Greg at Club Thrifty asserted that you can live on half of your income no matter what — whether you make $30,000 or $100,000. Though he admits that it’s certainly easier on the latter.
Is that true?
Well, let’s see:
At $30,000 a month, your pre-tax monthly check would be $2,500. We’ll assume that you get HR to take out exactly the right amount of tax and not a penny more. After FICA and federal taxes, your monthly check will be $2101 (rounded).
So that means you have to live on $1050.
You’ll need to share an apartment or house. Otherwise, you’ll spend around 60-70% of that amount on a one-bedroom. Maybe 50-60% if you get a studio.
If you live in a major city (but not NYC or other cities with insane rent) you might be able to find a room for $400. $650 remaining.
If you have to cover part of the utilities, assume another $75 a month. $575
Hulu: $9 a month. $566
Internet connection: If you split it, probably $30 a month. (You can get slower speeds, but if you want Hulu, your non-discount rate will be around $60): $536
A Ting or Republic Wireless plan means $15-30 plus tax. So let’s call it $20. $516
If you use coupons and don’t eat much junk/prepared/organic food, maybe $80 for groceries? $436
If you drive a car that’s a few years old (say 7-10), maybe $50 a month for car insurance? $386
Gas: I don’t have a commute, so I can’t really estimate. Let’s assume a short commute, decent gas mileage (remember, you’re driving an older car) and relatively few errands on the weekends. So maybe $75 a month? (A monthly bus pass is $65-120 depending on the region.) $311
Health insurance: Hoo boy, I have no idea. Call it $200? $111
One meal out a month: $25 after tip. $86
Haircut: Unless you’re a woman with a basic haircut, you need a trim about once a month. If you go to a beauty school, call it $25 after tip. $61
Retirement: I assume this counts as savings, so it wouldn’t be in this portion of the budget.
That’d leave you at $1111 at the end of the month, or 44.4% of your $30,000 salary. So yes, I suppose — in a perfect world where you’re not a homeowner and don’t have a long commute, newer car, student loans, prescriptions or a general desire to live by yourself — you could save (almost) half your income. Except in months where you need new shoes, car repair, health problems or other incidentals.
If you earn $10 an hour, you’re looking at a (rounded) post-tax amount of $1641. That means you have $820 to live on. After the expenses I listed above, you’re at -$175. Meaning you’d have $645 left at the end of the month. That’s 37.2% of the $20,800 you earn each year.
Again, in a perfect world. If you’re a homeowner, repair bills call the whole thing off.
What about you guys? What percentage of your income do you save? Do my numbers sound right?
Nancy says
My health insurance is about $350 per month, (after the employer share) but it does include the prescription plan, the dental plan and the vision plan, all of which yhou pay for whether you use them or not.
Internet /cable is about $100 per month, before the taxes.
Your figures look like they are in the right neighborhood.
But, I think if looks good on paper but real life is a different animal. Debt repayment and student loans are keeping me in the workforce, even though there is an early retirement offer on the table I’m considering.
Abigail says
I assumed that someone trying to live on half their income would nix the cable and just go with Hulu or Amazon Prime, so that’s where the difference there comes from.
And wow, $350 for insurance? I’m very lucky. Though I don’t get vision coverage.
Life is definitely a completely different creature than numbers on a page. The real world intervenes.
Heck, due to our own unique circumstances, we don’t put away anything close to half our money. And we definitely make more than $30,000.
Matt says
I’m 30, reside in the Washington, DC metro area, make around the median income for the area, and live comfortably on half my income. I could live on less but I have chosen to live alone, have cable, eat high quality food, drive a newer car (3 years old), and I currently still have a couple years to go to pay off my student loans from grad school. So far this year I have paid off over $10k of that student loan debt and expect to put $20k in my house downpayment fund this year in addition in addition to saving about 15% in my 401k. A lot of people think I’m crazy for the way I track and project all income and expenses for the year and religiously true- back to that budget weekly to make sure I’m not off track, but that’s the key to being able to make this work. Constantly looking at my finances help me stay strong and ask if I’d rather save the cash or have that meal out or the new shirt, etc. This has turned into a long, rambling comment, but basically I’m saying yes it is possible.
