Could you live on $40K a year? If not, it may be your fault
Earlier this week, ESPN ran a much-hyped documentary called Broke, which details the rags-to-riches-to-rags stories of bankrupt pro athletes.
At first glance, it’s the kind of sob story no one wants to hear – “You blew how many millions on jewellery?” – but the doc, which has not yet aired in Canada, did well to address the unique pressures athletes face to spend, including supporting families, entourages and a lifestyle that is doomed by the worst case of Keeping Up With The Joneses you could imagine.
However you slice it, the most remarkable takeaway from the story is that, for some people, even millions of dollars a year isn’t enough to live on.
To which we ask: if you had to, what’s the lowest income level you could earn and still get by?
In Canada, the average earner doesn’t take home much: only about $39,100 as of 2010, before tax.
But is that enough to scrape by?
*Bing: How to cut your spending each year
Personal finance writer Len Penzo, who has been exhaustively cataloguing his every expense online for the past 12 years, argues that if you can’t get by on $40,000 per year, it’s your own fault.
Certainly, that statement’s bound to stir it up, but let’s lift the hood on this one, regardless.
Penzo argues that $40,000 is the kind of rough baseline that consumers should be able to live on, at a bare minimum, if they slash their expenses in line with earnings.
So, in other words, it’s great, and much easier, to live on $100,000 per year, but if income falls, so long as it stays at or above $40,000 annually you should be fine.
Penzo offers tips for cutting back in line with your earnings – the usual suspects: trim on your utilities usage and grocery bills – and genuinely seems to believe that’s enough to get you under the 40K per year ceiling.
However unrealistic that figure seems, Penzo at least offers an intriguing insight, in that nine of every ten cases of personal debt are likely the fault of that overextended consumer.
And, he’s been able to back-track his way to the $40,000 figure, something that after cuts and cuts every consumer should be able to find their way to.
Do you agree or disagree with Penzo’s 40K number? Could you live on that little?
By Jason Buckland, MSN Money
Posted by: KingGJD | Oct 5, 2021 10:22:35 AM
Well, I've averaged less then $20 K per year in the last ten. With that amount there is not much to put away for retirement which is closing in on me quickly.I am now 56 years young.
My vacations consists of visiting family within 500 kilometers. Hotels are out of the question. My entertainment is rented videos and beer drank at home, a one bdrm rental in Toronto.
Living downtown I am constantly asked by Homeless and and others lees fortunate for lose change.
Other then savings the worst thing about having a low income is dating. If one does not bring in a "professional salary" or own a home/condo few girls, ladies, or women will even meet you for a cup of coffee! $40 K would heaven for me.
No, I would not buy a vehicle.
Would be nice to see at least the Grand Canion before I leave this planet.
Posted by: Mike | Oct 5, 2021 10:35:21 AM
@Richard - AMEN! You are 100% accurate. I have never had any handouts in life and learned at a young age to live within my means. Millionaire Next Door is a great book for everyone to read. I think a book like this should be mandatory in our High School Curriculum. Not only does it teach you to live within your means, but it would also help re-shape our society back into one that places less emphasis on the accumulation of "stuff" and material goods.
Posted by: 45 and Retired | Oct 5, 2021 10:54:33 AM
to Jack L
Really!!!! Your type of whining is the problem with our Society.... Too many "I must haves" and "not enough I will give ups".... Personally I have to kids in College and paying tuitions live in a modest size house. Was able to retire on good investing and luck. Your soapbox is very old.... DOWN SIZE .... quit trying to keep up with the Jones's.
Posted by: Kym | Oct 5, 2021 10:59:08 AM
Tell me, is that 40K after taxes or before. My yearly income is just over 40K but my disposable income ends up to be about 28K. Now tell me how easy it should be for me to support a child and household on 28K?
Posted by: Robert | Oct 5, 2021 11:05:58 AM
Today, for a family of four you need 100K to be confortable for the most part. Sure folks can live on 25K or 40K or whatever, anything is possible and one key is no debt payments. The real story though is the squeeze that has been taking place over the last 50 years. Back in the day, one wage earner could support a family of four whereas today, while possible, is in fact rare. Here are a few numbers regarding inflation in North America since 1959 may help to illustrate:
Income then, $5,000, today $46,520 or 9.3 times higher
New car then $2,250, today $30,000 or 13.3 times higher
1 Litre of gas then 5.5 cents today $1.30 or 23.6 times higher
New house then $12,400, today $353,147 or 28.5 times higher
Gold then $35.10 per ounce, today $1750 + or over 50 times higher
Inflation has been steadily robbing the population of real wealth. Over the past 50 years average pay has lagged way behind the rate of increase of those essential items required just to live.
