Every time I read blogs that focus on early retirement, the running theme is to save half your income for X amount of years. From a financial perspective, that makes sense, but there are two things that seem like “must have’s” in order to do this:
- Reduce your expenses so that you actually can save 50% of your income.
- Make more money so you have more money to work with.
No duh, right? (P.S. Kathleen over at Frugal Portland is inspiring me to really crunch the numbers – hard!)
This got me thinking, can I save half my income in an expensive city? The answer is definitely yes, but not if I want to keep my standard of living the same.
Let’s crunch the numbers a little more. If I were to live off 50% of my income, that would mean living off $3,100 a month. Hey, that sounds great….if you live in Omaha (I’m not pickin’ on Omaha, but let’s face it, the mid-west is less expensive than the coasts.) But here’s where it gets tricky: living accommodations. In order to live off $3,100 a month, my rent would have to remain under $1,100. Looking around my area, I could nab a studio apartment for $960. Hmm….okay. Perhaps I could downsize from 1,600 square feet to under 500, but I’d have to sell most of my furniture. And, we’d have an issue with my husband’s home office, he basically wouldn’t have one.
What would work: a one-bedroom for $1,300. (Another alternative is having a roommate share the expenses on a two-bedroom which would whittle the cost down to $1,100 approximately)
Now that I have a roof over my head figured out, I’m down to $1,800 for all other items such as utilities, insurance, and groceries. Breaking down the numbers:
- $100 for car and renter’s insurance (This amount includes reducing my renter’s insurance by about $20 a month to match the downsizing that would need to take place).
- $40 for cell phones (I love Ting!)
- $350 per month for business expenses.
- $450 groceries (This would be reducing our current expenses by $100 which is doable).
- $22 Netflix (We don’t have cable, so this is a legit expense).
- $91 for internet access
- $76 for life insurance
- $300 for fun money
- $250 student loan payment
$150 in case I missed something- Hey, I did forget something – water, power and gas! Tack on another $150 a month which comes out of my “in case I missed something” fund.
That leaves me at $1,829 – oops! I’m $29 over budget, but I could pull that from my fun money stash. Notice, however, that there’s no wiggle room for any other debt repayment. Yet, if I’m saving half my income, I’d have plenty to cover an emergency.
To be honest, I’m not ready to move into a small one-bedroom apartment for $1,000 less than what I’m paying now. However, through this experiment, I realize I could save $2,100 a month which is 34% of my income and still have the same quality of life.
Perhaps that will be my third quarter goal once all of my credit card and tax debt is paid in full. Now I’m motivated!
Do you or could you live off 50% of your income?
13 Comments
I love this topic! I always wince when I read about people saving every dollar and missing out on experiences now. I’ve thought about this a ton and realize that I have zero interest in saving half of my income. Why? First, I have little interest in the concept of “early retirement.” What the hell am I going to do when I “retire”?…make my own furniture and live in the woods? Ha! I love what I do. Even if that changes, I know I’ll love being active.
That said, I DO like the idea of being able to tell “da man” to take a hike (to put it nicely). So, I save toward that goal….but not at the expense of also being able to do stuff now. What if I save a bunch of cash then die before I can spend it? 🙂
@Joe – I also love what I do, so I will definitely be working for another 15 years or so. However, it’s nice to have the option of retiring early if my students drive me to the brink of insanity! 😉
Love this! I am lucky to live in a city with extremely low cost of living, but I cannot imagine living in a more expensive one! Good for you, taking a look at what is realistic and still working on debt repayment!
@Retired by 40 (Joe?) – This was a great exercise for me – to see if I could get close to that 50% living similarly to what I do now. At least I know I’m capable of saving close to 34%!
That’s awesome! I count debt repayment as savings (which I know is not a popular calculation but barring declaring bankruptcy you have to pay those back and you have to pay interest so increasing your payment on debt is future savings anyway) so you’re definitely on your way!
@Kathleen -I have to say that your recent posts have motivated me to take a really close look at how I could save more. Third quarter goals are going to be smokin’ my savings!
Fun topic! Right now I can’t live off 50% of my income, but I do live in the MidWest where it’s cheaper so I think eventually I would be able to do this easily. That’s my eventual goal!
@Fig – I think it’s a great goal to strive for and working through the calculations, I was able to figure out I could save 34% – which is a great start! I can’t wait to set my second quarter goals (kick their butt), then start working on 3rd quarter goals that include saving this much! 2014 is looking like a great year!
For us, living in an expensive city gets even trickier when there are kids involved. While we could live in a 2 bedroom apartment to save costs, most landlords want us to rent a 3 bedroom apartment for 3 kids. It’s tough.
@Melissa – Kids definitely make it a little more difficult to save half your income. I had a conversation today with a colleague of mine, who is a very frugal dude, and even he said that the kids’ costs make saving 50% challenging. Also, good point about kids and apartment living. My brother had a similar issue – many landlords wouldn’t rent a two-bedroom to his family with three kids (though he did find luck out and find one).
I might have to crunch some numbers to see whether I’d be able to live off of half my income (once I graduate, because I can’t now). It’s possible that I’ll be able to!
@Poor Student – I think 50% is a great goal. I don’t know if I’ll get there anytime soon, but now I know I can save over 30% and that’s a start!
We are not saving 50% yet, we are only at 30%, but part of that is because my daughter’s daycare costs about 15% of our gross income and the other part is that I am grad student which means I only earn $25K per year. My husband is a post-doc and makes $41,700 but to find a job he drives an hour each way, which eats up a lot of money in gas. But, as we increase our income I am sure we can hit 50%. Slow and steady wins the race right?