It’s not easy to do. But then again, it’s not terribly difficult either. Living on $25,000 per year as a single person is possible, even in a large metro area, even when living on your own without roommates. I’ve done it for two years now. Last year, in 2011, I lived off of around $22,000 and this year, in 2012, it looks like my total living expenses will total just under $25,000. Here are the 10 the biggest impact things I have done and/or continue to do and recommend doing to keep living expenses that low:
1. Track your spending
I started tracking my spending with an online program called Quicken Online about 3 years ago in mid-late 2009. My sister had shown me how her and her husband were using the Quicken desktop software. I found the online version and found it pretty neat that it automatically downloaded my account balances and transactions. After signing up, I saw my whole financial picture for the first time. I was in debt and had a negative net worth. It was depressing.
But using Quicken Online, and eventually converting over to Mint, was the start of my financial turnaround. Soon after starting to use this, I saw how ridiculous my spending was. I spent almost everything I made each month. I was in the middle of trying to pay off my $20,000 car while earning a fairly modest wage. It was a struggle. Looking at monthly spending numbers of over $2,500 per month ($30,000/year), I knew I had a problem.
And with tracking, that $2,500 per month spending dropped little by little, eventually hitting bottom at around $1,600/month in 2011 after paying off the last of my debt. I would have never gotten out of debt if it weren’t for tracking my spending. It gave me the insight and knowledge to make the cuts necessary to move the needle. It was my first step and the foundation of my financial progress.
2. Get rid of your debt and stop borrowing money
The first order on my agenda back in 2009 was to pay off my car. Earlier that year, my employer laid off people as the economy hit rock bottom. It was scary and I would have been in big trouble if I had been one of those people laid off. I had no money in the bank and a pile of debt in early 2009. Thankfully, I was able to keep my job and change my ways. I was fully committed to getting out of debt and building an emergency fund so that if something like that happened again and I was a part of it, I would be fine.
So from that scariest point in early 2009 to the day I paid off my last debt, which was my student loans, in December 2010, I was focused and intense. The amount total that I paid off in that year and a half was around $18,000. It doesn’t seem like much to me now but it might as well have been $100,000 back then. The important thing is that I stopped borrowing, I got intense as I could be, and I got myself out of debt, for good. Now I have the extra $400 per month going into investments every month instead of to the bank.
3. Stop going shopping and buying things that aren’t necessary
To fix my financial problems and pay off my debt, I went on a spending freeze. For that year and a half while I was getting out of debt, I decided to stay out of the mall. The habit has stayed with me and I rarely go shopping anymore. I live within 10 minutes of the Mall of America and don’t even remember the last time I was there. I just stopped buying and it has made all the difference.
My tips here are to only go shopping when you have a need and always go with a list. Don’t go shopping for entertainment. Go for a walk instead or for a bike ride, or sit down and read. There are MANY things you can do for entertainment instead of stepping foot inside a shopping mall. Look around your house/apartment. Do you really need to go shopping?
4. Eat at home and eat out very little
When I first moved to the area where I live now, I ate out all the time. I frequented the Taco Bell down the street for their Quesadillas, the Dairy Queen nearby for their yummy Blizzards and I thought nothing of ordering food every time I was out with friends at the local pub. After all, I now had a real job and money was flowing in at a greater level than ever before. I felt like I always had money to spend. So I spent $20 here, $15 there and $5 over there, almost daily. At the same time, I bought all kinds of groceries, that I thought I’d eat, but that ended up going bad instead because I ate out all the time. This was terribly expensive.
As an average spender, if you look at your eating out spending, it’s likely out of control. Mine was quite possibly in the $250-$400 range each month. Ouch. To live on less than $25,000 per year, you’ll need to cut the eating out big time. Here’s a little good news about doing it too. Your food tastes better and is much healthier for you. I’ve lost weight since I stopped eating out so much. What a pleasant side effect.
