How to Live on $20,000 a Year without Mooching off of Anyone

| February 24, 2014 | 27 Comments

During 2011, my first year after getting out of debt, I spent just over $20,000 for the entire year. Most importantly, I didn’t mooch off of anyone. This article breaks down the process for you, step-by-step, so you get cut your spending to $20,000 per year and get out of any financial disaster you may be facing:

livingon20000ayear

Track Your Spending with Mint

The foundation for living on 20k a year is tracking your finances. There is no way for you to know if you are living on $20,000 a year if you aren’t tracking every dollar you spend. Tracking your money is easy. Just to head over to Mint.com and sign up for an account (or start using the Mint account you already have). There are all sorts tutorials out there on how to use Mint (like mine). Most of the tracking process with Mint is automated and won’t require much of your time so head over and get that all set up so you can start measuring your process.

Cut out the Smoking (or other Addictive Habit)

Smoking or other addictive habits need to go in order to live off of $20,000 a year. Back in 2011, I was a smoker. Throughout the year, I made several attempts to quit, which helped me understand what worked and what didn’t. But finally, late in the year, after deciding I was going to start running, I made up my mind. I had returned from a run and was hacking up a lot of nasty flem, I looked at my pack of cigarettes sitting there, and threw them away (half used).

You know you’re serious about kicking a habit when you throw away perfectly good cigarettes. I just wasn’t having the flem it was causing me. Sometimes, it takes starting a good habit in order to kick a bad one. In this case, picking up running gave me the motivation to quit smoking and I save thousands of dollars a year now because of it. Kick those bad habits that are costing you money.

Get Out of Debt and Stay Out

I paid off my debt after years of struggle in December of 2010. That meant no more $351/month car payment and no more $66 per month student loan payment. Not sending that $400 plus dollars out to creditors every month lowered my yearly cash outflow by close to $5,000. Now, I actually spent that money years before when I went to college and bought my car, but not incurring extra debt (which I would have actually paid for in 2011), saved me loads of money.

Debt is a financial emergency. Get out of it ASAP (if you have any) and stay out of it (if you don’t). It will save you thousands per year by not having to pay interest on it and by being able to invest that money and instead earn interest on it. FYI: I cashed out over $12,000 in dividend and long term capital gains from my investments in 2013 because my money was invested instead of borrowed.

Set Clear Savings Goals

In January or 2011, I set a big fat savings goal. I had just paid off all my debt and now needed to build my emergency fund. Looking at my financial picture in Mint, I realized that with my now higher cash surplus every month, I could possibly save up the $10,000 emergency fund I wanted to build by May 1st. It was a long shot, but very possible. So I set the goal to have $10,000 in my savings account by May 1st of that year (just a few months later). I missed the goal by a couple weeks, but none-the-less, I built that emergency fund and did it incredibly quick.

Stop Eating Out and Start Eating at Home

If you’re not careful, eating out can cost you hundreds of dollars each month. A meal here or a meal there adds up to $30-$50 for each time you decide to forgo your $5 meal at home and opt for more convenience and the atmosphere. When drinks are ordered, you’re looking at all kinds of money leaving your bank account that didn’t have to.

Before I cut my eating out in 2011, I was spending hundreds of extra dollars per month and putting on weight. Cutting the eating out can help you get your spending down to $20,000 a year and can trim your waste-line in the process. Consider eating better by buying groceries and making your own meals instead of paying other people to make meals for you and bring them to you.

Stop Taking Vacations (at least temporarily)

Look, I’m a big fan of taking vacations and plan on taking at least a couple this year, but when you’re in an emergency financial situation, like being in debt, I’d recommend making sacrificed in this area. In 2011, I cut out all vacations and it enabled me to live off of 20k a year. A single vacation for just one person can typical start around $1,000, which is 5% of $20,000 a year. Taking two vacations of $1,000 each is a whole 10% of 20k a year. Ouch. Vacations can add up quickly so if you want to cut your expenses this year and get down to the 20k a year level, consider forgoing vacations for this year only. It will be worth it in the end if it helps you make serious financial progress.

Work Hard and Focus on Your Income

Now, I don’t advise focusing on your income more than your spending. I only argue that when you work hard and focus on your work, you will be less likely to go out and spend your money. Working full time or even more than that can help you cut expenses if you’re busy working and not shopping. In 2011, I worked incredibly hard and in the process, increased my income by a huge percentage. If you want to live off of $20,000 a year, remember to work hard and focus your attention on other things than spending money.

Focus on the Bigger Picture

Focusing on the bigger picture is crucial to being able to live off of $20,000 a year. Living on $20,000 a year is not easy so you’ll need to clearly understand WHY you’re doing it if you’re going to accomplish it. Keep in mind what matters most to you. Whether it’s having more time for your family, being able to stay home with your kids, being able afford your own home or being able to start your own business, remember what it is you’re doing this all for (trying to live off of $20,000 a year). Keeping the bigger picture in mind will allow you to accomplish this and make SERIOUS progress financially.