The basics of life, housing, food, transport have gone up much faster than our retained buying power which has lead to high debt levels, esp. in N. America. I have an e-book coming out this month on inflation and related forecasts that can help anyone gain insights and understand what is likely coming in the next decade and am giving out the first few hundred editions free. If you want a free no strings attached copy send me a note at drs122@hotmail.com and I will personally respond.
Posted by: Joanna | Oct 5, 2021 11:14:18 AM
I should be so lucky to live on 40K. Retired and loving it.
Posted by: Marie | Oct 5, 2021 12:01:15 PM
I am a single mom and make approximately $20,0000 a year or less. I do not receive any child support or assistance. I I made 40K a year I would feel blessed!
Posted by: Ingenious Investing | Oct 5, 2021 12:08:25 PM
It's how much you earn, but how much you keep. You have to ensure that you keep your expenses in check. Know exactly what your expenses are, spend less than you earn and save the rest. By following these simple principles you can get ahead on 40/k a year.
www.ingeniousinvesting.com
Posted by: Ingenious Investing | Oct 5, 2021 12:09:37 PM
It's not about how much you earn, but how much you keep. You have to ensure that you keep your expenses in check. Know exactly what your expenses are, spend less than you earn and save the rest. By following these simple principles you can get ahead on 40/k a year.
www.ingeniousinvesting.com
Posted by: Aaron | Oct 5, 2021 1:16:03 PM
I am 30years old and make approximately 38k a year on a salary job and also earn a few thousand a year extra playing poker which makes my income closer to 42k but it varies. In addition to earning small dividend payments from a few stocks and interest from mutual funds which I dont spend so I do not include that in my yearly budget. I own a modest home which I have paid off and drive an old 95 vehicle which makes for extremelylow insurance payments. So yes it is very possible to live and have a good life for around 40ka year. I also take yearly or twice yearly vacations, last year I went to vegas for a weekand thailand for 6 weeks :). However I live in a smaller town which for 1, made the purchase price of my home far less expensive than buying one in a major city. Also I have not thrown money away on a new vehicle which would automatically devalue about 30% the MOMENT I would drive it off the lot and do a swan dive in value based on the time owned and km driven thereafter. I NEVER pay for anything by credit card unless I can afford to pay it off before 4-8 weeks go by.
CREDIT CARDS ARE A SCAM IN LINE WITH VLTS, SLOTMACHINES, AND EXTRA CAR INSURANCE SUCH AS WINDSHIELD DAMAGE, FIRE, AND INCIDENTAL THEFT COVERAGE(say the wallet you left in plain site on the carseat)
IF ANY OF THESE THINGS WERE FOR THE BUYERS BENEFIT THE INSURANCE COMPANIES WOULDNT MAKE ANY MONEY!!!!!!!!! WAKE UP PEOPLE!
The only insurance I have is house and minimum car insurance. I have minimum required car insurance which costs me only 550 dollars a year with safe drivers discount. Since I figured that if I have a car that is blue booked at less than 1000 bucks then it ultimately wont matter what happenns to it.
I buy what I want for food and although I do eat dried noodle soup(Mama brand noodles, its the only way to go. Check out an asian grocery store if you never heard about them) I do so because it is actually a tasty quick addition to a lunch or a snack.
Now I could spout more ways to savemoney but Im not surehow many people are actually going to read this so Im going to stop typing
It is perfectly easy to live on 40k a year, just cut up your credit cards and dont buy anything that you dont see or recieve any tangible value for. I hope this helps someone.
PS. IF YOU DONT HAVE A TAX FREE SAVINGS ACCOUNT, GET ONE!!!! THE BENEFITS ARE NOT LIFE CHANGING BUT THEY ARE THERE :)
Posted by: bigm | Oct 5, 2021 1:23:29 PM
Yes, you can live off of 40k a year, if that is per person. If not, then things will be VERY poor and tight. Renting a small place and have nothing and you could if total was only $40. If we add what we make together, we are around 75k for 2 people, so we are under that $40k per person amount. You can get a lot for that kind of money. WE would be laughing if we both were making $40k each. If one of us lost our jobs, we would be in trouble. I remember years ago, that we used to be able to survive with total of $40k for 2 people, but not in today's standards. Back then, you could afford a small place, car and some things, but that was 15 years ago when we did that and things changed drastically. You can't afford anything today with that. $40k per person today is a high standard and you can live quite nicely with that. Sadly, many are living with half of that and that is the true representation of today. The problem is there is many out there in oil and such earning insane amounts which drive up the average $$'s they get. Not many are making the $40k today so the numbers here are not accurate and not your fault. Even with school, you are not guaranteed to make that money. Just as another person posted here. Out of school and making $16. That is more the reality, even the $16 is high as there are many still at $10-$11. They finally raised our minimum wage just to make us now the second lowest rate. That is not something you want to boast about and shows that change still needs to happen.
