Wednesday, 1 Feb 2006
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:
- Single
- 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
| INCOME LEVEL | |||
| 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 |
| Electricity | 50.00 | 50.00 | No change |
| Water/Trash | 20.00 | 20.00 | No change |
| Natural Gas | 20.00 | 20.00 | No change |
| Phone | 50.00 | 35.00 | Switch to cheapest T-mobile plan |
| Gasoline | 100.00 | 100.00 | No change |
| 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 |
| Prescriptions | 12.66 | 12.66 | 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 |
| Dental | 21.00 | 21.00 | No change |
| Vision Insurance | 6.33 | 6.33 | No change |
| Health Insurance | 0.00 | 0.00 | No change (Already on cheapest, free medical insurance plan at work) |
| Pet Supplies/Food |
20.00
|
20.00
|
No change |
| Vet Fees |
6.67
|
6.67
|
No change |
| Total Monthly Expenses | 1326.64 | 914.14 | |
| Total Annual Expenses | 15919.72 | 10969.72 | |
| Income Taxes | 6665.00 | 2635.00 | |
| 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.
February 1st, 2006 at 5:23 pm
You are my newfound financial hero (although I’ve been reading you for awhile and had already taken note of your admirable tightwaddery). You make Clark Howard look like a big spender. You are right though, it’s all a mindset and just doing it. We’ve been living beyond our means for a few years and I’m over it. We’ve got more useless toys than we know what to do with. I’ve budgeted it out and there is no reason for us not to be debt free by the end of this year. Last year was spent transferring balances to take advantage of low interest rates, now that I’ve got all interest rates below 3%, this year is about paying them off. Both my husband and I are self employed so it’s time to start Keough Funds and commence to saving since no one else is going to do it for us and I sure don’t want to worry about being on a “fixed income” in my golden years.
February 1st, 2006 at 6:21 pm
:claphigh: you rock. out of curiosity.. do you have a place where you keep all of your spreadsheets on your website??
February 1st, 2006 at 7:33 pm
I don’t have this spreadsheet file posted for download yet, but most of my other ones are in the Downloads category. I’ll get this one up so others can customize it for their own use once I fix a few issues with the tax equations.
February 1st, 2006 at 7:39 pm
1. How do you actually get by with just $125 on Groceries/month ? Thats quite an achievement. For 2 persons I end up paying $700/month. I only go to Costco/Walmart and asian grocery shops. Yes, I do avoid processed foods at all cost. I eat a lot of fresh whole chicken (at $1.99/lb) and fresh fish at ($3.99/lb). How much do you pay for thes.
2. Would you also post a column with $80K as your income ?
THANKS FOR SHARING THIS DATA. YOU ROCK !!
February 1st, 2006 at 8:38 pm
I need to do the same… We’re in escrow right now and our house payments are about to double. It’s scary. I know economizing can be done. We did it before in the lean college years. Thanks for posting this, Maggie. For me, it was just the visual I needed to really think about my own financial situation. Tight-waddery eating, here I come!
February 2nd, 2006 at 12:17 pm
Vital–I’ll answer your questions in a separate post. Looks like I’ll be doing a Cheapass Challenge grocery list after all, LOL.