This post is sponsored by Lexington Law.
When researching the F.I.R.E movement earlier this year, I learned that the suggestion is to live on less than $10k per year (that’s only $833 a month!). This astounds me (and was mentioned a few times in comments!) and has me thinking critically on how I would adjust my budget to reach such a goal.
Would it even be possible? How are people achieving this? What would I need to consider?
It’s really had me thinking about how I could potentially adjust my current budget to live on $10k/year. After running the numbers, though, I’m not sure it’s truly possible. Especially not without taking a whole host of things into consideration.
How I Would Budget To Live on Less Than $10k/Year
A $10k/year budget means around $833 a month. My current budget for a family of three (not including childcare) in a high cost of living area is around 6x that amount. Our biggest expense every month is rent and then food.
I want to point out that when the F.I.R.E movement suggests $10k/year they mean per adult in the household. So this budget is what it would cost for me as one person, not my family of three. That said, I am accounting for half of my son’s expenses within my own line items, so my budget is covering 1.5 people.
If we planned to retire early, we would also need to consider the cost of healthcare. But for the purpose of this proposed budget, I’m not thinking in terms of retiring early necessarily. This exercise is primarily to determine how I would need to adjust my current budget to get to $10k/year. I’m going to assume that we still have healthcare through employment.
This is what I expect my budget would look like on $833 a month:
- Housing and Utilities: $250
- Food: $300
- Internet: $30
- Extras (Credit monitoring Netflix, etc): $20
- Cell phone: $20
- Insurance: $62.50
- Total: $662.50
The only way I can see to make housing affordable on this kind of budget is to completely own my home. I would plan to move to a lower cost of living area with lower property taxes and sales tax. Based on this list and this list, I’d likely consider Delaware, Iowa, Alabama, and Wyoming as possible contenders, theoretically.
Utilities would also depend on where my water was coming from and the cost of electricity. It would be nice to have solar panels or alternative energy of some sort, but that would also depend on what was available where we live.
This is currently my biggest monthly expense next to rent. I do think I might be able to get this down to $300/month if I made a massive effort. I might even be able to get it lower, depending on the cost of things where we lived.
I’d probably limit eating out to once a month instead of 2-3x a week. I would meal plan around many homemade things like pizza dough. I’d also hope that I could have my own garden to supplement vegetables but I can’t count on that.
I really don’t have much of an idea of how much food costs differ in different areas. I also don’t know how much my son will eat as he grows so I’m trying to be generous in this area. I’m also theoretically including household items under this as well, so I think it might be reasonable to think that we could do this in under $600/month.
My job requires internet so this is a must for me, at least right now. I’m unsure if this is something I would be willing to give up or not. It might depend on what is available near where we live and if I am able to make use of local coffee shops and libraries or not.
(I’ve split our current internet bill in half to cover my share, but the cost would depend on where we live and the coverage there.)
What falls into this category are things that I consider needs and wants that don’t fall under anything else.
For example, credit monitoring with Lex OnTrack is important to me because it gives me peace of mind. I have had my identity stolen in the past and while I luckily caught it early, it’s not something I want to risk happening again. Especially when you can never be too careful as data breaches happen all the time. It’s an expense that is worth it to me. You can learn more about Lex OnTrack here.
I also watch Netflix and use YouTube premium. I’d likely cut one, if not both, of these out of my budget if I really needed to cut back, though. “Other” would also include any membership fees I haven’t currently thought of as well that I might need in the future.
5. Cell phone
A phone is pretty necessary in this day and age. Especially with a child, I feel most comfortable with being able to be reached that way and would like to be able to be in contact with my husband.
According to this list, it looks like there is the ability to have a phone plan for around $20/each per month. This would be a little more dependent on the best service in the area we lived in but I think would be manageable.
Right now our car insurance is around $100/month and our renters insurance is around $25/month. We do own our car and don’t make payments on it so I think that makes a difference in our overall payment. We might be able to get a better rate with a different company so I would shop around to see if I could get this any lower.
Our renters insurance could also be more expensive if we own a house versus live in an apartment, so this total might go up.
My budget reflects half of these payments.
7. Total: $712.50
Even with my conservative estimates, the total is still $662.50 a month. But this doesn’t even consider anything like prescription medication, things my son currently needs like diapers, repairs, maintenance, upkeep, new clothes, replacements for anything, or even gas. I am also sure that housing will cost more than what I’ve listed, even if we owned our home.
