My $15K Middle Class Budget

[AnotherReader]

RTW, Mr. Money Mustache, and similar bloggers have a different approach than the 50/30/20 breakdown. They start by asking how important is it to you to be financially independent? Since reaching financial independence at any income level is primarily a function of your savings rate, if financial independence is a high priority to you, you need to increase your savings rate.

If you examine your "needs" you may find that some of them are not really needs, or you could more efficiently meet those needs. With regard to "wants," you have to prioritize them relative to your goal of reaching financial independence. A lot of people find those wants are not nearly as important as the FI goal. By not spending as much on wants and redefining needs, these people can raise their savings rates by many percentage points.

Run a quick calculation to see how fast you could reach financial independence if you saved 50 percent or more of your income. How long would it take if you maxed out your retirement savings plans, opened and funded taxable investment accounts, and stashed away a solid cash cushion? Then go back and look at your budgeted needs and wants. Your priorities and your budget might have changed by doing that exercise.

[disneysteve]

RTW, Mr. Money Mustache, and similar bloggers have a different approach than the 50/30/20 breakdown.

As income increases, the 50/30/20 plan falls apart. Somebody making 500K should absolutely be able to save more than 20% and be able to fulfill all needs on less than 50%. Most actual needs are fixed regardless of income. A gallon of gas or a loaf of bread is the same price whether you make 30K or 300K. Wants obviously tend to scale with income - that's where people often get themselves in trouble. Instead of staying at the $89 hotel room, they book the $500 suite. Instead of the $25,000 Toyota, they buy the $90,000 BMW. I'm not saying they shouldn't do those things. They just need to keep on top of things so that it doesn't get out of hand or affect their long-term financial plans.

[Retired To Win]

My family size is my largest impact. We are living at under 15K per person so I am good

Four people will definitely cost more money than my $15,000 for one. But, at least in my area, their basic living expenses would not cost 4 times as much as mine do. There would be "economies of scale" for the really big budget items of housing (needed square footage does not scale up), transportation (no additional vehicles needed), and so on.

As I recall it, MMM's child did not add appreciably to his living expenses, except during the limited time that the child attended preschool. What actual additional basic living expenses would people #3 and #4, which I assume to be children, require? And would it take many thousands of additional dollars a year to cover them?

[hamchan]

Four people will definitely cost more money than my $15,000 for one. But, at least in my area, their basic living expenses would not cost 4 times as much as mine do. There would be "economies of scale" for the really big budget items of housing (needed square footage does not scale up), transportation (no additional vehicles needed), and so on.

As I recall it, MMM's child did not add appreciably to his living expenses, except during the limited time that the child attended preschool. What actual additional basic living expenses would people #3 and #4, which I assume to be children, require? And would it take many thousands of additional dollars a year to cover them?

Four people will definitely cost more money than my $15,000 for one. But, at least in my area, their basic living expenses would not cost 4 times as much as mine do. There would be "economies of scale" for the really big budget items of housing (needed square footage does not scale up), transportation (no additional vehicles needed), and so on.

As I recall it, MMM's child did not add appreciably to his living expenses, except during the limited time that the child attended preschool. What actual additional basic living expenses would people #3 and #4, which I assume to be children, require? And would it take many thousands of additional dollars a year to cover them?

We have one child. We pay about $200-300 more in rent than we would need to if it were just my husband and I. And extra $90 a month toward health insurance. An extra $45 a month for transportation (bus pass). An extra $150 a month in food. $80 a month for allowance, which goes towards any clothing, school supplies, food she wants besides what we buy and prepare, etc. About $2000 a year in transportation expenses between my home and her other parent's home. Most of my money spent on gifts over the course of a year is for her. That is just off the top of my head.

[disneysteve]

What actual additional basic living expenses would people #3 and #4, which I assume to be children, require? And would it take many thousands of additional dollars a year to cover them?

Food, clothing, health insurance and medical/dental care, need for additional life insurance on parents, education costs, transportation costs, housing costs (kind of tough to raise 2 kids in a studio apartment), etc. Yes, those costs easily add up to thousands of dollars per year.

[Retired To Win]

Context is everything. In this case, location.

In our high cost of living area, which we need to stay in to keep our jobs, we spend $1800 monthly on housing alone. That includes real estate taxes, homeowner's insurance, and utilities. For the sake of argument I've left off the mortgage payment. Our house is not a "large house", and it has 1/3 acre lot. If we chose to sell and rent, even a smaller place in a cheaper town, we could not rent a 2 bedroom apartment for less.

So it's not only about how much you can stand. It's simply not an option for everyone, depending on where they live.

So far in this thread, at least 6 writers (happy saver, disney steve, living almost large, rennigade, JoeP and bs) -- in 8 replies (#2, 3, 10, 14, 21, 24, 44, 50) -- have brought up the issue of location and how where you live impacts your basic living expenses. I think this is a truly important topic that merits its own conversation thread. So I am not going to go into deep discussion of it here.

I will just say this now: location is a choice. And choices can be changed. Whether a particular person chooses to change their location in order to change their living costs depends on that person's priorities. Which may be spot on... or not.

I'll close by quoting RyanAtTanagra, an email correspondent of mine outside SA, which wrote as follows:
"...I went from Ohio to the SF Bay area, making 2x as much and spending 2x as much, but also saving 2x as much. So when I factor in that my FI number hasn't changed because I'm not retiring out here, it's basically cutting my time to FIRE in half."

