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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:

145Comments
Oct 7, 2011 11:20AM
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My wife and I have never made much more than $40,000 a year. We live pretty well. It boils down to priorities & living within your means.

 

We don’t smoke or drink, don’t buy a new car every couple years, and don’t buy the newest/latest and greatest TV’s, phones, and such. We are able to eat out a couple times a week, take vacations twice a year.

 

Who cares what the neighbors have? LIVE within your means!

 

Oct 7, 2011 12:40PM
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I just wish everyone would stop complaining and just offer up creative ways to trim a budget.  I do not have cable, I do not have internet, I have a prepaid cell phone with web so I can pay my bills online and save the costs of stamps.  I am a single mom, I have to pay for my own healthcare insurance and I have a major medical condition.  I have no dental insurance.  I drive a compact car and live close to my son's school and my work so I don't have to commute far.  I stay home for vacations, rarely ever eat out and usually it is just buying my son a burger and fries.  I use store rewards cards that save money on gas, watch store ads and try never to pay full price for anything.  What other things can one do to trim their budget?  That's all I want to know.  I don't care how much you make or the size of your family. 
Oct 7, 2011 7:22PM
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It is possible to live on $40K per year.

1.  Don't live in San Francisco, LA, San Diego, New York, Boston, Seattle, DC. or any place else where the cost of living is above the national average.
2.  Stay debt free, except possibly for a home mortgage.
3.  Build an emergency fund of at least 6 months living expenses.
4.  Pay yourself first.  Put at least 5% of your pre-tax income into a 401K or other retirement fund.
5.  Make sure that you have sufficient life insurance (term) to provide for your family's future needs.
6.  Put yourself on a realistic budget and dont' cheat.
7. Learn to say NO.
Oct 7, 2011 12:04AM
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I have been saving almost 10 K a year for 20 years.  I should have 200K instead I have just a little over 100.  The stock crash in the dot com took alot and the stock crash of 2009 took some.  at 100k I will not be able to retire until I am 70. But it looks like Im not even going to make 60 now as I just found out I have colon cancer, and they estimate only 3 years.   If you make 40K and saved 10K a year you lived much like I did, without anything other than food and rent.   So I am quitting my job after cancer therapy, and going to spend my time flying around the world. 
Oct 6, 2011 6:23PM
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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 7, 2011 10:39AM
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I'm not one to get into discussions about politics... but...

Ok.. I'm pretty sure that communism isn't they way to go... but DAMN! There are people on right who have done an awesome job of knocking our d*cks into the dirt.

Think about when this country had a super strong middle class... we were a manufacturing nation. Now I know that business owners have to put the bottom line first and foremost... but doing crap like sending my dad's (and millions of other workers') jobs to Asia just seems like betrayal to the American people to me.

Oct 7, 2011 7:52PM
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Too many criticizing him for doing it or making excuses why they can't do it.  The guy is offering worthwhile information.  If you don't want to use the information, that's your problem.  For those who choose  to learn something for their benefit, congratulations, you are smart enough to ultimately have a comfortable living, reasonable savings and  a retirement plan on which you can actually retire..
Oct 7, 2011 6:49PM
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To be truthful, I think Danny should rename his book, "How to live in rural Georgia for $40,000 per year" or "How to do TV & Radio Interviews While Taxpayers Pay for Substitutes" 

 

In the rural South, living $40K per year is something almost anyone can do since the cost of living is so low.  For instance, the average blue-collar worker in his county only makes $25K per year.  Danny makes more than most 2 income families living in the same county...

 

Doing 5 minutes of research I learned that Danny Kofke lives just 2 miles from the school where he works in a very affordable area of Georgia.  Therefore his standard of living & commuting costs are much lower than the national average.  For instance, his house has 1,545 SF on almost an acre and only cost $144K in 2006.  Due to the recession, his home is now worth just $125K.  The same home in some parts of California or New York would have cost over $600K in 2006, so part of living on $40K per year is where you live. 

