I still don’t really understand how couples can live, travel, pay taxes, medical expenses, utilities, etc. spending less than $10, 20 or $30K a year. Even if you live in a state with no income tax, sales taxes and RE taxes tend to be high. Even assuming they have no taxable income (no 401Ks, Ibonds, etc), live in a remote area, own a paid off home with no debt of any kind, how is it possible to live comfortably with that low level of spending? I understand cutting the cord, having one very low cost cell phone, no trash, electric or water bills, growing your own food, but how many people really live like that. And why would they with $1M in savings? No interest or dividends? Never sell any of the assets?
I know I would not want to live that way. We travel a lot, including internationally, pay over $40K a year in SALT plus federal taxes a year (and, of course another $7K or so in Medicare, Medigap and associated medical and dental costs).
So we are nearly at $50K in those fixed costs without taking into consideration utilities, repairs/maintenance for car and house, food, clothing, etc. We prefer to use a washer and dryer, microwave and stove which all use electricity. In the summer we use A/C as 95 degree temps with 90% humidity is not tolerable. In the winter, it can get very cold and snows on occasion - oil heat costs less than electric heat, but it still isn’t cheap. We do live in a HCOL area, but we have always lived in one and still managed to accumulate decent savings. The only times I can remember living on less than $15K a year were in the very early ‘70s, when I was stationed overseas in the Army and housing and utilities were free and I was driving a beater ‘63 VW bug. But I also made less than $15K a year, so spending more wasn’t an option for me.
To those who live extremely inexpensive lives, more power to you. It’s just a lifestyle that’s not for us and one we would never strive for.
Emphasis added. I think people underestimate the amount of variance between high cost and low cost areas of the United States. They then conclude that, since lower cost areas must be in the same ballpark as higher cost areas, that a life lived on less than $30K must either be very austere and filled only with deprivation, or contain some hidden advantage.
I'm going to go into extensive detail on my expenses. Partly to #humblebrag because I am competitive, but also to explain how it can be done without being super-weird or thrifty. I find these explanations illuminating because I can look at where other people spend or don't spend large amounts of money and then change or not change my lifestyle to optimize my spending for me.
I track all of my money in Quicken. I just did a Quicken report on all of my expenses over the last twelve months (3/28/18 - 3/27/19) and I spent $32,825.13:
Recreation | -7445.31 |
Food | -6509.12 |
Insurance | -4113.93 |
Utilities | -3367.54 |
Auto | -2985.27 |
Medical | -2150.51 |
Christmas | -2065.08 |
House | -2055.48 |
Misc | -965.21 |
Charity | -636 |
Pets | -296.03 |
Clothing | -233.67 |
Interest Exp | -1.98 |
| |
To respond point by point to the above-quoted post:
I am single, but the above expenses include maintaining a home and food for anywhere between 1 and 3 children at any given time.
Travel - I reduce travel expenses by using a lot of airline miles and hotel points that I accrue through travel hacking. I also partly choose destinations based on their cost. This year I'm taking an 11-day trip to the Caribbean and a 5-day trip to Washington DC to visit my sister. Both plane tickets plus one of the hotels were with points plus some taxes and fees. My sister will let me stay at her house. Out of pocket costs include the AirBnB in the Caribbean, car rental there, plus some train and bus tickets in DC - total for both trips will be about $1500. I've also taken three road trips to visit colleges with my daughter, a road trip to north Idaho with my daughter, a climbing trip to Las Vegas with my son where we also drove supercars, a Thanksgiving and Christmas trip to Utah to visit my sister, a trip to California to get some sun, and another trip to Utah to visit Lagoon.(*) I include travel under Recreation, which is my largest category as you can see above.
Taxes - With low expenses, I don't need to realize much taxable income to cover my cash flow needs. With low taxable income and two dependents as well as one in college, I have negative income tax liability to both federal and state governments.
Medical expenses - I pay $201.37 for an ACA Silver plan with cost sharing reductions for me and my younger two kids. My ex reimburses me for part of that expense also per our divorce decree. We are all relatively healthy. Insurance premiums are included under Insurance above. Copays and prescription costs are included under Medical above.
Utilities - Obviously I have a Utilities category above. That includes natural gas heat and electric air conditioning for my ~1800 square foot, 4 bedroom 2 bath, 2 car garage home in a subdivision in Boise. I heat it to between 68 and 72 during the winter, and keep the AC on down to 75 or so in the summer. Utilities also includes my cell phone (pay-as-you-go via Page Plus) and 100Mbps cable internet. I have and use a washer, dryer, oven, microwave, and refrigerator.