To me, that's the way to make a High Cost of Living location make sense.

[hamchan]

I will just say this now: location is a choice. And choices can be changed. Whether a particular person chooses to change their location in order to change their living costs depends on that person's priorities. Which may be spot on... or not.

Not always, dude. When you have a blind spouse who can't drive and needs to be able to get to work and (frequent) doctor appointments on his own, it cuts down considerably on your options.

[disneysteve]

location is a choice. And choices can be changed. Whether a particular person chooses to change their location in order to change their living costs depends on that person's priorities. Which may be spot on... or not.

While this is technically true, it isn't a simple thing to just pick up and move out to the boonies in order to save money. Starting over from scratch in my career would have consequences, both personal and financial. Moving hundreds or thousands of miles away from my elderly mother would have consequences, though I suppose she could choose to move too. Moving away from the college my daughter now attends would be problematic. Leaving all of our friends and family would have a huge impact on our lives. Sure we would save money, but is it worth being miserable in return.

I guess I'm not the nomadic type.

[corn18]

This $15,000 a year thing always frustrates me and I think it's a problem with me. I think we spend a lot of time arguing past each other because of it. To apply reductio ad absurdum, I think it is possible to move somewhere and live on a base budget of $0. Wasn't that long ago that many people in America did just that. And there are probably millions of people in the world that still do that. Do I think this is something we should all strive for? Nope. The other end of the absurd scale is the 0.1 percenter lamenting how difficult it really is to live off of $500,000 a year. Somewhere in the middle of the two absurd extremes lies reality. For some, it might be $15,000. For others it might be $100,000. It is not my place to determine what your number is.

I will say that spending a year on the fora has changed my number. I get to see second hand through my daughter what the $15,000 / year lifestyle looks like. She moved out on her own and is making it on about that amount. She's doing fine, although she strives to improve her income. I also get to see my in-laws who are retired millionaires living on $50k / year. They seem very content. And then I run my numbers and realize there is still more I can do to reduce my living expenses. Every reduction I have made in the past year seemed tough at the time but we have not missed any of them at all. As a matter of fact, our quality of life has improved significantly now that we are savers vs. spenders.

I think there is great value in finding a financial plan that properly balances spending, savings and fun. For many regulars here, you have found that balance and are happy. For many, we are still struggling with the balance because we have a difficult time determining wants vs. needs. It's not the same number for everyone.

Tom

[disneysteve]

our quality of life has improved significantly now that we are savers vs. spenders.

This is such a fantastic statement!

And it is so true. When you take control of your money instead of letting your money control you, your quality of life does improve.

[disneysteve]

This $15,000 a year thing always frustrates me and I think it's a problem with me. I think we spend a lot of time arguing past each other because of it.

The location thing is the point that I think OP is missing, or underestimating. I have no doubt that there are places where you can live on 15K, but everyone in America can't do that. If we all picked up and moved to one of those areas, it wouldn't work. Somebody needs to live in the cities. Somebody needs to live at the shore. Somebody needs to live in the mountains. The rural cheap areas couldn't possibly accommodate an influx of millions of people looking for a lower cost of living.

So if you live in NYC, your number for basic expenses is going to be a lot different than if you live in rural Virginia and that's just the way it is. Neither is right or wrong.

[realbankingadvice]

Just Wow

I really have to give it to you, I applaud your efforst in maintaining such a low yearly spending limit.

I though I was crazy making 65K a year and living on just 17K.

I guess that at the end of the day is all about your priorities.

I myself have a dream to build great wealth and obtain financial freedom sooner than later.

Wish more people would take on this challenge and see just how much they can put away and start growing their wealth.

Good stuff man, Keep it up.


Louis

[corn18]

I really have to give it to you, I applaud your efforst in maintaining such a low yearly spending limit.

I though I was crazy making 65K a year and living on just 17K.

I guess that at the end of the day is all about your priorities.

I myself have a dream to build great wealth and obtain financial freedom sooner than later.

Wish more people would take on this challenge and see just how much they can put away and start growing their wealth.

Good stuff man, Keep it up.


Louis

http://www.gallup.com/poll/168587/americans-continue-enjoy-saving-spending.aspx

Actually, it would appear that many more Americans are taking on this challenge. More and more people are savers vs. spenders nowadays and the number keeps growing. I wish the data went back to 1920 as it would be interesting to see how Americans saved after the depression and the war(s).

Saving more means less money driving inflation. That's what baffles the Wall Street weenies. Everything says the economy is better and that GDP should be growing and inflation pressures mounting. But none of that is happening. That's because we're all saving our money instead of spending it.

So there is hope for us yet.

Tom

[bjl584]

My perspective on this is that I don't want to have to live on $15,000 a year. I guess that I could if I trimmed my budget to nothing and decided to retire super early. But, the reason that I work so hard now is so that I can have a comfortable retirement. I don't want to worry about pinching every penny or depriving myself of things. OP says that he is happy, and good for him, but this isn't for me. I could do it if I had to, but I'm setting myself up so that I don't.

[rigz]

I still don't even get how living on 15k, 20k, even 25k is possible. Granted I live in HCOL area (Orange County california) but even in a lcol area those numbers seem impossible. Do you guys never go out, never buy anything, never do anything that costs money?