If You Can’t Live on $40,000 Per Year, It’s Your Own Fault

A couple of weeks ago I shared with you ten characteristics of debt-free people of modest means.

In that article I specifically asked my readers to consider this question:

“Why is it that there are families out there with household incomes under $40,000 comfortably making ends meet and saving for retirement with no debt on the books — or at worst, a single mortgage payment — while others who make millions per year like Sinbad, Ed McMahon, Mike Tyson, and Stephen Baldwin have trouble keeping their financial heads above water?”

While my list of ten traits was met with general acceptance, I did manage to start up a minor debate between the readers as to whether or not it was really possible for the majority of folks here in the good ol’ United States of America to make ends meet on $40,000* per year.

How can I make such a claim?

Well, I live in Southern California, one of the most expensive places to live in the United States. In its 2009 list of the most expensive cities, Forbes listed Los Angeles second; only New York City had a higher cost of living.

Even so, I know many people living here right now that are making ends meet on $40,000 or less.

I know if I had to, I could make it here too on that amount of money – and if I can live on an annual income of $40,000 here in Southern California, I am certain I could make it most everywhere else in America.

So how do I know for sure?

Well, if you’re a regular reader here at Len Penzo dot Com you know I have been meticulously tracking every penny I’ve earned and spent for over a dozen years now.

Although I have a much more detailed breakdown, here is a top-level summary of just my key household expenses in 2009:


Keep in mind, most of these expenses should be considered conservative. Why? Because if I was making only $40,000 per year I would certainly work much harder to cut some of those costs down.

For example, you can bet I would be much more vigilant about limiting our gasoline and utility bills. Likewise for the retail purchases. But without a doubt, the biggest area where I know I can really cut corners if need be is the family grocery bill; although we do plan our dinner menus in advance to save money, we do a poor job of taking advantage of coupons and special sales.

In addition, we currently eat lots of steak and other expensive cuts of beef which considerably raises our food costs. I am quite certain that, if I had to, I can easily cut our grocery bill by at least 25 percent.

But, Len, what about the mortgage?

Well, my mortgage payment is a bit less than $640. And although I bought my home almost 13 years ago, with almost zero effort I found on the Internet a 3-bedroom, 2-bath, 1400 sq. ft. single family home within 10 miles of where I live currently renting for only $895 per month, or $10,740 annually.

So add it all up, and those basic expenses come to just over $36,000 per year.

Yes, I realize I still haven’t accounted for federal, state and social security taxes. But I am certain I could offset whatever taxes would be deducted from my paycheck with the savings I’d get by reducing costs on my grocery, utility and other bills.

Would my family be living like kings and queens? No.

But here’s how we would be living: in a respectable and comfortable home in Southern California, with two insured cars in the garage, and presentable clothes on our backs. We’d also go to bed each night with full bellies. On top of that I’d still have a little money left over to put away toward my retirement nest egg each week, a few bucks to put toward an emergency fund in case my water heater broke, and even a little something to take the family out to dinner once every month or two.

I admit, it’s not ideal. Clearly, it is a no-frills lifestyle; but despite what you might think, it’s certainly not anything close to poverty either. It’s just not.

So if you and your family are blessed with good health, but you find yourself still having trouble making ends meet on $40,000 per year – and are truly serious about living within your means — I strongly suggest you reassess your situation and see where you can cut back on your expenses.

Otherwise, you’ve really got nobody to blame but yourself.

* Considering that this post was originally written in 2010, after adjusting for inflation, that’s equivalent to approximately $44,100 in 2015.


  1. 1

    mdb says

    First thing to do, if you do make that much, should be to move some place cheaper. I want to move to cheaper location – I would take about 25% pay cut, but that would be more than offset in lower taxes and bills. Alas, my wife’s career right now makes that impossible.

    Someday I will leave Boston…

    • 2

      Eleanor says

      Meeeh, I disagree. Established family/social/business networks are worth the premium.
      Would rather be poor but surrounded by culture/family/good weather than living in a McMansion in a town where the cultural center is Wal-Mart.
      I have lived in both such places. The latter was soul-sucking and required a car to get everywhere, the former has made my day-to-day life joyful by comparison.
      I think kids might switch the equation, but if you’re single and your living in the middle of nowhere in the prime of your life, you’re a fool

      • 3

        Nick Y says

        how do you figure you can save anything for retirement. if you add in a mortgage — albeit that small one that you have — that already puts you in the low 30s. And I think $640 is on the low side — really low side – for a supposed high cost area.