Abigail says
Way to go!
That said, your definition of median isn’t really clear. Not that I’m asking you to define your income, but according to census data, it seems the median income (as of 2013) in the greater DC area was $67,572. If someone ears that who is single, not a homeowner and has no major health issues, then yep I think half the person’s income is pretty feasible.
Prudence Debtfree says
No kids in this scenario? Add children into the equation and it’s a VERY different scene. I don’t think, for instance, that a single mom making $10 an hour could live on half of her income. Most of us probably can, and it’s a great goal to strive for.
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Abigail says
I don’t think many people earning $10 an hour could do, kids or not. But yes, kids completely throw the equation off when you’re talking about a lower-end income.
Prudence Debtfree says
I didn’t mean that most of us could live off of half a $10 per hour wage. (I think it came off that way.) I agree with Kat (below) when she says that absolutes don’t work.
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Abigail says
Ah, gotcha. Thanks for clarifying.
Kat says
Everyone can? What about people on disability or retirement? You’re going to be on a significantly smaller budget. You’re likely going to have higher expenses since you have less mobility, and special needs.
It’s also very regal to pronounce that a family can live on half the income- kids come with added expenses, and insisting that they can’t participate in extracurricular activities because you need to absolutely adhere to this program? Not exactly smart parenting.
I will again repeat my usual schtick. Absolutes, shoulds, and implications that you’re a bad person or incompetent if you can’t follow something, are just a bad darned idea. Your circumstances are unique to you. What works for you may not work for everyone, but it does work.
Linda says
I live on a pension and two not so great paying part time jobs. I have health problems, so I can’t live on half my income. I have good insurance but I still have out of pocket expenses.
I also own a home and we all know there are always things that come up with home ownership. I have a good car, but that will change because I keep my cars until they know longer run. Keeping a car to that age means repair bills.
Abigail says
Yep, cars come with their own set of expenses. I’d wager that Greg was figuring repair bills and such would come out of savings, since you’re socking so much away.
But that doesn’t really address those of us with health problems (co-pays baby!), especially when those health problems can interfere with our ability to be frugal.
Punkin Pye says
Our out of pocket for prescriptions alone is over $300. Insurance premiums for each of us is $200 a month. Each of us is responsible for $5000 of out of pocket medical expenses before the insurance starts paying 100%. Prescriptions do not count against the out of pocket requirement. I am fortunate that I qualified for my dialysis center’s waiver program, otherwise I would be paying an additional $5000 a year for my medical expenses. Everybody has a different situation.
Abigail says
Wow, that’s a nasty scenario. Especially when prescriptions don’t count.
Thanks for providing some perspective.
Abigail says
Yeah, we definitely fall into the trap of thinking of “everyone” when we’re talking about “everyone earning anything close to a decent income.”
I know I couldn’t have lived on $400 a month in Seattle (or anywhere, actually) when I was on disability. People relying solely on Social Security retirement benefits would probably have a tough time of it. Although I’m sure it’s easier if you’re in a house you own free and clear. Then again, there’s the cost of repairs that come with an older house.
Cindy Brick says
You asked how much we saved — Husband has approx. 7% drawn out of his paycheck, pre-taxes, for an IRA. And I sock away $500 out of his monthly paycheck. Ten percent generally comes out of mine (much less than his), and into the same emergency savings account the $500 goes into.
This is also used to cover homeowner’s taxes and the occasional emergency. Or to pay off a plane ticket early. (We treat it like a loan, and pay that money back pronto.)
However, when we collectively made closer to $20,000 a year, we didn’t save anywhere near this — more like about $1,000 yearly. (I was hoping for 10%…but we usually didn’t make it.) That meant I had to be very careful about every expense, especially food and clothes. And our girls worked for their income. (It did help out, though, for scholarships and financial aid when they went to college.)
I don’t think it’s the specific number, so much as it’s the attitude. If you are saving SOMETHING, even in hard times, you’ll be a lot better off than putting away nothing, month after month. And when you get a bonus or raise, that extra money should go right into savings. After all, you’ve learned how to live without it already…
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Abigail says
Yep, in the end it just matters that you’re doing what you can to put *something* away. And half of your income is an admirable goal. I just bristle a bit when it comes to absolutes.