5. Make a budget each month
A budget is crucial to living on less than $25,000 per year. A budget is a plan on where you will be spending your money each month. This is different from not having a budget in that you tell your money where to go in advance instead of spending it freely and looking back at the month when it’s over and wondering where it all went. Your budget can be done on paper, which is a great way to do it, or it can be done using software like Quicken or Mint.com. Along with a budget, it can be helpful to use cash envelopes as well to get even better control of your variable expenses, those like eating out, shopping, groceries and entertainment. I started using the envelope system just this month and it has worked well for me in helping to keep my expenses under control.
6. Get inspired and motivated by the bigger picture
Motivation and inspiration have been huge to my personal finance progress over the past few years. I didn’t start cutting my lifestyle and living without all life’s luxuries because I just decided to be cheap one day for no reason. I’m on a mission. I see a bigger picture. I see a future full of options, freedom and excitement. I’m saving money for many bigger picture reasons, like:
- Owning a paid for home someday
- Being able to comfortably afford having a family
- Achieving financial independence early in life
- Being able to work on what I want, where I want, even if it’s not generating appropriate income at the time
- Having options for where I live, what I spend my time on and where I spend my time
To me it’s all about the freedom to reach my potential. Spending everything I earn will only keep me at the mercy of others. Sure, I like working and my job, but I’d rather not be focused on profit 24/7, but instead on doing something I’m passionate about and something that I believe is helping people in a way that’s consistent with my values. Without a solid financial foundation, that stuff isn’t possible. It’s off to work I go each day, at the mercy of the job. My future isn’t going to be like that for much longer if I can help it.
7. Downgrade the disposable goods you buy
I used to buy all the fancy stuff, like:
- expensive toothbrushes (which I replaced every 2 months)
- expensive foaming hand soap (that lasted less than 2 weeks each)
- expensive body soap (that had a brand name on the package)
- expensive clothes with name brands on them
- expensive computer bags, shoes, notebooks, heck even expensive milk
And guess what? It is all almost exactly the same as the generic stuff. So, I’ve downgraded almost every one of them. It’s likely cut the cost of my disposable goods in half. It just takes a mindset shift. Do you really need everything to be top of the line? Does it really matter if your dish soap is name brand or generic? Who cares how it smells or looks sitting by your kitchen sink. Get over it if you want to win financially. Go cheap.
8. Keep your living situation modest
In my opinion, this is where most people miss the boat. They get caught up in the “you have to buy a house” hype. Sure, that mortgage payment may be similar to your rent payment, but the other costs associated with home ownership will likely push your home expenses way up. If you’re serious about getting ahead financially and either getting out of debt or putting some serious money away, I’d encourage you to be careful not to act too quickly on the home ownership bandwagon. Sure, it may be a good idea to buy financially, but just be sure to factor in all the possible costs involved.
9. Learn to say “No” to others
As a natural pushover, I have always found it difficult to say no to other people’s requests to go out and have fun. I have friends who are complete extroverts and can’t spend a waking minute alone and they invite me out pretty often. I’ve learned that I need to be able to say no to this when I’m not in the mood for spending money on “just being out”. Obviously, you can’t just say no all the time or you may risk your friendship, but instead consider suggesting a free or low cost alternative. Expensive friends can cost an arm and a leg. You’ll have to be able to say no if you are to keep control of your discretionary spending.
10. Learn to be content with what you have
I’m a big believer that material things don’t bring happiness. I’m fairly happy and I haven’t purchased hardly any material things over the past few years. When I look around my apartment, I see a pretty basic place, with not a lot of expensive things. I do have some, almost all of which I bought between 5 and 10 years ago. They are all in good working order and I have no need to go and replace them. I even have empty space everywhere that I don’t plan on filling. I just don’t want anything else. I’d rather be able to achieve my dreams. I’d rather be able to pursue my passions than have a 70 inch LED TV sitting in my living room. I could go buy 30 of them today, but I don’t want them. You’ll need this mindset if you are to live on less than $25,000 per year. And remember, we’re not living on this little amount only to torture ourselves. We are doing it for a better future. A future that we are in control of, where we get to live our best life. It’s all on purpose and for a reason.
An Opportunity to Explore These Concepts Deeper
If you’re interested in getting the full message of what these 10 steps did for me and my life, I created a video course, called “How to Live on Less Than $25,000/Year (and Enjoy Doing It)“, digging deeper into it.
Category: Living Cheap