 

I also noticed on his website that he has regular speaking engagements for radio & TV shows scheduled throughout October.  However, according to his school's website he is still employed by the school district.  Many of these shows are listed during school hours.  For instance, many speaking engagements are on Mondays and Fridays.   I would like to  know how often he has called-off from teaching to travel the countryside and promote his book.  In our area, substitute teachers cost the district $150 per day, so it looks like the tax payers are paying for Danny to take-off & promote his book.

 

Don't get me wrong, I am not against what Danny is teaching, we follow most of his principles ourselves.  My wife and I both teach and we own a home business.  I am against the fact that it is NO LONGER HIS LIFESTYLE, yet he promotes it as such.  He hasn't lived on $40K per year since he started selling his books.   He now gets paid for the books AND for his speaking engagements AND he somehow has retained employment at his school even though he is MIA over 8 working days per month...

 

According to his own website, Danny is taking a lot of time off from teaching to do do TV & Radio interviews - scheduled during school hours.  We believe it is unethical to take sick days unless we are really sick.  We have never taken time off from school to promote our business - we have other family members helping us and we handle our responsibilities on the weekend or during the summer months. 

 

Shame on you Danny.  You also promote being an ethical Christian and are supposed to be doing an interview with The 700 Club.  I hope you repay the school district for taking so many days off to be on TV & Radio.  We work with special education and those students do not do well with substitutes or inconsistency.  They need to see the same teacher each day to thrive and you are no longer giving those kids your best...  Stop calling yourself a teacher or a Christian since you are doing neither very well IMO.

Oct 7, 2011 3:58PM
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No brainer for me:

No Cell, No Cable, No eating out, No unnecessary purchases, No Vacations, No Credit Debt(re unnecessary purchases). Work lots of OT. Cheap use car, VA Med, Company Dental.

Basically, live within my means...Oh Snap!...what a Novel Concept..! 

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If you want to save money, don't buy money management books. They all say the same things; retire debt, live beneath your means, have an emergency fund, save for retirement. And probably the most important thing is to stay healthy as any major illness will wipe out the best plan. The bottom line is enjoy life responsibly.
Oct 7, 2011 3:38AM
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as i achieved my long range goals, i lived below my means, too. the mocking and one upping that family and friends tried to goad me with didn't bother me because they were not a part of my plan. i also declined to marry any of my suitors because they weren't planning or working towards similiar goals. now i'm "retired" from 9-5 and enjoying the fruits of my labor and thanks to my frugal walking regime (gym's cost too much) i look and feel great, and my health is as good as it gets. now i have time to spend with the grandchildren in the family. some of our adventures are costly (i'm living it up a bit) but most are frugal. i'm also instilling in the younger generation an appreciation for volunteering, self responsibility, and to take joy in simple,daily pleasures. chances are you're going to live a long life; prepare yourself for the long run. 
Oct 6, 2011 6:47PM
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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 11:03PM
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About the only thing really useful in this article is the point about other people making fun of those who are frugal.  I have a SiL who mocked me for buying used baby items (seriously--most of the things had only been through one kid and were perfectly useful for the year and a half I needed them).  I have a BiL who thinks we are nuts for living in the lower-middle-class house we started out in and paid off years ago rather than "moving up" like "normal" people.  It is best to ignore such people--it does hurt to be the family joke at Christmas and Thanksgiving when everyone else brags about their vacation or new car/house, but the house is paid for, we could pay off the cars at any time, and even had enough money to buy the in-laws' house when they reverse mortgaged it and were about to lose it.  No fancy clothes, no vacations, but no debt.  It's "The Ant and the Grasshopper," I guess.  But, I always identified with the ant, anyway.
Oct 6, 2011 9:04PM
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I live just fine on $40K per year. I lived fine on $20K per year. You know why? Because I - Like a Lot of other people who are doing just fine despite the Media barrage- don't live in fantasy land! We live within our means whatever our income is! I don't create debt by having "oops" babies I can't afford. I don't run out to get the latest greatest version of the next hunk of 'technology'. I drive a 5yr old paid for car. I moved out of my 1800 sq ft house into a 1000 sq ft and sold or donated whatever wouldn't fit. We have plenty of room--yes all 3 of us in this 2bd/2bth.  We save, we contribute to 401K. We go to concerts. We have cable and internet so we aren't living like paupers. We just choose where to spend our money and where to save it according to what's important to us. 

