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?