        If you pay Fed/State tax on the that 40k you’re already down to 32k — not including Social Security tax. That basically leaves you w nothing to save. You might have to cut your grocery bill by half in order to save $4k or 10% of $40,000. not to mention SS tax.

  2. 5

    Sheila says

    I absolutely agree with you 100%, but I’m also afraid that I couldn’t. :) One thing about it though, we pay a significant amount of money in taxes, and we also aren’t eligible for any of the services or discounts that many people at this income level do. We have often wondered if we would be better off to make less money, which is a sad thing to ponder in a capitalistic society.

    • 6


      I think – check that – I *know* you could make it on $40,000 per year if you had to.

      We should never ever have to wonder in this country if it might be better if we should make *less* money. Once that thought process starts to pervade our society, we become beholden to the politicians – not the other way around!

      • 7

        Katie says

        You forgot daycare. I have two small kids and no family close by. I pay close to 22K in daycare for them. I’m lucky I’m taking them to a daycare where I work (admittedly in the boonies), because I’d be paying about $150 a WEEK more if I had to take them to a daycare where I live. I don’t want to wish their childhood away, but I’ll breathe much easier financially once they go to school.

      • 8

        Lisa Joyce says

        I cant do it. I have a mentally retrded nonverbal autistic son and I have ms addisons and lupus. my medical runs 800 a month that eats up my paycheck and then some plus a sitter for my son so I can work. my mortgage for my trailer that is making me sick is 750 a month lot rent included. we don’t qualify for rent restricted once we leave the trailer but we cant afford 900 + amonth pay the car payment 355$ buy food I have to have boost or ensure besides regular groceries. we live in macon county Tennessee. it cost my husband 75.00 a week in gas to commute to mt Juliet to go to work which is 90 miles round trip. got any ideas for me.

  3. 9

    Olivia says

    I haven’t been following you long but I suspect you’re not including a freelancer’s scenario. Freelancers pay both halves of Social Security, plus federal, state and local taxes. So a $40,000 income would knock off about $8040 in our locale. Netting $31,960. It’s low enough income to avoid federal taxes once you do all the deductions and exemptions. As one though, you’d also have to cover individual health insurance and retirement, totally out of pocket.

    In our case we’re hiring the kids out, if only to cover their food costs. Both are older boys in athletics, if you know what I mean. Maybe they’ll marry young…(Just kidding. Sort of.)

    • 10


      Olivia, this cracks me up. My son is an athlete in college and he eats half the food in our house. The good news is that he got a job at the grocery store, so he has his own insurcance and brings home food. It’s awesome.

    • 11


      Great point. You’re right, I didn’t consider freelancers. A serious health issue will most certainly upset the apple cart, which is why I included the caveat about being in good health. There are options such as getting a catastrophic health insurance policy.

      Even so, my example did include over $3000 in health care expenses. :-)

      • 12

        TIm says

        $3000 a year is very very cheap for healthcare for a family of 4 unless you have a substantial employer subsidy for healthcare – I pay $2400 a year for health insurance for a single healthy 24-year old. You can certainly go a bit cheaper if you are single and healthy, but the coverage starts getting patchy, and if you can’t get decent coverage through your employer and have children or are in a higher risk category… most bets are off on what you’ll be paying for health care.

        Not to say that families couldn’t live a basic lifestyle on $30000 or $40000 a year without a nice health plan provided, but it starts looking a lot riskier and it does start to involve more difficult choices than giving up a fourth bedroom, granite countertops or a new car.

      • 13


        Absolutely, Tim. If I had to do it over again as a single guy in my 20s – assuming I did not have employer coverage – I would roll the dice and go with a catastrophic plan. I would get a catastrophic plan (I am fairly certain they can be had for $100/month, if you are a healthy young adult). I would then allocate another $100 per month into a savings account for non-catastrophic medical “pop-ups.” That’s just me.

    • 14

      Lisa says

      It can definitly be done. My husband and I take care of our family of five on less than 40,000. Of course I am blessed my husband can fix anything and I bake everything. No frills. But we are always full and don’t have a dish on our house like we are waiting for aliens to reply :) oh. no offense. It is all about choices. our mortage will pay off next year and then we can relax and live a little. I am 37. husband 42. we are self employed so we know all about the taxes! In our area we have apparently high local and state taxes too. We still live on less than 40,000 in 2010 it was 35,000

  4. 16


    I agree as well. If you can’t live on $40000 it’s because you don’t want to. People want what people on tv have and what their friends have or do what their friends do. It’s not always possible because everyone makes a different amount and has different circumstances. Maybe your friend buys what they buy because thay have 10 credit cards maxed out. Or maybe they cut back in other areas of their life. The point is you don’t know but it doesn’t matter because you should be providing the necessities for you and your family and not extravagance.