Posted by: littlebird | Oct 5, 2021 1:26:32 PM
Where do you guys live? 40K is doable for one person for sure, probably even two, but try raising a family of four on that in an area of the country (urban BC) where rent is at least $1600 a month for a not fancy 3 bedroom space in a modest area of town. I make all my own food (bread, spag sauce, yogurt etc), bike to work, hang clothes to dry in summer, get cheap hair cuts etc and would need at least $50,000 just to srcape but and hope I (or anyone in my family) never need to go to the dentist or renew my eyeglass prescription. So was the 40K per adult without dependents?
Posted by: Chickadee | Oct 5, 2021 1:35:12 PM
Five years ago we liived on $11,000/yr when my husband started his own business. We did fine and got by as our mortgage was already paid for on our house and had no loans. We have passed 40k now and we did survive on making less then 40k. Buy what you need not what you want.
Posted by: Ms.Mae | Oct 5, 2021 2:06:56 PM
this article doesn't explain if $40,000 is enough for a family (or if so how big the family is). My take home salary is less then 36,000 and I am a single parent. I only a mortage and student loan for debt, only buy $120 a week for groceries, and don't have cable. And I can barely make it every month. I do however, manage to put away as small amout for emergancy savings, RESP and RRSP every month. Good thing the bank gave me my down payment.
Posted by: Innovation | Oct 5, 2021 2:15:50 PM
I am 30 years old. I make $62,000 and my wife makes $50,000. How did someone my age make so much right already? I moved out of the big centres! Move to a smaller place (under 20,000) and you'll be in much higher demand. The problem with so many university graduates is that they refuse to move somewhere where their skills will be in higher demand and will be able to command more money. Cost of living is way less in the northern part of every province, it's a little more inconvenient at times, but most places have a walmart and costco and other general needs for young families.
Moving out of the big city at a younger age was the best thing I ever did. If I choose to move back, I will have years of experience in my field and will be able to compete much more effectively for positions there.
Posted by: Kelly | Oct 5, 2021 3:31:58 PM
$40K a year? At one time I would have said yes, easily, but now that I have a child... full time day care is $12K a year, which means you have to make abour $20K to bring home that $12K to pay the daycare. I know there are subsities but my husband and I make too much money. I am making an excellent wage but unfortunelty only work 24 days a year. (my daughter is not in full time daycare, we could never afford it and I am home anyway). My husband makes just under $100K to be in a job that is *allegedly* less stressfull and demanding. We live very frugally, but our recently paid off mortgage is now daycare and a cheap car loan. With all of the RESPs and RRSP and emergency fund...We are the type of people that will have waaaay more money in retirement beacuse we are so paranoid we wont have enough.
Posted by: CK | Oct 5, 2021 3:45:15 PM
I used to earn $199,000 pa until my position was transferred out of Canada. My kids are all grown and I have no mortgage.
We live comfortably on $3000 per month (This is after tax dollars).
Posted by: Richard | Oct 5, 2021 4:19:15 PM
@Kym
The income tax rate on $40k is 15%, so after taxes, you should have $34k remaining. This is certainly enough to raise a small family, assuming that you have no other financial liabilities such as student loans, car loans, etc. If you can't afford a car, get rid of it - it is almost always a luxury. If your rent is too high, move to a less expensive neighbourhood - yes, they *do* exist. If you smoke, cut it out. The end result may be that your life isn't ideal, but the reality is, if you have limited income, then you must make sacrifices. It is doable. Nobody said it would be easy, but it is doable. I grew up poor, so I know what I'm talking about. My mother raised two sons all on her own. But I consider myself fortunate. Many other people have had it much worse than I.
Posted by: Kent McKay | Oct 5, 2021 5:28:20 PM
I would really like to know where people are living that can afford to live on $40000 a year? I live in northern Alberta and have lived here since 1978 and there would be no possible way to get ahead or save for any future on $40000 a year . between rent or mortgage, fuel , utilities, electricity and getting around and taxes . I do believe i would be buggered . But i guess with out a decent public transit system and resonable housing this is the lot you get. Just a fyi at taxes at 27% approx and fixed costs of living of between $1250.00 and $1500.00 it leaves most families in a tough spot .
Posted by: Crystal | Oct 5, 2021 6:39:18 PM
Of course its possible to live off $40K a year if you relaly had to. Some people live on less than probably not comfortably, but its doable. It just depends on your priorities and how much you are spending on luxuries.