Way OT: Living on $7,000 per year

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Submitted by EconProf on April 1, 2012 - 1:24pm

Living on $7k per year is not only possible, but in some ways better than the typical American lifestyle on $40k per year. Check out this new blog: earlyretirementextreme.com
A really thorough and detailed description of how to do it (in the Bay area!) and the freedom and benefits it creates. Not so much miserly penny-pinching as challenging our assumptions of what we Have To Have. Especially good at ripping the advertisers who enslave us. Great feedback from critics and supporters alike.
Of course, the American economy would implode if these subservisive ideas took hold.

Submitted by UCGal on April 1, 2012 - 2:52pm.

Interesting lifestyle. He's made some choices that totally would work for me (cooking from staples, growing veggies, using things till they are done, buying high quality to start with) and other choices that wouldn't work for me.... (RV living)

I'm obsessed with retiring early.... and it definitely involves living well below my means now, and in retirement.... That seems to be the key.

Submitted by UCGal on April 1, 2012 - 4:15pm.

Another blog that's along the same lines but with a slightly less extreme lifestyle
http://www.bravenewlife.com/

Submitted by EconProf on April 1, 2012 - 8:37pm.

UCGal, that is a good blog site too, especially where it challenges us to rethink everything. I once had high hopes that this deep recession we are now (barely) coming out of would force a lot more introspection and spending retrenchment than we are witnessing. Looking at the way people spend, it seems shoppers are about as intoxicated with consumerism as ever.

Submitted by briansd1 on April 1, 2012 - 11:05pm.

I agree UCGal.
I could do veggie garden. And cooking at home. Ive gotten pretty good at making quick simple fresh meals.

I think it's a good idea to payoff the principal residence.

I can't live in an RV or a mess though. But I could live in a beautiful Spartan mid century or Bauhaus house or apartment. I like everything well laid out and sparkling clean. I find that people who live cheap tend to be dirty.
Air conditioning is a luxury I enjoy even in San Diego. I love a cool, air conditioned place in the summer.

I do have a problem with the half half splitting down to the dollar. What kind of relationship is that?

I think it helps to have friends and family to share. It's better for the soul. Sometimes I feel like i live a life of luxury because I can "borrow" my friends and relatives' lifestyle.

I have a friend who lives on $10,000 per year in Florida because he has no house payment but HOA and property taxes.

Another thing the blogger said; it does cost a lot of money if you like to go to bars and drink.

Submitted by scaredyclassic on April 2, 2012 - 4:02am.

you can go out to bars and drink for cheap, but you cannot do them at the same time legally. I recall young people drinking before they hit the bars to economize.

think outside the box unless you're a cat

Submitted by svelte on April 2, 2012 - 6:50am.

I enjoy my job - maybe that's why I'm not so focused on retiring early or even just plain retiring. If that ever changes where I hate getting up in the morning to go to work, I guess the idea of living cheaply may appeal to me more.

Submitted by Ren on April 2, 2012 - 8:19am.

I sometimes imagine living in a 2 bedroom, 1,000sf house near the beach in retirement, but that's as small as I'd go. I couldn't and wouldn't live on $7k. Besides the inability to drive, protein is expensive, and I would shrivel up and float away without large amounts of it.

Maybe $20k if it was just the wife and I.

I don't think it's even necessary to live on $7k, though. A single paid-for income property (in addition to your primary residence) will provide you with two or three times that. If my income is actually limited to $7k in retirement, you all have permission to shoot me.

Submitted by sdduuuude on April 2, 2012 - 9:57am.
Submitted by UCGal on April 2, 2012 - 10:36am.

Ren wrote:
I sometimes imagine living in a 2 bedroom, 1,000sf house near the beach in retirement, but that's as small as I'd go. I couldn't and wouldn't live on $7k. Besides the inability to drive, protein is expensive, and I would shrivel up and float away without large amounts of it.

Maybe $20k if it was just the wife and I.

I don't think it's even necessary to live on $7k, though. A single paid-for income property (in addition to your primary residence) will provide you with two or three times that. If my income is actually limited to $7k in retirement, you all have permission to shoot me.

The blogger has $7k per person... He and his wife spend $14k.

So your 20k isn't that much above that.

Submitted by Ren on April 2, 2012 - 1:05pm.

I know I'm close, and I could manage to live very cheaply, just not quite that cheaply. His budget doesn't allow some things that would be requirements for me.

Submitted by bearishgurl on April 2, 2012 - 1:53pm.

briansd1 wrote:
I agree UCGal.
I could do veggie garden. And cooking at home. Ive gotten pretty good at making quick simple fresh meals.

I think it's a good idea to payoff the principal residence.

I can't live in an RV or a mess though. But I could live in a beautiful Spartan mid century or Bauhaus house or apartment....

I'm with you on this part, brian... It doesn't have to be "big," but I need a "built-on-site" home, preferably a SFR with a backyard.

Submitted by Ren on April 2, 2012 - 1:58pm.

