The discussion in the comments area of my savings post from yesterday got me thinking: Could I save money if I made just half my current salary?
I plugged in my current basic monthly living expenses and tax information into Excel, then popped in the figures for what I would be spending on the same items if I made $20,000/year. I adjusted for the lower income value by cutting back realistically on certain monthly expenses such as housing, dining out, clothing, cable, phone, etc, but kept utilities, insurance, and car maintenance the same.
Without further ado, I present to you my savings comparison for a 40k Maggie and 20k Maggie. The comparison makes the following assumptions:
- No dependents
- Rents housing
- 2 cats
- Car is paid off/no car payment
- No school loan debt
- No credit card debt
- 25% tax bracket for 40k income and 15% tax bracket for 20k income
- Works full time
|Basic Monthly Expenses||40000.00||20000.00||Penny-Pinching Tactic|
|Housing/Rent||700.00||400.00||Move to $800/month 2 bedroom apartment and get a roommate|
|Groceries||125.00||100.00||Cut back on red meat, buy whole chicken instead of just breasts|
|Dining Out||20.00||5.00||Cut back to just one Chinese restaurant lunch combo a month|
|Natural Gas||20.00||20.00||No change|
|Phone||50.00||35.00||Switch to cheapest T-mobile plan|
|Auto Maintenance||6.66||6.66||No change|
|Cable TV/Internet||90.00||45.00||Cancel cable TV; if net access is available elsewhere for
free, cancel Internet access, too
|Car Insurance||43.33||43.33||No change|
|Gym||10.00||10.00||No change (If the gym costs more than $10, I’d work out at
home for free)
|Clothing||25.00||12.50||Reduce annual clothing budget by 50% to $150|
|Vision Insurance||6.33||6.33||No change|
|Health Insurance||0.00||0.00||No change (Already on cheapest, free medical insurance plan
|Total Monthly Expenses||1326.64||914.14|
|Total Annual Expenses||15919.72||10969.72|
|FICA and Medicare||3060.00||1530.00|
|Total Expenses + Tax||25644.72||15134.72|
|Potential Annual Savings||14355.28||4865.28|
|Percentage of Total Income||35.89%||24.33%|
So, with proper budgeting, I could still set aside the maximum $4000/year in a Roth IRA even if I were making $20,000. That would still leave me $865.28 ($72.10/month) of discretionary funds for extra savings, incidental expenses, hair cuts, toilet paper, a subscription to Oxygen magazine, hobbies, gifts, and such.
And, most importantly, I could still “afford” to live a healthy, fitness-oriented lifestyle.
Now just imagine if I actually reduced my expenses as noted for the $20,000 income level while earning my current salary. I could have potential annual savings of $19,305.28, or 48.26% of my gross income.
Unless I manage to reduce my housing/rent expense, this will not happen, but it’s an eye-opening exercise nevertheless.