Your #1 Tip for Living on $20,000 a Year

Whether you have or have not dropped your spending to live on $20,000 a year, please share ONE THING you’ve done to successfully cut your spending in order to accomplish your goals.

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Comments (27)

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  1. moneystepper says:

    We spent the equivalent of around $18k last year. My number one tip is to spend on experiences, but try to spend next to nothing on stuff!! No-one needs stuff – stop spending on it!!

  2. We spend a little more than your $20k per year. My tip is to keep track of where you’re spending money. If you don’t know you’re wasting it, you can’t stop spending it.

    It didn’t save much money, but the best thing we have ever done was get rid of our TV. IF, we really want to watch something…..we find it online. Our evenings are calmer and our conversations are more meaningful.
    -Bryan

    • Bryan,

      You hit the nail on the head with “if you don’t know you’re wasting it, you can’t stop spending it”. That’s why I’m such a fan of tracking your finances as well.

      Yeah, forget TV. Dropping cable and cutting out TV was one of the best things I’ve ever done as well. I replaced TV watching with working on my business and it has paid off tremendously.

      Take care,

      PS: Gotta’ love the calmness of having the TV shut off.

  3. Jon says:

    I think it’s important to get the big expenses – like housing and transportation – as low as possible. We moved to an apartment where I can walk to work, and just the savings via not commuting have been huge (not to mention the fact that mentally, walking to work is a lot better than a 45 minute commute each way!

    • Jon,

      You’re right. Getting the big 3 (housing, transportation and food) in control takes care of most of it.

      Oh man. I bet not commuting is awesome. I did the same thing 7 years ago and I’m sure it was a big factor in being able to live on such a low budget.

      Take care,

  4. Jarrad says:

    Two things I did. (1) I sold my car and moved to a new area where I could use my own two feet as well as a regular bus service to get around. This took away the deprecation on the car, fuel cost, maintenance cost, and the insurance and registration cost.
    (2) When I moved to a new area I moved into a share house as living alone is too expensive where I live. This reduced my rent to $180 per week (very cheap for the location).

    • Jarrad,

      Nice to hear another example of attacking the big three, housing transportation and food. Ditching the car can sure cut the costs big time. I never was able to do that as I too would have to move from this area.

      Shared housing can save a bundle too. I considered taking in a roommate many times. It didn’t happen though and thankfully, I was able to get by and still achieve my goals while living alone.

      Thanks for sharing what you did. Take care,

  5. $20k per year is pretty darned good, Kraig! Hard to shave much more off that.

    We’ve cut our gasoline expenditures way down due to using a scooter, riding bikes, and living close to work/working from home. Vehicle costs can be a real killer, since they’re ongoing.

    • DBF,

      The 20k was for 2011. Last year I was up a couple thousand from that (not counting business expenses).

      Nice work cutting out the transportation costs. Like you said, they can be HUGE. Keep us all updated on your progress!

      Take care,

  6. The Stoic says:

    I second what Income Surfer shared; tracking is important and should be done by everyone. If you are starting out it may not make a lot of sense why you would want to track every penny coming in and going out. I think it’s about values. If you don’t see where the money is going you have no idea where the leaks are. Knowing where the money goes allows you to align your spending with what is most important.

    The next thing for me has been buying my on house. I know some people get up in arms as to whether it’s better to rent or buy, but the approach I took has worked out much better. Before I was renting a one bedroom apt for 675 a month plus 100.00 yearly premium for mandated renters insurance making the monthly amount 683.33. Sure, I didn’t have to worry about property tax, insurance, garbage and water, all reasons sometimes given as to why renting is better than owning, but is it? Fast forward eight months later and my owning costs are, ready?, 191.16 a month. That is a difference of 492.17 each month which makes a significant difference in my monthly cash flow.

    Considering housing, food and transportation costs will be the big three that make or break a budget, making radical changes in any/all of them will go along way to giving you financial peace of mind.

    Cheers

  7. Cadie says:

    These are some great tips! I didn’t know you were a smoker….I can’t really picture that! Way to go for quitting….that must have been difficult but your health is so much better off without that nasty habit. :)

    We don’t have cable T.V. and being able to work from home has saved us hundreds of dollars in gas money each month. We also make most of our meals at home now, which saves a boatload. The more you can do for yourself, like cleaning your own house instead of hiring a service, washing your own car, mowing your own lawn, giving yourself manicures (at least for us ladies)….the easier it is to save. When you’re out of debt and have your emergency fund built up, then you can look into spending money on those splurges.