Trust me, I haven't always made good financial choices. I was a wreck in my 20's. Took me 5 years of hard work and sacrifice and good decision after responsible decision to get myself out of what I put myself in. Nothing easy about it but taking responsibility and creating a life we want is never easy. It's called growing up! Create more income or less debt. 

Plenty of people can live better on $40K or less if they wanted to but they refuse to give up their lifestyles of keeping up with the Joneses, even though they know nowadays the Joneses are flat broke. They just focus (as some of the responses here indicate) on why it can't be done, why it can't apply to them, why the Govt, their crummy Ex-spouse, their Race, the Wealthy, their lot in and life and whatever else excuse they can come up with to absolve themselves of personal responsibility. 

Heck I know a ton of People who live their personal financial lives as carelessly and reckless as the Govt runs the Countries money yet they complain about the Govt overspending and misusing funds while they don't see they do the same thing in their own lives. Microcosm of the Macrocosm...  Wake up. 
Oct 7, 2011 10:07AM
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I think a lot of people are missing the point. We are in dire financial times. Debt in most forms is bad. No matter where you live, no matter what the cost of living, you can find that magic number ($40k, $60k, $100k) and come up with a financial plan to make yourself debt free along with savings and emergency/rainy day account. It's all about sacrifice and your tolerance for debt and spending. Sacrifice little, get there later. Sacrifice a lot, get there sooner. Whatever your disposable income level is, it's all about allocating it towards getting to that goal. And for some of us, it's just not practical because our financial obligations leave just too little at the end of the day.

My spouse and I live well above the poverty line. Our disposable income is significant. But after reading this article I intend to get his book and apply a more frugal fiscal policy in our household. It may mean a lifestyle change but if we can do a better job of identifying and hitting financial goals, it will be well worth it.

Oct 7, 2011 1:07AM
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$40,000 a year. I wish! Try $26,000 a year and I'm better off than most people I know. This article is so fricking out of touch with reality, it's not even funny. And people wonder why so many are taking to the streets in the major cities.  Occupy Wall Street! 
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WOW.....How bout doing a article on raising a family of 6 on 23,000 a year. Where you can't afford to buy health insurance, and you can't afford to have vacation. That's where the bulk of America's low income families are at. Not 40k and higher
Oct 7, 2011 3:15AM
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So, is that $40k after taxes ? I feel as though I'm not a frugal as I should be. $40k would is my take home but, putting a 20yr old through college and, being a single father with no other income, no significant other, seems tough. I certainly will not complain to myself under my breath anymore. As, I am 43yrs old and, having been at this same as I use to say, stagnant pay, for the last 8 years. I think my kid pushed me to strive further. Thanks Son !
Oct 7, 2011 12:44PM
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I think one thing that is not mentioned here is where you live. Your lifestyle/budget is impacted by where you live. 

If you live in the San Francisco Bay Area, like I do, don't ever dream of buying a home and raising a family on $40,000. Especially , if you live in San Francisco. With that salary the best you'll do in San Francisco is a small studio!

I think this is also applicable to NYC as well. 

So ultimately maybe $40,000 works in many parts of the country where you can afford a home, a family, and more. However, the article would be better if it mentioned what city/state she lives in. I didn't watch the video.
Oct 6, 2011 6:36PM
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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!
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