Another thought - I'm a fan of laziness, just not at the expense of happiness or comfort. If you really WANT to live in an RV and ride a bike, more power to you. On the other hand, if you're making big sacrifices (for the rest of your life) in order to start doing nothing as soon as humanly possible, you might need therapy or meds.

Submitted by bearishgurl on April 2, 2012 - 2:10pm.

econprof, I don't know about living on 7K unless you have your own septic/well/solar, land to grow a sizeable garden, your TV/Internet svc rigged, you buy your own cell phone minutes as needed and never travel.

You example on Early Retirement Extreme was living in apt in Chicago. Not only would I NOT want to live in an apt, I HATE high winds and Chicago has about the worst weather in the nation!

I agree with brian that bartering items and services with friends/relatives/clients, using coupons and shopping deeply-discounted food and other necessities, one can live a life slightly above their means ... at ANY age.

Of course no one really knows what the future will bring WRT: future utility rates in urban areas. I think I could retire comfortably on $40K per year and still travel by road whenever I wanted to (that is, if I had no mortgage).

Plane tix, rental cars, restaurants and lodging (though lodging often can't be avoided) add up quickly and are difficult for a lower-income retiree to afford more than a one-week trip per year. I like to travel multiple times per year and know how to do it on the cheap and also receive comped lodging (thru barter and points accumulation).

Submitted by EconProf on April 2, 2012 - 5:04pm.

Actually, BG, I think his location was in the Bay Area.
Reading his blog, he seems to be peeved at people nit-picking his lifestyle and choices, and challenging his ideas. But he certainly does not advocate this for everyone. He simply claims that we could all do with a lot less status-seeking consumption if we chose to. And I like how he rips advertisers for shaping our values and habits.
The fact is that capitalism has delivered vastly higher living standards for everyone--rich and poor--in the past two generations. A growth rate of GNP per capita of 3% per year means a doubling in 24 years, and 3% was about our average from the 50's through 2005. In the 1950's, houses were far smaller, two-car garages were rare, houses had one black-and-white TV, (but not till the mid-fifties), and cars were clunkers that lasted about 100k miles. This is why he suggests if you want to know what you have to change in your life to live on $7000 per year today, ask your grandparents what they did in the 1950's and 1940's.

Submitted by bearishgurl on April 2, 2012 - 9:49pm.

EconProf wrote:
Actually, BG, I think his location was in the Bay Area.
Reading his blog, he seems to be peeved at people nit-picking his lifestyle and choices, and challenging his ideas. But he certainly does not advocate this for everyone. He simply claims that we could all do with a lot less status-seeking consumption if we chose to. And I like how he rips advertisers for shaping our values and habits.
The fact is that capitalism has delivered vastly higher living standards for everyone--rich and poor--in the past two generations. A growth rate of GNP per capita of 3% per year means a doubling in 24 years, and 3% was about our average from the 50's through 2005. In the 1950's, houses were far smaller, two-car garages were rare, houses had one black-and-white TV, (but not till the mid-fifties), and cars were clunkers that lasted about 100k miles. This is why he suggests if you want to know what you have to change in your life to live on $7000 per year today, ask your grandparents what they did in the 1950's and 1940's.

EconProf, I was taught never to borrow for a vehicle and that, if new, they depreciate a minimum of $3K upon driving them off the dealer's lot. I was urged to let someone else take the "new-vehicle depreciation hit." After the "Certified Used" programs came out, I was taught to only buy a vehicle which was too old to qualify for the program because those (Cert Used) vehicles ALSO typically sell for a minimum of $3K over (Private Party) blue book (apparently not in 2011, though, lol). That $3K+ just goes into the salespersons' pockets.

I'd be happy today to retire in a mid-century house, even if nothing was done to it. I definitely would want two bathrooms, though and many of them only have one. Unfortunately, they're not $4K - $12K anymore (like they were *new*)! I could live with one TV or even no TV (as long as I had broadband internet svc) and I don't mind driving a vehicle until it dies. My grandparents killed their own chickens, pigs and cattle for dinner, lol, and grew their own produce and canned it. I actually believe that it is cheaper today to buy food than it costs to grow it and water and feed it/fertilize it, not to mention all the work that this entails (plus processing/canning). Of course, with a well on the property, it might be cheaper to grow food but you would have to spend time at produce stands getting rid of the excess because it is perishable.

Except for my well-appointed home office, I'm really not that into new gadgets and don't use some of the electronics I have to the degree that I thought I would. My cell phone is six years old and has voice only plus doubles as my mp3 player. I have a HUGE walk-in closet full of clothes which were mostly given to me by others as I wear a perfect size off the rack. Most still had tags hanging from them when I got them. I could wear a different suit every day for a month!

My food and household items cost about $160 - $200 month (yes, even on holiday months).

I need nor want for nothing and could "retire" frugally in the right house and location and be perfectly happy as long as I could hit the road on occasion :=]

Submitted by EconProf on April 3, 2012 - 5:36am.

