Getting by on a lot less money: 3 ways it's easier than you think

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I spent my whole adult life trying to figure out how to get by on a lot less money, because I wanted to be a full-time writer and knew that it wouldn't pay enough to support the lifestyle I was living. Now that I've made the transition, I can see that I was worrying needlessly--there are three sources of big savings that come along almost automatically when you start to get by on a lot less money.

What prompted me to write this piece was finding an old notebook that had a page of notes I'd made in 2004, trying to figure out if it'd be possible to retire at (by odd coincidence) the end of 2009.

The brief notes weren't a full analysis, just a quick sketch of a couple of ideas. You see, I knew I had certain retirement resources that would become available at certain dates--a small pension from my former employer, 401(k) and IRA accounts, and Social Security. A full analysis would integrate all of those items into a unified plan; my notes were just a one-page sketch looking at a simplified version: Could just my non-retirement savings support me from 2009 until 2024 (by which time all those retirement-specific resources would have become available)?

The quick sketch in my notebook suggested that it wasn't going to be possible--and yet here I am, having already made shift a full two years earlier than my most optimistic scenario.

The mismatch turns out to have been the amount of income replacement I was planning for. Even the "low" figure from my notes was about double what I've actually been living on these past two years; my baseline target figure was almost triple.

So, why did I imagine that I'd need as much money as that? A quick look shows three big sources of savings.

Taxes

The first is taxes.

If the reason that you're getting by on a lot less money is that your income is much lower, you'll have automatically reduced your income taxes--possibly by quite a lot. (In the United States, the income tax is rather progressive, especially for people with low incomes. A married couple can earn almost $20,000 and owe no taxes at all, simply due to exemptions and the standard deduction--and the tax rate on the next $16,700 after that is just 10%.)

You save money on some other taxes as well when you get by on less money. In particular, the amount that goes for sales taxes drops as you buy less stuff. Further, in many states (including mine), the sales tax rate on groceries and pharmaceuticals is lower than on general merchandise--so, as you spend relatively more on necessities, your average sales tax rate drops too.

If course, if any of your money for getting by comes in the form of self-employment earnings, you're stuck paying both halves of the Social Security tax, a terribly regressive tax that hits low-income self-employed folks pretty hard. Still--if you're getting by on a lot less money, you're probably paying a lot less in taxes.

Saving for retirement

Another big drop in expenses is that, once you retire (or semi-retire, or start getting by on a lot less money in whatever form you do it), you can quit saving for retirement.

During my period of peak saving, I was putting 15% of my gross income into my 401(k) and putting about as much again into regular (not tax-advantaged) savings and investments.

When I took the time to track my spending, this was already clear. But even then--and especially when I tried to just do a back-of-the-envelope calculation--it was hard to get past imagining that I'd need to replace most of my take-home pay if I wanted to maintain my standard of living. In fact, though, once I'd saved enough money to support myself through retirement, I didn't need to keep stuffing large amounts of money into savings.

With 30% of my gross going into savings, and about as much going to taxes of one sort or another, the amount I had available for spending was already only about 40% of my gross. The old rules of thumb that you'd need to replace 70% or 80% of your pay in retirement are just crazy--at least for someone who's preparing to retire early.

Efficiency

There's one more big source of easy cost savings that comes along almost automatically once you quit working at a regular job: efficiency.

Someone who's working full time ends up spending a lot of extra money just keeping the household running. Over and over again, the person working a full-time job pays extra to get things done in a way that integrates as smoothly as possible with the demands of full-time work:

• You hire people to do stuff that you could do yourself, except you're at work.
• You pay extra to get things done at the last minute because you're too busy working to keep track and plan ahead.
• You buy things you wouldn't even need, except that you don't have time to be sure that you don't need them--and you won't have time to come back and get it later if it turns out that you do.

The efficiencies that come from having an entirely flexible schedule are huge: You need less, and those things that you do still need are needed less urgently. This gives you a chance to wait for deals, to seek out substitutes, and (most importantly) to simply wait and see if you can't get by without it. After all, if it turns out that you really do need it, you can go get it then.

Once you're past the need put aside big bucks for a future retirement--and pay the taxes on earning those big bucks--and no longer have to pay extra to make everything fit your work schedule, it's not so expensive to get by as you might imagine.