I really enjoyed Donna Freedman’s recent article, Surviving (and thriving) on $12,000 a year. While it contains some great tips on conscious spending, it’s also tremendously inspirational, making me feel that anything can be possible if you’re willing to have some tradeoffs.
Banking Deal: Earn 1.00% APY on an FDIC-insured savings account at Barclays.
As I read more and more about others’ net worth online, I start to feel like everyone else’s savings are racing ahead of mine. I’ve studied hard, earned my Masters degree, work hard and now earn a nice salary. Still, I suffer from very high “overhead” costs in my life due to commuting, etc., and occasionally I despair, feel like I’m backsliding, like it’s hard to earn enough to ever get ahead even when I’m working as hard as I can fathom.
And then I read about a woman who is living a lean life, but still in some ways a rich life, on $12,084 this year. And still contributing monthly to her charity of choice, and helping out her grown daughter! It sounds unbelieveable. Surely, if that’s her budget, I have plenty of room to keep cutting costs and increasing my own savings. I feel like I’m down to the wire, but case studies like hers make me realize I’m not even close.
What seems to be the critical success factor is that she’s able to rationalize her sacrifices, and assigns a time period to them to make them more bearable:
Make no mistake: I’m poor by choice, because I needed to change my life. I chose to leave my marriage, and I chose to become a student. I can live this way because I know it won’t be forever. I’ll have my degree in two more years, and I’ll go back to work.
She writes about a past filled with jobs stacked atop jobs, trying to balance college amidst very little free time, and enthusiastically announces her new focus:
This year I’m dumping most of the part-time gigs. I’ll still freelance and baby-sit, but very selectively. My new school means tough classes, a long bus commute and lots of reading and studying. More to the point, it’s a great opportunity, and I’d like to take full advantage. So I’m choosing to work less in 2007, focusing instead on getting healthy and getting my education.
That means careful money management and a fair amount of sacrifice. I’m willing to do both.
As I read further, I’m reminded that her tale seems somewhat familiar, and her rationalizations equally so. A conversation comes to mind from several years ago, when two good friends of mine, a couple, were chatting with me about money. They’re serious travel buffs, and have spent nice long spans of time in gorgeous areas across the planet. I love to travel as much as they do, but was lamenting how I’d not been able to do so in ages.
“You just have to sharpen your focus and cut out everything else that diverts you from your goal, ” one of my globe-trotting friends said.
“We have time to travel because we keep our expenses to the bare minimum so we can afford to work less. We know how much we need to make in order to live the way we do, and we question every single purchase in order to get there. We’ve argued over whether to spend 50 cents on a hot dog. There’s nothing we ignore–everything counts, because everything moves us towards or away from our goal.”
One of the duo had just paid off her student loan in full, and moved on to dutifully amass $25,000 in savings. “The two of us can live off that for two years,” she said.
I listened, but was full of mixed feelings. I was glad that they were about to embark on a an extended journey across the world – France, Spain, Morocco, and more exotic locales – but jealous that I’d be spending that time toiling away in a cubicle, far from the sun and the wonders of those cultures. Even more, though, I was inspired, because now I knew that what they had was completely attainable – it just came at the price of certain daily sacrifices.
$12,500 a year to support two people, living right alongside me in a populated area on the East Coast. It certainly wasn’t easy for them. Most of their friends, myself included, were among the 9-to-5 crew, going where and doing what they liked. We’d marvel when they’d come out with us, but share meals, deciding together what to get, share a beverage, even. You could see them tallying the sum in their heads, deciding whether a given purchase was worth it. The first few times, it boggled my mind that they even paid attention to the bill. And yet our decisions so clearly impacted our results, the world tour which was out of reach for me becoming a reality for them.
I’ve learned a great deal from these two friends, and much of it resonates with Freedman’s own mantras:
* It’s not what I have, but how much of it I can keep. As in the article, my friends’ every purchase is a question of necessity – “Is having this worth being without this money, being that much farther from our goal?”
* How can I get it free, or almost free? If they do decide the expense is justified, they are incredibly resourceful in getting the best possible deal. They belong to all the local Freecycle groups and keep an eye out for anything they might need. If a friend can lend or share something, they choose that option over buying the item outright. And all purchases are the result of much careful consideration, never on impulse. I am constantly amazed by what they’ve gotten on sale, and how they’ve achieved economies on expenses I still hardly think to consider. Even when traveling, they carpool or bike everywhere.
* Enough is as good as a feast. Like me, my friends are foodies, and enjoy high-quality and organic foods. Buying on sale, exercising portion control and supplementing these foods with less costly ingredients like rice and pasta have helped them to save, as has buying larger quantities and splitting them with friends. They’re always willing to spend a night in cooking versus dining out, and we’ve had some wonderful evenings enjoying great food and wine together. The more people, the greater the economies of scale.
* Every day is casual Friday! Although they’re frugal with their clothing spending, my friends are never underdressed. Nor are they slaves to fashion or trends. They’re always up for a visit to the secondhand shop or yard sales, and tend to stock up on clothing that way, then save and take good care of what they have, even reworking certain garments on the sewing machine. But the next item Freedman mentions is the key to their success in dress.
* Announce my intentions. As word travels and more people have gotten to know them, my friends have become frequent beneficiaries of clothing, furniture, you name it. There are more worn-once castoffs in my circle of friends than I’d like to admit, which means this couple never suffers from a shortage of clothes. They’ve always got an eye out for opportunity, and often are willing to exchange their work for reduced rent. Sometimes it’s just a matter of asking and searching.
As you might be able to tell from reading this, I’m not yet making as many sacrifices as I could be, but I am gaining a fuller awareness of my spending and how it affects my goals. Whether the ultimate goal is a college degree or a globetrotting lifestyle, daily decisions and motivation can make it possible, even when earning a salary many would consider a pittance.
I am deeply inspired by these individuals’ success in achieving their dreams while still spending on the things they consider important. They help me realize that I don’t necessarily need to wait until I’ve achieved some elusive, grand salary to have the things or life I truly want, that “getting ahead” can result from moving not upward, but inward.
Surviving (and thriving) on $12,000 a year [MSN Money]
Updated October 21, 2015 and originally published October 11, 2007.