    • 17


      I think you make a good point, Kevin. Television has incorrectly raised many people’s expectations beyond what is realistic to have on typical middle class incomes.

  5. 18


    In the early ’90s, I was floating a family of three on $21,000 per year, in very expensive San Clemente, CA. That was about the equivalent of $40,000 in today’s dollars. During that time, I saved up a down-payment for a house and started college funds for my kids.

    Having done it, I can say that it’s definitely possible, but not desirable. I wish I had of concentrated on college and earned a higher wage when I was young. It’s much more pleasant for my family to live in our house, have multiple cars and be able to afford entertainment. Barely scraping by is no way to live.

  6. 19


    Len, I bet you could cut your food bill by 50% if you really wanted to – even without coupons! I’m not sure how food prices in PA compare to Los Angeles, but we spend about half as much per person on food as you do. The key for us is avoiding convenience foods and limiting meat intake (though we still eat a good bit).

    I also have to agree with you, because if you can live in LA on $40k/year you can live just about anywhere on that. But people are too stubborn to realize that many of their “needs” are just wants. If you’re going to live on less, you’ve got to learn the real difference between what you need and want.

    • 20


      Well, Paul, I have a teenage son, so he might throw a monkey wrench into any plans I had to cut my food bill by 50 percent! But you’re right. We don’t eat a lot of convenience foods – I cook most of my meals from scratch using lots of recipes – but we do eat a lot of meat though. We could definitely cut back significantly in that area if we had to.

      • 21


        Hmmm, rations for the teenager?

        Just kidding! :) I know it can be more difficult with teenage boys. I was one once, you know. I remember rummaging through the cabinets and fridge looking for food all the time.

        But meat really is a killer on a food budget, especially the expensive cuts. But with a little know-how and some help from Alton Brown, you can turn some cheap cuts into really good eats. We do that often to get our meat fix.

        We also rotate a few key dishes (cheap ones) into our menu every couple of weeks. I’m talking beans and rice type of things here. But they’re easy to vary by adding different chopped veggies and with the right seasoning they’ll taste great.

    • 22


      Have you made Alton Brown’s mac and cheese yet? It is really good! (Not as good as my stove top recipe – hey, people, don’t knock it ’til you tried it! – but very good!)

    • 24

      Paul says

      Sorry but 40,000 isn’t realistic living in some areas. I agree with the original poster however he has the luxury of living in a safe area. I live in Chicago. There isn’t a single apartment that cost 500-600. In fact most apartments in Chicago are 900+. Can I find cheaper places? Yes but they are also in the most dangerous areas too. So I can live within my means trying to avoid gangbangers and drug dealers on a regular basis or I can live in a safe area barely making it lol. Also I don’t know what california
      S taxes are, but I can assure you chicago has one of the highest taxes in te nation. Our tax is 10%.

      So again can one live off 40,000? Oh definitely if you live in the a state like Georgia, North Carolina, South Dakota. But where I’m from buddy it doesn’t work.

      • 25

        Paul says

        Forgot to add where I’m from middle class is virtually non existent. You either live in a nice safe area(which is expensive) or a dangerous area (which is affordable).

        Also I was thinking if 40,000 was the amount given with taxes and all that jazz taken out then yes one should be able to live anywhere on there own. I know my salary is about 38k and when you take out Illinois and chicagos stupid taxes I’m at about 25k or so.

        • 26

          Carole says

          40000 less taxes and other deductions = 2400 per month
          Rent $1200. other bills $250. 3 adults. How do I save for retirement on this

      • 27

        Len Penzo says

        I bet you can even live in the suburbs outside of Chicago for $40,000. ;-)

        My sister lives outside Chicago, in NW Indiana, and it’s extremely affordable.

        I think we’re essentially in agreement, Paul — although I’ll argue most people can easily get by in 99% of the country’s land area for $40,000.

      • 28

        Nuku says

        I agree and disagree simultaneously.

        People live way beyond their means these days. You have a very frugal way of living that I agree with.

        However, I have some crippling issues that cause my budget to overflow a bit:

        Gas: My commute is LONG, not by choice, but because I work in a rural area. My 35mpg car still results in 8400$ in gas annually! Also, my car maintenance is a solid 840 a year (I do my own everything as far as cars go), not including tires (I have ones I expect will last a while).

        Car insurance is 180$ for a single male at 24. That’s another $2160 a year.

        Car payment is 360$ (fortunately I have an interest free loan). Another 4320$ annually.