Beth says
I guess it depends on how you define “live”. I think the budget in this post lets you survive, but not much else. This person would be saving a lot, but never buys a new item of clothing or a gift, never attends a wedding or a baby shower, never donates to a good cause or to his or her church. This person doesn’t travel to visit family and friends, and probably doesn’t have much money to date if he or she is single.
For some people, that lifestyle isn’t a choice. A very wise family member once told me that while it’s great to save as much as you can for the future, you have to present in your own life and the lives of your loved ones right now.
Abigail says
Yep, I’m not huge on surviving. I could see bearing down and saving like crazy in your early 20s maybe. But other than the Frugalwoods, most people can’t/don’t want to maintain this bare a budget.
I think people who haven’t made just $30,000 in awhile forget just how far it doesn’t go. And perhaps he just tossed off that number without thinking.
Punkin Pye says
Excellent points. This budget does not account for Christmas, birthdays etc. This budget does not assume you are part of a family or society that might need some help.
Abigail says
Right, I completely forgot about presents and other social events. I suppose those would go in a separate holiday savings account out of the other half of your income?
Taylor Lee @ Engineer Cents says
I save between 60-70% of my income, but I’m in a pretty privileged situation with a high income. I couldn’t imagine saving half my income if I lived on $30K per year and I think the sectors of the PF community that tout it as a “should” or even a “can” are trying to sell an unrealistic expectation for the sake of followers and page views.
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Mrs. PoP says
I agree with Taylor here. We have a similar savings rate, but it only happened when we doubled our income (ie when Mr PoP got a job that paid much more than the minimum wage he was making when we married) and we kept our expenses basically the same. I guess it’s possible to survive (I’m not gonna call it “living”) on darn near any amount of money in this country – very few people actively starve or die from exposure these days. But I really feel that saving a large portion of one’s income (like 50% or more) is definitely much easier when income is higher – and I think I put this “higher” number above the median household income for an area, though that’s probably very dependent on specific household needs that are irrespective of income (like expensive medical conditions, kids, supporting other family members, etc).
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Abigail says
Yeah, our health problems kill our budget. I don’t even notice it that much anymore until I sit down and really think about how often something goes wrong or specialists need to be seen (like with all this reproductive stuff) or… whatever else crops up.
Abigail says
Well, said! I’m not saying that Greg did this maliciously or maybe even though that number through all that much. But I just wish people making more money would be more careful about generalizing when it comes to income/lifes costs.
It’s great that you’re able to save so much. We’re making a pretty good amount (enough that I don’t feel comfortable getting into specifics) so we should probably be putting away more than we do. Still, it’s more than 10%, so it’ll have to do for now.
Tonya@Budget and the Beach says
Could I live off half my income? Yes, but life would drastically change for the not so great. So it depends on the person and their goals…and of course what they make and many other life situations. There is big difference between “can” and “will.” Can I? Yes. Will I? No.
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Abigail says
Yeah, I’m guessing that if we somehow found a way to cook around our health problems/without shattering my sanity (such as it is), we’d save a lot more. But I’ve tried and failed that in the past. It caused me to stress out and have other important things fall to the wayside.
We were much more frugal when we were living on $36,000 a year (especially while we had $700 rent and $500 high-risk insurance). But I was constantly (even more) stressed out, and I can’t bring myself to go back to that.
AuntLeesie says
Are we talking long or short term, and what is the goal? Long term, it’s probably not sustainable unless you’re earning $35-$50k or more, because costs for basics nationwide have gone up significantly just in the past few years. Roommates (which would be necessary in this scenario) can and do move out or move on. Rentals get sold and rents rise. Even if you own a home outright, in addition to ongoing maintenance and repairs, your tax bill will almost certainly rise. And if you own your home, you also need to add in things like water and sewer, yard maintenance, etc. If renting an apartment, there’s the cost of doing laundry. Yes, you can hand wash everything and drape it over drying racks, but once in awhile you’ll have to tackle bigger items like sheets. If you’re at minimum wage or have a low income, you’ll likely need to go to a food bank just to eat on half your income. Again, since you’d be essentially choosing the austerity of a monk, what is the ultimate goal? Oh, and all the money saved? Banks no longer pay any real interest on savings accounts. A broker once told me investing is like gambling… never invest more than you can afford to lose. I get retirement savings and EF. I even get saving for something like Tim’s teeth. A new car. A home. Those are short term goals.
