Savings Comparisons: $40,000 vs. $20,000 Income

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.

6 thoughts on “Savings Comparisons: $40,000 vs. $20,000 Income

  1. 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.

  2. :claphigh: you rock. out of curiosity.. do you have a place where you keep all of your spreadsheets on your website??

  3. 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.

  4. 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 !!

  5. 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! 😉

  6. Vital–I’ll answer your questions in a separate post. Looks like I’ll be doing a Cheapass Challenge grocery list after all, LOL.

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