The cost of living seems to be rising faster than my paycheck. Every year just living a “normal” life costs more and more. When it comes time to slow down due to age or just because you’re tired of the rat race, its time to take stock of where you want to spend your money.
While living on $10,000 a year may seem impossible to some I’m confident that it’s possible. There are certainly some areas where the individual will have to be ok with an atypical life but that doesn’t make it wrong. If you think I’m crazy check out this couple who only spent $7,000 over the entire year.
If you evaluate each area of life and do your best to ensure you are maximizing the value out of each dollar I’m sure one can live on drastically less than the norm.
In this post, I’ll start by looking at what the average American spends their money on and see how we may be able to cut that back. I know the average American is all like
when that just isn’t an option with a goal like this!
Can you live on $10,000 a year? I’d say yes but it certainly won’t be easy.
The average american’s living expenses
As you can see from the graphic below the average American spends nearly $60k a year. This number is broken down over a variety of areas that make up life.
For example, roughly a third of spending goes towards housing while a sixth goes towards transportation.
Life is expensive. This is a lesson I’ve learned in my 10 years of post college life. It seems to get more expensive every year as my family grows and my house and cars just get older.
The big four expenses
Living on a low amount like $10,000 a year is certainly a goal to shoot for. It will certainly take a willingness to look at different types of budgets and track your expenses closely. However, doing this will be no easy feat. Lets dive into some of the larger expenses and see how we may be able to cut down on those because here is my mindset
To get annual spending this low I don’t know how you could have a housing payment. Whether it be a mortgage or rent, even a small payment in today’s world would eat up half or more of your annual budget. I’m confident you’ll never be asking how much to save for a house.
To get spending as low as you need it you either need to own your home, be living with someone for free or have an alternative living arrangement (such as living in an RV).
To get your housing expense where it needs to be you most certainly have to have either worked really hard or be open to alternative situations.
The second biggest expense was transportation. To get spending as low as we’d like in this scenario you about have to either own your vehicle or don’t have a need for a car. Regardless, I’m not sure you could afford to drive it much.
Food is likely to be the third largest expense for most Americans (it is for my house) and, unfortunately, its not something you can do a whole lot about.
With the goal of lowering spending as much as possible you’d need to be able to spend under $100 a week at the grocery store. This is certainly possible but will take some work and some sacrifice.
One alternative that I can think of but can’t really speak to is growing your own food. A combination of a garden and other similar items may allow you to drastically cut down on food costs. I don’t have any experience in this arena but I think it certainly has some merit.
The work side of it will be either planning really well or really using coupons effectively. The sacrifice side may, unfortunately, have to be lowering your standards for what eating is.
This is an easy one in my opinion. To live on $10,000 a year you can’t afford to save for retirement. For this to be realistic you either have to already have saved a sufficient amount or plan on living on a low amount for the remainder of your life. With social security bringing in some amount of income you just may be able to do that.
Can you live on $10,000 a year?
From what I’ve laid out so far we’ve certainly cut down some big expenses. With a starting point of roughly $57,000 for the average American consumer lets take a look at how much progress we’ve made just after taking a look at the big four categories.
Lets assume that you are living with someone else for your housing situation. This will take your effective housing spend to zero. Without a doubt there are other options but we will go with this for right now.
For transportation lets assume you don’t own a car and don’t really need one. If we are picturing a great life you live in a home that is secluded in the woods. If you have that setup I don’t know why you’d want to go anywhere!
Your food bill just can’t magically go away. However, lets assume you can live off $75 a week. Your annual spend here would be $3,900.
For this scenario we’ll also assume no retirement savings as well as no insurance spending of any kind.
These top four categories typically are roughly 73% of the average American’s budget accounting for almost $43,000 in annual spending. We’ve taken that $43,000 and made it $3,900.
While we aren’t under our $10,000 annual number I think it’s certainly possible with a few more assumptions.
Having the right mindset
A key part of success in a goal like this is having the right mindset. Without the right mindset you won’t make it far. If you are used to nice things and are just hoping for a way out of the rat race, it may be difficult.
Regardless of your situation, I most certainly wish you luck. Getting out of the rat race that is the American dream as a wonderful aim.
You can do this
Some may think that even attempting to live on $10,000 a year is crazy. I think its awesome. Choosing to live on this amount will force you to make different decisions that most and likely lead to a life of peace.
This path certainly won’t be without its hurdles and sacrifices but am sure it will be worth the effort.