How I Live on Less Than $40,000 Annually: Randy from Missouri

My name is Randy and I recently discovered Len’s website and learned about his $40,000 challenge. I’ve really enjoyed reading the stories of those $40,000 heroes.

I am 44 years old and I’m a mechanical engineer by trade, but I’ve moved into director role in a manufacturing company. I preach financial responsibility to my employees — especially those young engineers coming out of college.

My wife is 39; she’s a biologist and studies endangered birds. We have a six year-old daughter and live in a suburb of Kansas City. Although we have a combined income of around $215,000 per year; we live comfortably on roughly $36,000 per year. We can do this because we’re frugal by nature.

I’ve always been a big saver, but my wife with her ecological background sculpted a natural path of frugality due to her disdain of waste and trash resulting from our country’s consumer habits. Through her studies she has observed the negative global impacts of that waste.

My wife will be “retiring” after this year from full-time employment, picking up seasonal work in her field and I have considered suggesting part-time work with my employer sometime in the future.

My Expenses

We’ve been using a spreadsheet for about ten years and it’s been a key to our financial success. Each January, my wife and I sit down to review the previous year’s spending and then challenge ourselves to trim it. I started using Microsoft Money in the late 1990s when I started work, and then transitioned to Quicken.

A complete breakdown of all my expenses is shown to the right.

Our mortgage was paid off earlier this year. We are the original owners of our home and I have lived here since 2001. The housing market was crazy back then. Everyone, including my parents, told me to buy the biggest house I could afford because I’d supposedly be able to sell it a few years later and buy an even nicer one; they even talked to me about crazy methods of multiple loans to cover the down payment so I wouldn’t pay PMI. Thankfully, I didn’t listen to them. Instead, I bought a modest 1800 square-foot home for $155,000 in a decent suburb with three beds and 2.5 baths.

We have four vehicles: a ’99 Trans Am Firehawk, an ’00 Chevy Blazer, an ’04 Chevy Avalanche and a ’16 Subaru Outback. I do all my own maintenance; Rock Auto and YouTube are great! We budget $40 each month for maintenance expenses, but lately I’ve had a few big issues come up which exceeded it. So I’ll likely have to increase the budget — but it’s still less than a new car payment.

By far our biggest expense is groceries because my wife insists on buying only organic food. I don’t necessarily agree that organic label produce is everything it’s touted to be, but I pick my battles.

We budget $300 per month for our six year-old daughter’s activities; we want her to experience all opportunities possible. This includes gymnastics, art classes, camps, and our annual zoo membership.

We cut the cable cord many years ago, which led us to find that Pandora and board games or puzzles from the local thrift store were much more rewarding family activities. We do have a Netflix and Hulu account which costs about $20 per month. Our Internet costs are $54 per month; we have only one provider and I’ve called them several times to try to lower it, with little luck.

We also budget $300 for miscellaneous stuff that comes up. Our vacations are included here; for years we’ve been utilizing credit card rewards and sign-up bonuses for those trips. We don’t really actively travel hack but do open new cards occasionally. Our vacations usually revolve around toting our pop-up camper to state parks or renting Air BnBs near popular outdoor attractions such as national parks, beaches, and other places.

We feel we live a full life in spite of our low levels of spending. We utilize parks, hiking trails and our local library for our entertainment.

My Savings

We utilize the pay yourself first methodology even before we knew it was a thing. Once we set the amount for the total monthly bills, we automatically divert the remainder to some sort of savings into another account. There have been months when we had an unexpected expense and had to withdraw from our savings but we took note of it and reviewed those instances in our annual financial planning session. Some of those costs can been seen baked in to our $300 miscellaneous expenses.

We max out our pre-tax savings, my 401(k), my wife’s Health Savings Account (HSA), 457 and 403b. We also put as much as we can in a Roth IRA which is only about $2000 per year. We have maxed every retirement account for our entire careers. The remainder of our savings goes into our Vanguard investment account. Because we’re so frugal, we’ve been able to take advantage of our dual income to aggressively save — as a result, we are now financially independent. If we pulled from our total investments and savings, our withdrawal rate would be just over 3% annually.

Closing Thoughts

My first job out of college was for General Motors; with employment there comes a decent employee discount. So I bought a brand new 1999 Trans Am Firehawk — and I did this the week before I even started working my first real job! Looking back, that was really dumb, and a lesson I teach to the new grads who work for me. That car is still in my garage with about 50,000 miles on it. I don’t drive it much, but it’s a reminder of my wild younger days.

A few months after starting at GM, winter hit and my old college era truck kept breaking down. Since I needed something besides a sports car to get me through the winter, I bought the Blazer, which I still drive today. These two new vehicles with insurance cost me $1220 in car payments and $175 monthly in insurance. Looking back it was just crazy. I didn’t realize how stupid it was to spend so much on vehicles until I started looking to buy a home the following year but, a few years later, I needed a vehicle with a bed, so I bought our Avalanche (it currently has 198,000 miles). Not long after that, I began to get into personal finance and investing and I pledged to never buy a new vehicle again.

In 2012 our daughter was born. At the time, my wife was driving our Blazer and doing some extensive travel. I didn’t like the fact that she was driving herself and our young daughter on long trips with a 12+ year-old car. So I told her that she could pick whatever newer car she wanted, but we’d have to keep it for at least 10 years. That’s when we purchased the Outback.

My wife calls my three cars the “fleet of crap” — yes, they all have some rust, but all of my old cars are well-maintained, and each has several years of life left.

My wife continually tries to push me to consolidate vehicles and get a newer one. I joke with my officemates about how their spouses won’t let them buy a new car, while I’m in the opposite position. But I’m determined to keep my fleet running, although I have the green light to buy basically whatever I want. I just don’t see the need or value in it.

Finally, I want to share something I preach to my young padawans at the office. Each day as I drive into work, there are 500 employees in my building; I’m the most senior of them all — and yet I have the oldest vehicle. I just feel sorry for some of those folks with the newer cars, and the payments they must be making.

Since we bought our home in 2001, we’ve basically maintained the same standard of living as we did when we first started out. We used every raise or bonus we got to either pay down debt or increase our savings. We’ve always felt we had enough, so we just didn’t see value in buying more crap.

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If you’re like Randy — a household CEO who is successfully making ends meet on roughly $40,000 per year or less — then I’d love to hear from you! Contact me at Len@LenPenzo.com and be sure to put $40,000 in the subject line. If I publish your story, you’ll get a $25 gift card!

Photo Credit: Oleg Alexandrov