BG, you have lots of tips there for living frugally. Be careful though--I have noticed that the giving of frugality tips is positively correlated with one's age.
Incidentally, I have lots of tips.
I'll respond to one of your subjects--the buying of cars--identified by the author of ERE as one of the budget busters to beware of.
You said don't buy new because the vehicle depreciate $3k the day you drive it off the lot. I think it is more accurate to use a declining balance rule, in which it falls in market value by about 20% per year. This could be 15% for older cars because they last so long now, to the dismay of the automakers. Yes, Pigg owners of snazzy $30k BMW's, that soul-mate in your garage could cost you $500 this month. But the cost is hidden from view. Imagine peeling off ten fifty-dollar bills on the first of each month and you get a better picture. Got a new BMW? Make that 20 fifties please.
As to always buying old, I used to have that rule, but now think the better one is....Buy new and drive it into the ground. My crossover Pacifica has $183,000 and should easily make it to the quarter million mark.
The trouble with buying used is transaction costs of at least 10%. There is the biggie of sales tax, but also the huge difference between wholesale and retail if you buy at a dealer. Yes, you can take the time and trouble to buy from an owner, but most car owners, like delusional home sellers, are in love with their overpriced car. I don't have the patience to educate them. Plus, you don't really know what you are going to get. Just buy new and take good care of it!

Submitted by cvmom on April 3, 2012 - 6:37am.

EconProf wrote:
Just buy new and take good care of it!

This is what we do also. My DH just sold his falling-apart Mazda, bought new 15 years ago. Now he bought a new Nissan Leaf, plus solar panels on the roof (of the house) to power it. Wow is he having fun with that--both the Leaf and the solar panels :)

Submitted by svelte on April 3, 2012 - 6:43am.

Congrats cvmom! That does sound fun.

We keep cars 10-15 years ourselves, garaged, driven lightly, still in great shape when we sell. My only problem with that is boredom starts to set in.

I've got car fever right now, as a matter of fact.

Submitted by Ren on April 3, 2012 - 8:40am.

Car resale depends heavily on the make, model, and price, and quality sometimes seems to be irrelevant. Some cars that people think must have good resale value are merely average, like some Porsche models, even though they are built like tanks and have far better materials quality than any GM (a 3-year-old Boxster S is a fantastic value). The resale of some makes just absolutely plummets - like Maserati.

Buying after the initial depreciation hit, but when a good portion of the warranty is intact, is a smart thing to do with family cars. Bad idea with performance cars, though, because it's important to know where they've been. A bad tune on a turbo'd car could (for example) bend a rod, which could create a new skylight in your motor at any moment, even if it's just idling in the driveway. Imagine buying an almost-new $45k 335i and having the engine commit suicide, only to have the dealer tell you it's not covered under warranty because the ECU has been reprogrammed.

Submitted by scaredyclassic on April 3, 2012 - 9:54am.

Frugal living coup yesterday! There were two t posts set in concrete in old tires in a junk pile when we moved in here.

Kids messed w them but I had no use in my mind.

Yesterday when I was shopping for badminton posts it hit me...

They're great badminton posts!!! Had an old net we set up After with some effort rolling those beauties into position and we were playing till dark after over a year when last plastic posts broke!

Great day!!! Like finding 100 bucks on the ground!!! Basically paid by itself for the nice wood chess set I got from www.houseofstaunton.com not the place for frugal chess players.

We play every day now, take our set out when we eat out have chess books lying about ordered chesster software.

Chess can save us a lot of money over say movies because it's free.

i am spending a lot of money keeping three old decaying cars on the road lately. it is enough to test the faith of a cheapskate. i hate power steering. it's too expensive when it fails for the benefit it gives.

Submitted by bearishgurl on April 3, 2012 - 10:39am.

EconProf wrote:
...The trouble with buying used is transaction costs of at least 10%. There is the biggie of sales tax, but also the huge difference between wholesale and retail if you buy at a dealer. Yes, you can take the time and trouble to buy from an owner, but most car owners, like delusional home sellers, are in love with their overpriced car. I don't have the patience to educate them. Plus, you don't really know what you are going to get. Just buy new and take good care of it!

EconProf, I'm not sure what you mean by "transaction costs" but a title transfer fee in CA is $15, the seller is required to smog the vehicle and as a used vehicle buyer, you don't have to replace the registration sticker until the month it is due. You also must know that a private party doesn't have to give you a bill of sale reflecting the "exact" price you paid him/her for the vehicle, and, in any case, your sales taxes would be MUCH higher if you bought from a dealer and the dealer would collect them from you. I've had good luck throughout my life buying private party vehicles. I've always insisted on having the owner's service records. I didn't feel they were "in love" with the vehicles they needed to sell. In a few cases, they couldn't make the payments anymore and wanted to get out of their auto loan they had already paid on for a 2-3 yrs without damaging their credit. I went to their lender with these sellers and paid off ONLY their loan and the lender mailed me the pink slip. The old owners didn't recover any money at all!

In used vehicle purchases, cash talks. I'm glad to hear that buying new works for you but I will never pay the premium (even if I had unlimited funds). It's just throwing thousands of dollars down the drain, IMO.

Submitted by scaredyclassic on April 3, 2012 - 12:32pm.

i met our cleaning person for the first time recently whose car is worth three or four times what our three cars are worth.

choices.

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