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$40,000 a year can be enough

If you can't live on that amount of money each year, it's your fault.

By Karen Datko Sep 24, 2010 10:00AM

This guest post comes from Len Penzo at Len Penzo dot Com.

 

A few weeks ago I shared with you 10 characteristics of debt-free people of modest means.

In that article I specifically asked my readers to consider this question:

Why is it that there are families out there with household incomes under $40,000 comfortably making ends meet and saving for retirement with no debt on the books -- or at worst, a single mortgage payment -- while others who made millions per year like Sinbad, Ed McMahon, Mike Tyson, and Stephen Baldwin had trouble keeping their financial heads above water?

While my list of 10 traits was met with general acceptance, I did manage to start up a minor debate among the readers as to whether or not it was really possible for the majority of folks here in the good ol' USA to make ends meet on $40,000 per year.

 

How can I make such a claim?

 

Well, I live in Southern California, one of the most expensive places to live in the U.S. In its 2009 list of the most expensive cities, Forbes listed Los Angeles second; only New York City had a higher cost of living.

 

Even so, I know many people living here right now who are making ends meet on $40,000 or less.

 

I know if I had to, I could make it here too on that amount of money -- and if I can live on an annual income of $40,000 here in Southern California, I am certain I could make it most everywhere else in America.

 

So, how do I know for sure?

 

Well, if you're a regular reader of Len Penzo dot Com, you know I have been meticulously tracking every penny I've earned and spent for more than a dozen years now.

 

Although I have a much more detailed breakdown, here is a top-level summary of just my key household expenses in 2009:

 

Now, keep in mind that if I were making only $40,000 per year, I would certainly work much harder to cut some of those costs down.

 

For example, you can bet I would be much more vigilant about limiting our gasoline and utility bills. Likewise for the retail purchases. And without a doubt the biggest area where I know I could really cut corners if need be is the family grocery bill. Although we do plan our dinner menus in advance to save money, we do a poor job of taking advantage of coupons and special sales.

 

In addition, we eat lots of steak and other expensive cuts of beef, which considerably raises our food costs. I am quite certain that, if I had to, I can easily cut our grocery bill by at least 25%.

 

But, Len, what about the mortgage?

 

Well, my mortgage payment is a bit less than $640. And although I bought my home almost 13 years ago, with almost zero effort I found on the Internet a three-bedroom, two-bath, 1,400-square-foot single-family home within 10 miles of where I live currently renting for only $895 per month, or $10,740 annually.

 

So add it all up, and those basic expenses come to just over $36,000 per year.

 

Yes, I realize I still haven't accounted for payroll taxes. But I am certain I could offset whatever taxes would be deducted from my paycheck with the savings I'd get by reducing costs on my grocery, utility and other bills.

 

Would my family be living like kings and queens? No.

 

But here's how we would be living: in a respectable and comfortable home in Southern California, with two insured cars in the garage, and presentable clothes on our backs.  We'd also go to bed each night with full bellies. On top of that I'd still have a little money left over to put away toward my retirement nest egg each week, a few bucks to put toward an emergency fund in case my water heater broke, and even a little something to take the family out to dinner once every month or two.

 

I admit, it's not ideal. Clearly, it is a no-frills lifestyle. But despite what you might think, it's certainly not anything close to poverty either. It's just not.

 

So if you and your family are blessed with good health, but you find yourself still having trouble making ends meet on $40,000 per year -- and are truly serious about living within your means -- I strongly suggest you reassess your situation and see where you can cut back on your expenses.

 

Otherwise, you've really got nobody to blame but yourself.

 

More from Len Penzo dot Com:

14Comments
Aug 26, 2012 6:30PM
avatar
It's because most people don't want to admit they have tons of credit card debt buying sh*t they don't need but want, and have tons of expensive items that they can't do without or be seen without. I have a friend that makes ok money, not much and cannot be seen with generic anything on his body; label queen galore. I am not saying one has to buy Walmart jeans, but I wear Levi's, which are not too cheap and not too expensive and my friend wears 150 dollar jeans! And Prada and Gucci everything. God forbid, she told me, she'd be seen in Ray Ban eyewear.

Suze Orman says it all the time; we are living beyond our means. She (and I) have no problem with people who buy labels and expensive items ONLY if they can afford it. But to buy it merely because you want to impress friends, family and neighbors? Silly and stupid, especially if you don't make a lot of money. 
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