Abigail says
Yep, all of those things are killers of budgets. Especially being a homeowner. Now that we installed the insulation, our electric bills are about $230 — down from as high as $500 a month (!). W/S/G comes to around $75; gas for the water heater goes between $35-120 because Tim takes a ton of showers in the winter to deal with achy joints.
So basically the in-laws’ rent covers our basic utilities at the moment.
In a post back in January, I added up all of our major expenses. Excluding the car ($6,000), the majority of the remaining $11,000 for the year was from home repair.
Michelle says
There are so many variables depending on the person that you’re talking to. If I were debt free making what I was making last year-yes. But, I’ve lived on $10 an hour before and even without debt it would be difficult to live on half your “salary.” Because $10 dollars isn’t what you’re taking home an hour. You have to factor in taxes being taken out. Great question though…
Abigail says
Yeah, I factored in taxes above for both $15 and $10. Even living very, very strictly, you just can’t do it at $10.
And yes, variables just make these kinds of generalizations kind of dangerous.
K e l l y says
I can attest to the fact that I might, (keyword beingMIGHT) be able to live on half my income. While on unemployment for nearly 6 months, I was netting 70% of my normal net pay and while I managed to survive, due to my living situation, I was able to NOT have to pay for food and I didn’t cut back on some non-essential items. Although affording the health insurance I currently have would be highly questionable. And also after living that way for 6 months I really have NO interest in willingly doing it again.
Abigail says
Yeah, it’s one of those “technically feasible but…” situations. If you absolutely had to, if you were really, really, really dedicated to a saving goal, it’s sorta kinda possible. Few would survive it except out of absolute necessity though.
Andy Hough says
It is possible for some to live on half of their income making $30,000 a year, but I wouldn’t say it is possible for everyone to do so.
In 2013 I saved 47% of my income and I made just under $30,000. I spent about $1200 in car repairs and $700 on a cruise. Without those expenses I would have managed to save 50%. My average monthly spending was $1164.81. I didn’t live extravagantly, but I wouldn’t say I was just surviving.
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Abigail says
Very impressive. There are some situations where you can do this sort of thing. I’m just not sure quite how many there are. Again, I think it’d be one of those things that’s easiest to do when you either have to or are working toward a goal in a finite amount of time.
Bridget says
Pretty sure Andy’s the PF blogger lugging around a six-figure student loan debt, and is purposely keeping his income dead low so his loans never enter repayment.
Law degree with no intention of paying it off. Nice to see he still has the cash for cruises and Vegas. smh.
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Abigail says
Oh my. Lovely. Thanks for the heads up.
Donna Freedman says
From http://tightfistedmiser.com/2012/08/06/why-im-not-concerned-about-my-120000-student-loan-debt/
“While I was in law school I racked up about $100,000 in federal student loans. Since I finished law school my debt has risen to about $120,000 due to accumulated interest. Going into this much debt wasn’t smart, but I’m not concerned about the debt.
“Some might think I should be doing everything possible to pay off this debt. I’m not concerned about the debt though since the payments are capped at 15% of my discretionary income. Therefore, the payments should always be easily affordable. I’m not deliberately keeping my income low to avoid paying back the debt, but I’m not going to take just any job to pay off the debt either.
“There is a risk that I will end up paying more on my debt under the IBR than using the Standard Repayment plan. This is because the payments are spread out over 25 years resulting in a lot more interest. I think this risk is acceptable considering the current benefits of this plan.
“Do you think it is smart to use the IBR plan or do you think it is stealing?”
Some of the comments are, um, interesting. (Especially from his soon-to-be-ex wife.)