I would probably need to reduce my food spending significantly — down to $200/month or so. My thought to do this would be to buy in bulk, but that would also assume that I had a place to store all of that food and had an upfront amount of several hundred dollars, at least, to contribute to it.
I could also potentially find a better deal on phone and internet — especially if I used my cell phone as a hotspot for my internet.
Overall I think there is wiggle room to get my cost of living reduced only if I’m able to find affordable housing options and better deals on my fixed expenses. I would have to be extremely vigilant about sticking to the budget and tracking every cent to make sure I wasn’t wasting anything frivolously.
Other things to consider with a budget of $10k/a year:
Even if you can get your expenses down to below $833/month, there are still many one-time expenses that pop-up every year. There’s also a lot of other things to consider, such as how your life may change in the future and what your needs will be then. Here are six things that came to mind that would cost me outside of my budget:
1. Your credit score.
When you don’t have income coming in, it can be hard to be prepared for what the future might hold.
For example, if you ever needed a bigger home or something, it might be not be possible for you to buy it if you don’t have cash on hand.
There are plenty of times you might need to rely on your credit to get approved for a lower interest rate — which can then have a massive impact on the rest of your finances. With such a restricted income, even a few tenths of a percentage point can have a lasting effect on your monthly budget.
If you have concerns about your credit score or unfair negative items on your credit report, I suggest reaching out to the credit repair professionals at Lexington Law. Improving your credit score isn’t something you want to put off. Reach out for your free consultation here.
2. Your emergency fund.
Your emergency fund should have three to six months worth of expenses (if not, more!). I show you how to calculate what this number is for you here.
If your emergency fund isn’t stocked ahead of time, you would also have to factor savings into your monthly budget. An emergency fund can help you bridge the gap in case you aren’t able to withdrawal enough to cover your expenses from your investments if you did retire early.
I think it’s so important to have an emergency fund
even especially if you are working. You never know what might happen and cause you to lose your income. Having emergency funds that can get you through until you have some money coming back in can give you so much peace of mind. You might never have to use that money, but if you do, you will be so grateful it’s available for you.
If you don’t have an emergency fund available to you and no income coming in, you might have to dip into an emergency line of credit which can really wreak havoc on your credit score and make it difficult for you to get yourself out of a financial hole. Even if you can only sock away a couple thousand in a “rainy day fund,” anything is better than nothing!
3. Large healthcare expenses/deductibles.
Even with the great healthcare we have now, our deductible is still $6,000 per year as a family of three. I never reached that until last year when my pregnancy became unexpectedly complicated and required many tests and ultrasounds in my third trimester.
Even with that deductible, that is $500/month that would need to go towards healthcare, even just in case. In the $10k/year budget example, my half of this would be around $250/month (even with insurance). It eats up $3,000 of my $10,000 budget — which is neither affordable or sustainable.
4. Unexpected expenses.
What about needing a new car? Or having to replace something significant that your insurance doesn’t cover? A friend of mine recently had a tree fall on her car and while her insurance covered the damage, she still had to pay $22/day out of pocket over 30 days for a rental car. Things happen.
This is one reason you might want to have an “Oops” fund — just a few hundred dollars to dip into in case something like what happened to my friend happens to you.
On a budget of approximately $833/month, this doesn’t leave much cash on hand for travel. In the past, I’ve purchased plane tickets that cost more than that per person. It took me months to save up for those kinds of trips but travel is something I feel very passionately about. I think traveling helps me grow as a person and encourages me to learn more about people from all over the world. It’s not something I want to give up. But making it part of my life on such a limited budget would be a challenge.
6. Limited lifestyle.
Such a tight budget really limits you in other ways, such as how much you could donate each month or give as gifts, etc. It means not eating out or treating yourself if you feel like it.
While some people might be choosing to live on this amount, others might be forced to due to their existing incomes.
Is $10k/year realistic?
Personally, I’m going to have to go with no, at least not right now.
Making this budget possible involves taking even big assumptions, like the fact that I could own a home outright, into consideration. Even funding a cross-country move would be insanely expensive (I know because I’ve done it before, and I had less things thing along with less family members).
What I have learned from this exercise, though, is that there are likely areas of my budget I can cut back in. Food primarily being the biggest one. Like many people, we often end up “eating our paycheck” and spending too much on food, especially out of convenience.
I challenge you to do this exercise for yourself and see what areas of your budget you can cut back on. Use my negotiating tips to get a bill reduced or to negotiate a higher income. I’m curious to know how you would live on $10k/year – let me know in the comments!