Sales tax - Idaho sales tax is only on products, not services, and runs 6%. It is not assessed on my insurance or utilities. I include it in the cost of goods that I buy. We also get a $100 per person grocery tax credit annually, which offsets some of the sales tax we pay for food. A rough calculation indicates that my sales taxes at most are $720 over the past year. Net of the grocery tax credit, that would be $420 maximum. As noted, this is included in the various expense categories and not broken out separately.
RE tax - I paid $682.87 for my last semi-annual property tax bill. The property tax rate in my taxing district seems to run about 52 basis points annually. Included above under the House category.
Remote area - I live in suburban Boise. I have a YMCA, gym, Home Depot, Walmart, 21-screen movie theater, airport, doc-in-the-box, golf course, and multiple grocery stores, restaurants, and banks within 5 miles of my door. We have water, sewer, natural gas, electricity, trash, and recycling service. We get police and fire protection; the nearest fire department is less than 2 miles from my house, and there is a fire hydrant two lots over and across the street from mine. Two regional hospitals and a state university are within 10 miles.
Home - I do have a paid off home; as previously noted this helps a lot in keeping expenses low. Mine is 15 years old and in good shape. Maintenance, repairs, and HOA fees are included in the House category. I am in the process of painting it and adding a door to turn the bonus room into a bedroom - both projects are DIY and total cost for both is less than $2000. Some of that will be recouped in a better selling price down the road.
Cutting the cord, etc. - I do have a low cost cell phone - an Iphone 4, which I bought several years ago secondhand for probably under $100. I don't have cable - I watch YouTube on my Samsung Smart TV and OTA network broadcasts. Trash/electric/water are all included under Utilities. I get weekly curbside trash and recycling service, I use electricity like a normal person. I shower daily, use my washing machine and dishwasher regularly. My state does have low electricity costs due to hydropower with some solar and wind energy in there.
Food - I don't grow my own food. I buy mostly prepared food from the Fred Meyer grocery store 2.5 miles from my home.
Interest and dividends - I collect ~2% interest on my savings account, which I keep at between 0 and 3 months of expenses. I receive dividends from Vanguard on my taxable account. I experience capital gains when I sell stocks from my taxable account, but the amounts are low enough to where I don't pay any taxes on them.
SALT - Again, negative state income tax liability, and 50 basis points of property tax. No local income taxes. Not enough to itemize, so I just took the standard deduction this year.
I'm 50 so I don't pay for Medicare or Medigap coverage. (My Dad has Medicare and a Medigap policy that he pays $142.40 per month for and it seems to cover almost everything that Medicare doesn't.) I see my dentist every 6 to 9 months and pay out of pocket for cleaning, exams, and the occasional crown or filling - included under Medical above.
I have - also as noted previously - a 26 year old Lexus sedan. It was a hand-me-down when my Dad stopped driving and is maybe worth $2500 KBB. Auto expenses include fuel, maintenance, repairs, license, registration, etc. and are in the Auto category. (Auto insurance I put under Insurance. I have liability and UIM coverage through USAA and self-insure for comprehensive, collision, glass, and rental car coverage.)
I donate platelets to the Red Cross, volunteer in engineering competitions, play bridge, go out to eat, watch movies, exercise, bank, shop, spend time with family and friends, and travel some. I drive a decent car, wear clean clothes, live in a decent climate-controlled home with all of the standard amenities, have a cat, pay all my taxes due, and take care of my health. It seems like a very normal middle-class life to me.
An objective analysis of my finances indicates to me that I could easily spend about 3x what I spend today. Yet I do not. Therefore I am (a) mistaken about my financial numbers - I doubt it, (b) not acting rationally with regards to my finances - somewhat more likely, or (c) living a life of relative contentment in a LCOL area after having worked for years to arrange my financial situation so I could do so.
I think I covered all of the bases mentioned by the poster I quoted, but if anyone wants clarification or detail, I'm happy to provide it as long as I remain personally unidentifiable.
(*) I also went on a two-week river cruise through Europe last year and visited Switzerland, Germany, France, Luxembourg, the Netherlands, and Belgium. But my Dad paid for most of that; only my personal expenses (gifts, extra food, train tickets, etc.) are reflected in my Quicken data.