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Bridget says
It’s a walk in the park on $100,000/yr. It’s hard on $50,000 or less.
I don’t know anyone that can live on $80/mo of groceries. I know I eat $300/mo alone and together my fiancé and I eat $500-$600/mo. But I’m pretty strict with actually eating nutritiously. I find a lot of people think they can cut food and that’s just dumb. Fast food is cheap and it lulls people into this ridiculous “feel full for only $5!” mentality so they never eat vegetables and end up obese and diabetic by 25.
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Abigail says
If she hadn’t moved back up to Anchorage, I think my mom could. Then again, she’s happy with one-pot glop — chili, spaghetti & sauce, stew, minestrone, etc — and has oatmeal for 99.9% of her breakfasts.
That said, no I don’t think there are many people who could. I actually chose $80 because that’s what the state of Washington gave me for food stamps while I got $700 a month from Social Security disability.
We spend far too much on food. Which might not be so bad if, like you, we ate healthily. But it’s pretty much the exact opposite. It’s on the list of things to work on.
Punkin Pye says
I have not read Greg’s article, but I am hoping that he meant for this to be more of an exercise to make people feel empowered to cut their spending and save more. But as I posted earlier, everyone is different. We live in a simple 1550 square foot home with a reasonable yard, but unexpected home repairs, appliance repairs, and maintenance are just eating us alive. Add to that medical expenses, car repairs (we only have one), and replacing phones (we only have one), and it is unbelievable what your expenses come to. We make a good (not extravagant) income so that means that taxes are take a big chunk.
Abigail says
I think he definitely meant it to empower people. Which is all well and good but… you have to be careful about generalizations. It leads to that attitude of “Well, then you’re just not trying hard enough!” that drives people in unique situations absolutely bonkers.
It sounds like we’re in similar situations. Repairs are killing our savings efforts.
kay ~ lifestylevoices.com says
Most people who say they live on half of their income still make more than we do on our entire income. So, yes, if we were them, we could most definitely do it too.
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Abigail says
Yep, I definitely found that frustrating when we were struggling. Nowadays, though, I don’t have that excuse.
Well, I have the excuse of home repairs/medical bills and such. We’ll have to see how things go in 2016.
Donna Freedman says
Like you (and some of your commenters), I’m thinking “disconnect” vs. his writing this with malice. Perhaps he really, truly doesn’t get the whole of budgeting. For example, on paper it may work out that half your income will cover rent, insurance, utilities and food. But what happens when…
–You lose a contact lens/your kid breaks his glasses?
–The cost of afterschool care goes up $10 a week?
–Vandalism occurs? (A would-be thief busted out the window of my car and there was a $150 deductible on my auto insurance. Fortunately, I had the money — good thing, since I needed the vehicle to get to work.)
–A child enters a growth spurt and needs new jeans/shoes every couple of months?
–The beloved family pet gets sick, as in veterinarian-sick?
–Someone in the family gets sick and there’s a $40 co-pay?
–The car starts making another funny noise (or, worse, stops dead mid-commute and you need to have it towed and now you have no way to get to your job)?
–Your kid gets invited to a birthday party and you have to think, “Do I use part of the $30 I have left until payday to buy a gift or tell her she can’t go”?
–A field trip is announced but your kid needs $10 to attend, or else she’ll be the only kid sitting in a different classroom on the day her schoolmates go on the trip?
I could go on — boy, could I! — but I think I’ve made my point. It’s the same disconnect I wrote about in this post:
http://donnafreedman.com/2014/07/23/wealthy-people-think-you-could-live-on-less/
I’d also like to point out that you might be able to “survive” on half your salary but you might not be able to thrive, i.e., to get ahead (retirement fund, EF, etc.). In fact, you might be sliding slowly backward.
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Athena says
Meh. I don’t think anyone or everyone can live on half their income, especially if they make 30,000 or below. I make almost $40,000 and I know I can’t. Even when I was renting a room I couldn’t because I was paying off my braces. I guess if you had no debt or health problems and liked eating ramen noodles maybe. I live on about 75% of my income and it’s hard. I also spend quite a lot on self care like healthy foods, therapy and prescriptions.
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