        Student loans bite me for 480$/month. 5760$ annually.

        So an extra 20640$ a year just due to cars and debt. Ouch.

        These are all things that ‘somewhat’ in my control. I have a good job that will allow me to advance. However, it IS costly to commmute, and there are no carpool options. I did choose to go to college, which left me with debt – but that is hardly a ‘poor’ choice if you ask me.

      • 29

        tokenadult says

        I had to reply because I’ve heard that tired old saw about “decent” neighborhoods in Chicago going for 900 plus. I live in one of the most (having had the greatest increase in real estate prices and homes going for 700 grand plus) neighborhoods in chicago. Yet, my friends living in one-bedrooms? None of us pays 900. I’ve never paid more than 800 and that was for two bedrooms.
        The issue again, is just like the point of this blog. You have to be willing to think differently. Here, if you want a good rent, NEVER answer craigslist, or go to an apartment finder, or really answer an ad of any kind. Walk around the neighborhood you like and call the manager listed on the side of buildings you are interested in. It is strange, I guess, but the way it is done here. I currently pay 550 for a smallish one bedroom, but very nice building with on site management and great tenants. One of my friends just got here from L.A. and with only looking at two apartments, found an enormous one bedroom with den and dining room for 850. My last apartment was 750 with two decks, walk in closets and parking included. And all have included utilities. If paying 900 for one bedroom, well… must be a more hipsterish neighborhood, cause I don’t even see them on Craigslist going that high for a one bedroom.

  7. 32

    Samurai says

    With no mortgage, and no car expenses it would be a breeze to live on 40k for one or two people wanywhere in America except Manhattan! Even Sf is doable at that salary!
    Minimum wage on he otherhand, no way.

    • 33

      Robert says

      I believe dual income at minimum wage will hit close to 40k. And 40k should put a family in the range of gov help with housing.

      I know my wife and I are doing quite well on 55k a year (one income) while putting around 20k into our school loans.

      • 34

        Eyes says

        Minimum wage = $7.25 nationally. Most minimum wage jobs I’ve heard of don’t give a paid lunch or paid vacation, so people end up working less than 40 hours a week, 52 weeks a year. (Usually only 35ish).

        For the sake of argument though, I used those maximum numbers.
        $7.25hr x 40 hrs a week x 52 weeks = $15,080 per year.

        That’s only $30,000 a year with two incomes. Not counting state and city taxes, Medicare tax, SSI, etc. which no one gets back, unpaid sick time, holiday closures, etc.

        The waiting list for help with housing in Philadelphia for example is almost 10 years and priority goes to people with no incomes way before this hypothetical couple. They also don’t qualify for any food stamp support with a monthly income of $2,320 (the cutoff is $2,069 for their household size, using PA again as an example).

        The budgeting advice in this article is great, and I’m glad you (Robert) and your wife are doing well, but you make almost double the income of a two worker minimum wage family. Please don’t go around spreading inaccurate information.

        • 35

          Eyes says

          Wow, I just realized that the author used his budget from 2009, when the minimum wage was still $5.15. That means the couple would have only made $10,712 a year without missing a day of work, or $21,424 combined!

  8. 36


    We have grown so accustomed to thinking that we need more of everything, but you clearly show that this is not true. I don’t think that the challenge is to make more money to solve your money problems. The challenge is to live with the money you make. There are plenty of high income people ($100,000+ p.a.) who are struggling financially.

  9. 37


    It wouldn’t make it impossible to survive, but it would make it pretty difficult to save. If I made $40,000 and spent the way I did this past year, I would not have been able to save much for future goals. Take wife and kids into account and it becomes nearly impossible.

  10. 38

    Jamie says

    Amen!! I am a new reader of the blog, and so far I am in love! I’m reading this post as I eat my homemade sausage, kale and carrot soup (which is delicious by the way), and I am part of one of those families earning less than $40K/yr and living comfortably.
    It takes some ingenuity (hence referencing my lunch above), but it can definitely be done. I’ve noticed on other PFBs that many write “make more than you spend”, but I agree with Money Obedience, our focus shouldn’t be on MAKING more (b/c that usually just enables you to spend more), but it should be on spending LESS than you earn.

  11. 39

    Jenna says

    What about travel? I have family all over the world. I’d hate to cut them out of my life because I can’t afford a plane ticket…

    • 40

      me says

      So let them come visit you for a change. What, are their reasons for not travelling somehow more valid than yours?

