10 Tips for Living on Less Than $25,000 per Year

| November 28, 2012 | 41 Comments

It’s not easy to do. But then again, it’s not terribly difficult either. Living on $25,000 or less 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:

my-plan-for-the-future

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.com, 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.

Free 'Cheat Sheet'

10 Steps to Successfully Saving Enough Money to Make the Leap and Start Doing Things Your Way

Get the cheat sheet

Tags: , , ,

Category: Living Cheap

Comments (41)

Trackback URL | Comments RSS Feed

  1. Jenny says:

    I agree with all of these and think number 10, being content, is the best. It keeps us from spending when we don’t need to, even though we could afford it, we choose not to. Press on!

    • Jenny,
      Thanks for stopping by today! In my experience, being content is huge in terms of being able to live below your means. If you can’t learn to be content with what you have, then you’re just a ticking time bomb to going out and spending a bunch of money to get some stuff. Over the long term, contentment is necessary, otherwise you will live in misery, feeling like you’re being deprived of the finer things in life. That doesn’t sound fun to me!

  2. These are some great tips. Just instituting one or two of them would likely save someone quite a bit of money. I have been working on not eating out quite as much but it is difficult.

    • Lance,
      It’s funny but my temptation to eat out has dwindled a lot since I started eating at home and bringing lunches to work more often. It just doesn’t cross my mind as much anymore that I should go pay someone to make food for me and serve it to me. It has just become second nature to make my own food, pack a lunch and go to the grocery store if I need something that I don’t have at home.

  3. Michelle says:

    These are all great tips. We could definitely live on less than $25,000 a year, but right now are working on eliminating all student loans.

    • Michelle,
      That’s great that you’re chipping away at your student loans. Once you get there, you probably will be able to get by on less than 25k. It’s crazy how much cheaper life gets when you don’t have to send all that money to the bank every month.

    • Hey Michelle… don’t beat yourself up!

      I wouldn’t count paying off debt as a living expense, especially not student loans anyway.

      Just like I wouldn’t count paying money into an investment or retirement account a living expense either. That goes into another pot called your “savings percentage” – perhaps a more positive way of looking at this?

      Also I cannot believe that people need tips on how to live on under 25K… seriously?! They are all good tips of course but surely we put them to good use to raise (or should that be lower) the bar a bit? 20K… 15K…? :)

  4. Christian L. says:

    Kraig,
    I’ve been living off of very little too in the past year and half. Your successful techniques mimic mine quite a bit. But I’d say the most notable one is No. 8. You’re right, too many people are quick to buy a home when they shouldn’t.

    What’s the rush? Since being out of college I’ve lived alone and also with roommates. I enjoy the latter because it makes my monthly expenses super cheap and gives me the company of some cool people.

    -Christian L. @ Smart Military Money

    • Christian,
      Thanks for stopping by. I have been a little torn throughout the past few years on whether or not to live with roommates. Being an introvert, I really like having my space and quiet time, but I also see the benefits of both saving money and having the company. Not having to go out to be social but instead being able to stay in and hang out with roommates can save a lot of money.

  5. krantcents says:

    Good tips! I live way below our means and save $35K+ annually. I don’t feel the least bit deprived. We take nice vacations, live well and still save a lot. I think it is just realizing what is important and discarding everything else.

    • It’s funny because as I’ve lived further and further beneath my means, it has become less of an inconvenience to do so. Like I’ve heard it said over at Mr. Money Mustach’s blog, the more you sacrifice, the happier you feel. That has happened to me.

  6. jlcollinsnh says:

    very nicely done.

    I’m working with a friend on her finances and am passing this along.

  7. The first year I lived on my own, ya, let’s just say I definitely lived on less than 25,000! And it was relatively fine! I never felt like any of my needs went unmet.

  8. What a great post! I lived in one of the most expensive areas in the country on $24k in income (while saving for retirement and paying off debt) and I employed every one of these strategies! As other commenters have pointed out, that last point is the lynchpin. I would also say you should re-evaluate what you consider needs because you will find that many of them are actually wants.

  9. Peter says:

    Kraig, you’ve accomplished quite a feat by spending as little as you have. I know at our house one of our biggest problem areas is our grocery and eating out budgets. It’s amazing how fast those areans can balloon out of control.

    It really does take a conscious effort if you want to curb spending, but as your example has shown, it CAN be done!

    • Thanks, Peter. It sure can be done. I actually know that I can live on $22k, because I did it last year. I just need to figure out how to keep things below $25k for next year. Lifestyle inflation is alive and well.

  10. Great post, Kraig. I lived on less than $25K for several years, largely by following most of the same steps that you list here.

    Now I have a “joint income” with my significant other, so I don’t know what I individually spend … I only know what we jointly spend. It would be interesting to seperate out my finances and see how much I, solo, could spend in a year. Hmmm. Might be an interesting 2013 experiment ….

