Can you really “live on 40 percent, save 60 percent”?

Is it possible to live on just 40 percent of your income, and save the rest?

It is if you use the optimistic “accounting system” proposed in this article. Here’s how it works, says freelance copywriter Mary-Jo Dionne:

Every time I get paid, I instantly pop 10% into my shopping/mad money account; 20% into a business expenses account; and 30% into a taxes account. I’ve learned to live on the remaining 40% only–this is what I use to cover mortgage, retirement, bills and real-life stuff.

In Dionne’s world, the money she spends on shopping, business expenses, and taxes is “saving,” while the money she saves for retirement is a “living expense.”

I suppose this arrangement works for her, but in the real world, if you’re a freelancer, that means you’re actually a small businessperson. When you get paid, you don’t get to count your revenues as profit until you’ve paid all your expenses, including taxes. So really Dionne should only count as “income” the 40% she uses for “real-life stuff” and the 10% she “saves” for “shopping/mad money.” Of this income, we don’t know how much she really saves — that would be the portion that presumably goes into her retirement account. I doubt that adds up to 60% of what’s left.

Could someone really live on 40 percent of their true income? I’m pretty sure I could. I could live in a quarter of the space I’m in now. I could take public transit or ride my bike instead of making car payments. I could cook for myself more often instead of going out. I could buy cheaper wine or forgo it entirely. I could cancel satellite TV. I could cancel my vacation plans.

But what would be the point? After I’ve saved a reasonable amount — say 10 or 15 percent for retirement and unexpected expenses — any additional savings would simply go to amassing wealth. Anyone with a reasonable income who saved 60 percent of it would be quite wealthy in 20 years. What then? Would you spend it all then? If so, why not spend it sooner? Why not enjoy your income for your whole life, rather than deferring it and blowing it all at once?

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4 Responses to Can you really “live on 40 percent, save 60 percent”?

  1. Mary Spiro says:

    I think the goal of living more frugally or setting more aside is a good goal to strive for. But it is extremely hard to maintain if your income varies widely from month to month or year to year. Thankfully I don’t survive entirely on freelance now and my income is predictable. One thing I do try to reduce are expenses for things I don’t really need to be happy or comfortable. I have many friends (mostly female) who seem to really need designer fashions. I don’t. I have friends who drive much nicer cars than I do. I don’t. I know many people who have ‘collections’ of costly items or who take luxury vacations. I don’t. These are things that don’t really make me happy or improve my life. I think if people balance their income with their priorities, they will get closer to customizing this 40/60 lifestyle.

  2. If I ever have an income such that I could live off 40% of that amount, I’d work a 2-day week! I’d always prefer to work part-time for more years… I see it as spreading my retirement out across my life.

  3. Murfomurf says:

    Well I wish I HAD saved furiously in my early years of working, when I had a relatively high income, could afford the mortgage, going out to dinner, a new car and annual holidays! At 34 I went into a job taking a 30% pay cut, which got worse and worse compared to my friends. Lots of places tried to poach me, but couldn’t offer long term security. There was no worthwhile superannuation scheme until I had been in the low-paying job for about 7 years, and in the remaining 5 years I accumulated A$22 000. I haven’t been able to get a full-time job since then (10 years ago), inflation and the economic downturn have eaten away at the $22 000, so I’m 58 and in a bad place financially- if ONLY I had that money I had in my twenties. No one will employ me if there is a younger candidate, people no longer believe I did the work I did in the past, or contributed significantly to my old papers and research grants. I don’t like it, but what can I do but keep applying for jobs every week and vainly hope someone will see my real worth? I DO take other work unconnected with my expertise when I can get it, but it doesn’t offer me anything other than a few dollars for debts.

  4. dave says:

    Good points, Murfomurf. Not everyone has the luxury of being in a steady job, and even those that do shouldn’t count on it lasting forever. I still dispute the notion that once you have a steady job, you should still act like you’re making practically nothing, but your situation is a sobering reminder of how tenuous our careers really are.

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