your child had to go to a doctor.  40,000 !!!  Right now in this country most of us

wish we had that much to live on.  Face facts. 

Oct 6, 2011 8:09PM
avatar
What was left out of all his calcs?  His SAVINGS!  Clearly he said that hey spent 4 years paying debt and then saving for their period on 1 income.  Now that I have a family of 6 on <$40K, I can promise that his family may be able to survive on this kind of pay, but they aren't living.  For us, combined mortgage and student loans is $1300, we have an avg utility cost of $300/mo and whittled life & car insurance down to $146/mo.  Everything else is paid for, and we still have only $160 every 2 weeks to divvy amonst 6 people for meals, gas, other amenities and surprises.  If it wasn't for a last minute cash stash, we would be in real trouble.  $320/mo is less than we spend in food for 6 people ($350 ish+, yet if we qualified for food stamps, we'd get $700) so how do we get around when it takes $100/mo for my wife to do the child ferrying that needs to be done.  Its to the point where I think of each trip to be made in parts of a gallon of gas - school is 1/3-1/2 gal depending on whether the AC is needed; church or soccer practice? Same.  Getting hammered on health insurance.  Thank you Obama and all you fat- and salt-absorbing soon-to-be-diabetics who have driven health care costs through the roof at a pace that matches matches "malpractice" suits.  It gets dropped with the new year and we will depend on our health.  At least that will add to our savings so we can cover real emergencies.  He has 2 less mouths to feed, but our costs are similar, trust me.  We are using savings to buy anything that is not a recurring monthly expense - school shoes, Dr. copays, prescriptions, even gas for me to get to work since I fill up every other month.  I call BS on him, unless he's renting some cockroach infested aparment in a shooting gallery for only $800/mo or has FREE health care for his entire family from his school district.  Doubt that though, as my wife's school dist employer was going to charge us $600/mo for the family, so we were lucky my work was only $400.  Haha, that's sooo very affordable.
Oct 6, 2011 8:19PM
avatar
Stupid headline.  I live well on 25,000.  Not even going to waste time reading the article, it's obviously for serious money mis-managers.  Anyone with a brain can live just fine on 40,000. 
And now back to work.
Report
Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
Categories
100 character limit
Are you sure you want to delete this comment?

DATA PROVIDERS

Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.

SMART SPENDING

Can you trust Carfax?

If you're thinking about buying a car and the Carfax report comes back clean, you're good to go, right? Um, maybe not. Here are four other ways you can avoid buying a clunker.