    • Paula,
      Thanks for coming by and sharing your story. That does sound like an interesting experiment. Since you’re sharing many of the living expenses and meals, I’m guessing it can be fairly cost effective. I know there are a lot of inefficiencies of my living situation since I am single and living alone.

  11. mike crosby says:

    I was linked to you from jlcollinnh.

    Your ten tips should be the 10 Commandments of smart money management for young people. Great stuff. I’ve never tracked my finances because I’m married and I do a lot of things I wouldn’t do if I was single.

    My wife likes to spend money and I do that to keep her happy. Long story, but it works. Fortunately we can afford it and still save quite a bit.

  12. Christine says:

    I’ve been living on $25,000 or less for years now and I support a family of 3 :) It’s been a challenge but it’s also been fun. It has taught me to have only what I need, with a minimal of luxury items, and to think outside the box. I’ve raised both of my children this way.
    Your ideas are excellent and are something for consideration no matter what a person’s income is :)

    • Christine,

      That’s right. This stuff works with a small income, an average income and a high income. For the low income, it gets you by without sinking into debt or more debt, for the average income, it helps you get ahead, and for the high income, it will fast forward you into a world you could only dream of.

      Remember that income is only what you’re making today. You can always increase it.

  13. Eric Williams says:

    I am assuming you do not include your investments in the $25,000 mark, correct?

  14. Anna says:

    I really enjoyed reading this, very inspiring, thank you for posting it. I make just under 25K, but still have my car payment and my group coverage health insurance is $340.00 a month out of my take home pay. Hopefully, once the car is paid off and if I get a job with better health coverage I can breathe easier! This article gives me hope…

  15. Jodi says:

    Those are all great ideas and I will share them with my husband. What we have been doing ourselves is trying to get ourselves out of debt. We tend to find ourselves spending too much money. I decided now that my newest saying is “can I make it?” If their is something I need, can I actually make it? If I can’t then I might go out and buy that item. Last year my husband and I spent a lot of money during Christmas time. This year, I’m not going to make that same mistake. So I’m going to start making home-made gifts for people more often. I have started doing this and I’ve saved so much money in the process. I just want my husband and I to live a simple life style in our little condo. When we are ready to rent our condo and get a home we will chose a modest home. We will chose something we can afford in our budget. Thanks for sharing this post!!!

  16. Buttercup says:

    I totally agree with number 1: Track your spending. I used Mint for a while, but then switched to Learnvest a couple months ago. It saddens and motivates me every time I see my negative net worth. I’m almost into the -20K’s! This is great considering I have almost 75K in student loan debt left.

  17. Bianca says:

    HI Kraig

    after struggeling with debt after my wedding, which completely spiraled out of control last year (that and the 8 other weddings we had to go to as guests), I find your suggestions really inspiring.
    Some them we already naturally implement (not eating out, bringing lunches to work), others were new ideas to me (cash envelope, I had to google that). I hope to be out of debt around this time next year or before that. As mint and the likes are for US customers only, I cannot sign up for a nifty tool like that, but after reading this I downloaded a free personal budget planner spreadsheet and put it up on my google drive so I can access it from my phone and my computer if I’m on the go and need to update anything.

    • Hi Bianca,

      Glad you got some value from the post. That’s great that you plan to be out of debt by this time next year. Good luck on your journey out of debt!

      It’s a real bummer that you can’t use Mint. It’s a neat tool. A spreadsheet with work as well. The main thing is to track your finances so you know exactly how much comes in and how much goes out.

      Thanks for stopping by and I hope to see you around in the future!

  18. I am so glad I came upon this blog. I am a single mom (by choice) to a great 6 yr old who also has Asperger’s and I also foster 2-3 kiddos b/w newborn and 4 years old at any given time. I decided last year that my son needed to be homeschooled for Kindergarten and that the foster kids needed more attention then just throwing them into daycare all day (they have enough going on in their short lives so far) so I rearranged my work schedule and only work evenings now, which really cut back my income. But we are all happier and adjusting well now and I can’t wait to learn some tricks to save money so that I can breathe a little easier!

  19. Denise says:

    I really enjoy reading your post. Thanks Denise

  20. Cynthia Morrison says:

    How do you live on $6000,00 a year?

  21. Frankr says:

    I really admire people living on this salary.
    I pay around $50k a year tuition for my 2 sons who are 5 and 3 years old. crazy world

    • Frankr,

      Thanks for stopping by and for sharing your thoughts. Living on an amount like $25,000 isn’t easy (and I’m not quite making the cut now with my new business expenses), but it’s worth it because of the financial progress that can be made.

      Best wishes to you and your family!

Leave a Reply

Your email address will not be published. Required fields are marked *

Current day month ye@r *