As much I enjoy using hand wavy mathematics around here, I do believe in the importance of my reader’s understanding the math behind fundamental concepts. There are some things that deserve a detailed explanation. These would include the compound snowball effect, the importance of savings over earnings, and the true value of your time.
In my last article, I threw out a seemingly bold statement. I mentioned that an individual could live on $20,000 a year. To normal society, this may sound like a person who does not know where their next meal is coming from. I am here to tell you that not only is this possible to cover all basic needs AND THEN SOME on this amount, but $20,000 a year for one person is a big fat cushiony and luxurious lifestyle.
For a person to live on $20,000 each year, they would have to be living on $1666 per month. Let me begin by pointing out that this is a POST RETIREMENT figure. The mortgage is paid off by this point and there are no work-related expenses. This is the amount your savings is reliably kicking back each year according to the 4% rule.
The amount you live off during your retirement years is an important figure to be aware of. This is because you know that you will need 25 times this amount before you can throw in the towel with paid employment. I personally plan on having my mortgage taken care of come retirement time, for those who do not plan on doing it this way, you can add $10K-$15k to the total at the bottom.
Lets take a peek at the some reasonable spending habits, here we will see how far $20,000 really goes when it’s not being thrown at the unimportant stuff.
|category||Explanation (people love these)||Amount ($)|
|Health insurance||When there are families of three paying $237/month for health insurance, it is safe to assume and individual would pay this much AT MOST||$237|
|Car insurance||By using a bike primarily, it is easy to beat the average on this one, to be safe however, we will count the average for our calculations anyway||$150|
|Property taxes||One of the few things outside of your realm of control. Typical taxes on a decent sized house would be $2400/year||$200|
|House insurance||National average||$80|
|Home upkeep||General repairs, these don’t typically show up on a monthly basis, but more like a few hundred dollars once or twice a year.||$30|
|Gas/Maintenance||With a reasonable car for commuting that is nearly never used, it is easy to use less than 3 gallons/month. However, let’s factor in a yearly 2000 mile road trip, because what the heck, we can afford it.||$45|
|Registration for Vehicle||About $300/year||$25|
|Utilities||The average household uses 900 kwh/month, since you know have to reduce this by at least half, you use closer to 400 kwh||$44|
|Food||$30 per week satisfies a healthy and varied grocery bill||$120|
|Cell Phone||Excellent plans at republic wireless no more being stuck in long-term contracts with the big companies.||$20|
|Internet||Going by the average||$50|
|Clothing||Between wearing it out and knowing awesome fashion doesn’t mean you have to buy new, it is easy to spend 25% of what a typical individual does. We will say $200/year||$17|
|Medications/Doctor/Dentist Visits||A nice side effects of biking for transportation and not wasting money on packaged foods is greatly increased health. That being said, I am sure you will still use modern medicine in your life (Advil, cough drops, co-pays).||$100|
|Beer/Wine||Up to preference, really. For $6 I can brew a gallon of wine, enough to last two months. You can also get craft beer at about $1.5-$2 per 12 oz bottle. And if you really want, there is plenty of room on this budget for buying beer for all your friends||$15|
|Haircuts||This one depends on the gender. For guys, a $40 trimmer can take care of all of you grooming needs for years. For girls or guys who would prefer not to cut their own hair, you can get a good quality haircut for $15 about every two months as needed||$7.5|
|Bicycle maintenance||Every thing you need to keep your main mode of transportation running like new, brake pad replacements, lubrication, and yearly tune-ups||$11|
|Dining out||On special occasions, this will occur||$30|
But wait, this only totals $1192?
How can it be that this person is fed, clothed, housed, ensured, and even entertained? This person still has over $470 a month MORE to spend before reaching $20,000 a year. Not to mention if they put everything on a cash back rewards card, the would save $24 a month!? Like I said, $20,000 a year is a cusiony lifestyle. That extra $470 a month equates to over $5,500 a year, which would go pretty far in travel, community projects, or having a super fancy all organic diet.
Taking into account only the things on this table, this individual is currently spending about $14,400 a year, so with a mortgage, they are closer to $25,000-$30,000. With this, they will need $360,000 and a paid off house in order to retire.
So this person has all their basic needs EASILY covered, but what do they do for fun? Do me a favor, on a piece of paper, write down your ten favorite things to do in your free time, then write down what each of those things will cost. For me, this looks a bit like this.
|Writing||$0 (for now, as I get more into blogging, some money may start going into this site)|
|Repairing bikes||Pays me|
|Lounging with friends||$0|
I find I have more than enough free things I love to do that fill ALL of my free time. I have run this little experiment with many individuals who found the same thing to be true for them.
Turns out this lifestyle is easy and becomes almost automatic once the cheap thrills and conveniences are eliminated. There are many out there that live on less that this, just ask this guy living on $7,000 per year, or this badass family of three living on $25,000.
The word is spreading, with an average income of $50,000, we are all FILTHY STINKIN’ RICH. We have ridiculously more money than we could ever need, it is time to stop fooling ourselves into thinking we are scraping by and having to live paycheck to paycheck.