All Things Financial Planning Blog

In a couple of recent columns, I have suggested that building long-term financial health means developing the habit of living on as little as 30% to a maximum of 70% of your gross earnings.

I can hear the comments now: “Rick, you’re a fat cat financial planner who doesn’t have a clue. Why don’t you try living on eight bucks an hour and see if you can save anything?”

That’s a valid point. It’s been a while since I worked at McDonald’s for $1.65 an hour and earned $300 a month renting apartments. Today, I am fortunate in not needing to worry about having enough to pay the basic bills. So I did some research and came up with a bare-bones budget for a single person living in Rapid City.

• Rent for a tacky single apartment or a shared decent one -$300
• Electricity – $75
• Gas and car maintenance - $100
• Car insurance – $50
• Cell phone – $100
• Groceries (eating at home) - $200
• Clothes (second-hand or on sale) - $50
• Medical (doctor visits, dentist, optometrist, prescriptions) - $75
• Entertainment and eating out – $100
• Miscellaneous (personal care, laundry, haircuts, gifts) - $100
• Total—without savings or health insurance - $1150

At eight bucks an hour, your take-home pay would be about $1,178 a month. You could just get by, but without health insurance or savings. At $10 an hour with a take-home of $1473, you could add $150 for health insurance and $150 for savings.

Here are some ways to live frugally enough to save when you’re just starting out:

• Find a cheap apartment or share with one or more roommates.
• Get a second part-time job and save most or all of those earnings.
• Learn to cook and eat at home; eat out only on special occasions.
• Drive an old car (preferably one your parents helped you buy when you were in high school and had money to spend).
• Buy clothes and furniture second-hand.
• Have fun on the cheap: rent movies instead of going to the theater, hang out with friends at home instead of going out.
• Skip cable TV and use the Internet at the library.
• Have a cell phone and no land line.
• Don’t smoke.
• Don’t even think about getting a credit card.
• Don’t have pets.
• Ask family members to give you cash as Christmas and birthday gifts.
• If you can, get health insurance through your parents’ policy; the health care bill allows you to stay on their policies until you’re 26. Taking the calculated risk of going without insurance won’t be an option after 2016.
• Consider negotiating living with your parents for a specified time period like one year—only with a firm commitment to save half of your earnings and a clear agreement, in writing, as to the household responsibilities and expenses you will assume.
• Become part of a community of friends who exchange help and services.
• Save something regularly, no matter how small. Start with even ten bucks a week—but start. It’s developing the habit that matters most.
• Invest in yourself. Make yourself a valuable employee, do more than is required, and use every opportunity to expand your skills through formal education or on-the-job training. This will increase your earning power in a hurry.

This frugal, self-disciplined lifestyle isn’t necessarily what the average single young adult is going to find appealing. Yet learning to think ahead and to live on even a little less than you have is the way to get out of a low-wage lifestyle so you can enjoy long-term financial health.

Rick Kahler, CFP®, MS
President
Kahler Financial Group
Rapid City, SD