  12. 41


    I completely agree about the challenging nature of the grocery budget. We used to spend $500-$700 per month as a family of two. We now spend anywhere between $200 and $250 as a family of three, and we’re far from “starving” ourselves. It’s just a little pre-planning and a lot of buy-one-get-ones. :)

  13. 42


    Love this post. I wrote a post last week about a family of four living off 111,000, and many people were aghast because they didn’t think it was possible in California or New York. I love that you showed empirical proof that it could be done.

  14. 43


    As an addendum to my previous comment, it wasn’t so much on my site that people were aghast about the 111,000. It was over at Funny About Money when they wrote a post based on my post about 111,000. They were much more in defense of needing more based on where you live.

  15. 44


    Great point, I always wondered if it would be possible to live in a big city on less than $50,000. I think what big city folk consider are needs is different than someone that lives in a satellite city like myself…

  16. 47


    I noticed you don’t have any house maintenance charges in the budget. When I owned a house that cost thousands each year, which I skip now that I rent.

    If I made $40K in LA I would definitely move someplace cheaper rather than scrape by like I did when I lived in Boston.

    • 48


      I left home maintenance off the list because, for my example, I assumed most folks earning $40,000 or less in LA would rent a home. But you are right, home maintenance can be a real killer – especially if you have an older home. Lucky for me, my home maintenance costs in 2009 were very modest: only $1,153.73.

  17. 49


    @Bret: I agree that it is not desirable. Thanks for backing me up and showing us its possible by sharing your own experience.
    @Sam: …and after reading this article, I hope any teenagers out there will realize that for people earning a minimum wage it will be virtually impossible to support a family.
    @MoneyO: “The challenge is to live with the money you make.” Absolutely! To do that we need to have a good handle on wants versus needs.
    @Daniel: To be honest, even though I could make it on a salary of $40,000 per year, I wouldn’t “settle.” I’d get a second part-time job to give me a little more breathing room.
    @Jamie: I love new readers! Welcome aboard! The soup sounds delicious, by the way. I am a HUGE soup fan!
    @Jenna: But wouldn’t a second part-time job take care of that? :-)
    @Wojo: Just wait until you have teenagers, my friend! LOL Our family could save so much money if the Honeybee and I spent 15 more minutes every other week, going through the coupons and looking for special one-day only food sales.
    @Everyday: I’m probably going to tick off a few people, but it won’t be the first time here. Most folks who say living on $40k can’t be done (or $110k for that matter), either haven’t really tried – or have trouble differentiating wants from needs. (Duck. Here come the rotten tomatoes… LOL)
    @Money: You may be right.
    @Barb: Thanks, Barb!
    @WorkingPoor: Yes, but if we are being honest with ourselves, most people in the US confuse real poverty with simply having a lack of discretionary spending.

  18. 50


    We’re living on $24k right now in the San Francisco Bay Area and it is a very, very tight budget, even factoring in that we are receiving public assistance while our business is building back up after the economic downturn. I think that we would be quite comfortable making $40k a year; we could, at that point, get off of public assistance and be self sufficient, a goal we’re striving toward.

    The poster above who posted whether a family of four could live on $111k? I guess that family has a much more expensive lifestyle than us, but also, they’re not making the most of their resources if they’re not sure they could make it on that. We’re making it on less than a quarter of that and everyone in my family is alive, healthy, and usually pretty happy.

    • 51


      Wow! Making it on $24k in SF is really an achievement. Congratulations! I hope your business gets up to speed real soon.

      Gross mismanagement of funds is the only way I can justify not being able to survive on $111k per year – regardless of where somebody lived. (Duck! Here comes another rotten tomato!)

  19. 52

    Olivia says

    Never fear Len. At our house we don’t toss rotten tomatoes at people, they go into the compost pile. (Which is why we have a six footer merrily growing in our raspberry patch.)

  20. 53

    chubbuni13 says

    Where in Socal can you find a 3 bed 2 bath for $895 a month, Len? I’m thinking you live in the South Bay, given your engineer credentials… The only area I can see being that cheap is Compton or some really rough areas of Lomita.

    If not, care to share where you found this rental listing?

  21. 54


    Provocative post and so true. We cut back severely in 2009 and it was fun making it work. It’s a good idea to do a reset once in awhile and see how little you really need to spend to live comfortably. We don’t have cable — get by on netflix. I know cable is a tough frill for people to give up but we don’t miss it.

  22. 56


    @Olivia: Good for you!
    @Chubbuni: I sent you the link showing the home, via email.
    @Susan: The cable would be one of the first things to go at my house, Susan. Netflix is a terrific low-cost substitute.
    @Jenna: That would come out of what was left over! As I mentioned, it isn’t huge, but there would be enough available to contribute some small amount. :-)


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