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.
This post comes from partner site U.S. News & World Report.
As 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
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.
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...
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!
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.
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.
And now back to work.
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You can give your car the care it needs without draining your bank account if you follow this advice.