    • Cadie,

      Agreed. The more you can do for yourself, the better off you’ll be (and the less it will cost you to get by).

      Yes, I was a smoker. I wasn’t ever hardcore, but I did enjoy it. Glad I quit because it was expensive and terrible for my health. I feel a TON better now than I did before.

      Talk to you tomorrow morning!

  8. Brad says:

    1- I haven’t had cable TV for over 6 years.
    2- I quit my part-time job last November which has saved me SO much money on gas. I was driving 80 miles roundtrip 3 days a week.

  9. Hey Kraig, Have been following your blog for a while. This year my partner and I have set ourselves the ambitious target of living on £15,000, so around $25,000 for two! To do this we gave up our jobs in London and all of the luxuries that came with it and moved to Athens, Greece. Life is much cheaper here (and the weather much better) giving us a fighting chance of meeting the target. We are blogging about our experiences including sharing our financials (as you bravely did). If you would like to check it out you can find us at http://www.backtothedrawingboard.me
    All the best, Felicity

    • Hi Felicity,

      Wow, impressive goal you’ve set there. 25k for two people is quite a challenge. I appreciate your choice to up and make a big move like that. Would love to hear more about why you chose to make the move. Were you both unhappy with what you were doing in London?

  10. Miiockm says:

    My rent alone is $9,600 a year and it’s already below the average rent where I live so this doesn’t seem very doable.

  11. Kelly S. says:

    I too stopped eating out a couple of months ago. The result – fatter pockets and a much slimmer waistline! Its a win/win.
    Last week, I put on a vest and the inner pocket contained a ball of receipts from 5 or 6 different restaurants. I could only shake my head in disbelief. No wonder I could never manage to save any money.

    I also gave up drinking (and Im a huge fan of craft beers). Alcohol is an expensive beverage–even when you drink at home, its still not cheap. I would goto the grocery store and buy a couple of $6 bottles of local stout, drink one and most of the other. I dont know, its time for me to part with some old ways.

    • Kelly,

      Glad to hear you’ve gotten the eating out under control. Unfortunately, I’ve been eating out more lately. I guess that’s what happens once in a while.

      Yes, drinking is expensive. I consider giving it up as well. Always something to consider.

  12. Giselle p says:

    As a mature single only working 3 days a week for 9 months a year this is how i manage to live comfortably On $21000 and even save $2000 of it.
    I never buy latest gadgets – i buy secondhand top phone off ebay for 200 less. I dont buy anything unless i have compared prices on net.
    I shop at salvation army stores for clothing and sometimes un needed trinkets because it feeds the need to shop and doesnt cost much but helps charities at the same time.
    I shop at markets for fresh foods and shops that i know that have cheaper fruit and vegetables. Plus I get lots of food markdowns near to expiry date from woolworth, remember a lot can be frozen for later use.
    I dont have and never have owned a credit card only a visa debit.
    I signup on net with cheap grocery and whitegoods companies to get special offers…but you need to be disciplined on not buying because its a bargain.
    I get freecycle.com.au a yahoo group emails for my city on free stuff people are giving away….I have scored some good stuff from canon printers, Plants to free discount vouchers.
    I buy a lot on ebay including very cheap ink for my free colour printer.
    I phone up utility providers yearly and compare insurances as my car depreciates.
    If i cant afford it…..i do not buy it. I dont compete with what other people get.
    I buy nice gifts when i find them very cheap and put them away for upcoming birthdays.
    I get nice $8- $10 large green plants for birthdays and to decorate my house from an exhire place for third of the price.
    I dont own a tv and dont wish to as my internet phone takes up enough time and there is plenty to watch on youtube etc already.
    I rarely buy books or dvds as my public library usually has them even if i have to wait a few months extra…..its free!
    Im happy that I have everything I need to live and only work 3 days a week with unpaid 2 week holiday every 10 weeks……I work in a school as support staff.

  13. Jack says:

    I love this article! Very encouraging. I sometimes get a bit depressed, as I have a lot of wealthy friends, and I am definitely NOT wealthy. However, I manage to get by on a bit less than $20,000 annually. I do not have cable…over the air TV is free and a lot of programming, especially documentaries, you can stream online. I live in a wonderful place (50 miles from the Pacific ocean), so I’m not inclined to take expensive vacations. I have absolutely no debt (the key to happiness!), live simply and use my local library extensively. I keep my car parked most of the time and ride my bike, walk or use public transportation (which is free in my community). I’ll never have a million dollars, but I have good friends, wonderful natural surroundings, a faithful dog and NO DEBT.

    Good luck to all of you!

    • Hi Jack,

      Welcome. Nice work! You’ve done well by staying away from debt. Thanks so much for sharing your story and I hope to hear from you again soon!

      Take care,

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