How to Live on an Income Under $20,000.00 a Year

PDF download Download Article
PDF download Download Article

You don't have to make a lot of money to live a happy, fulfilling life. You will need to learn how to budget, however. Living on less than $20,000 a year is not easy, but it is not incredibly difficult either if you take proactive steps to save. You won't have all the toys and clothes of people in a higher tax bracket, but you can live on an income under $20,000 a year.

Method 1
Method 1 of 3:

Budgeting a Limited Income

PDF download Download Article
  1. Successfully living on a limited income is all about making the most of everything you've got. So you need to know what exactly you have available. You only want to add up the income that you know, without any doubt, that you will be receiving each month. While you get overtime, tips, or bonuses, don't account for them here -- if they all turned up empty, you need to know that you can live on your guaranteed income alone.
    • Write this number down as "monthly income."
  2. Keep all of your receipts to get an accurate picture of your spending habits. Luckily, modern technology has made this easier than ever, as you can log-in online to see your bank and credit card activity. Most banks even break this up by type of spending as well, such as "Food/Groceries," "Gas," or "Rent." Apps like Mint, Mvelopes, and HomeBudget, sync with your financial accounts and provide graphs of your spending each week.
    • If you spend cash, keep the receipt and make a note of what you bought.
    • Write this number down as "monthly expenses"
    Advertisement
  3. Some things, like rent, are due every month no matter what. There are some expenses, like food, that change a bit but cannot be cut much shorter. But there are other expenses that, with hindsight, you realize you didn't need to spend. Putting your expenses into these categories helps you analyze places to save money. If you can, average the expenses from a few months to get a more accurate number.
    • Fixed Expenses: Do not change month to month, but are due every single month. Including rent, car/loan payments, etc.
    • Essential Expenses: These can't be avoided -- food, transportation, utilities -- but can potentially be cut down through careful budgeting and saving.
    • Non-Essential Expenses: This is your entertainment, fun, and everything else fund. More often than not this is where you will be able to save the most money.
    • If possible, take a look at your last 12 months of bank statements and credit card statements so that you can take into account your fixed income expenses and variable expenses such as eating out or your credit card bill.
  4. This is the amount of leftover money you have. Add back in the money from "Non-Essential Expenses" to determine the amount of money you have left after essential bills are paid. Now you know exactly how much free money you can spend every month and still live and pay rent.
  5. Once you know your expenses and your income, you know how much money you should have left for entertainment, debts, and savings. Figure out what you plan to spend on each category now to see how feasible each month will be.
    • Entertainment: Everyone deserves to have fun, no matter how much money they make. Having low income doesn't mean you don't get to enjoy yourself. However, you need to be careful about spending your limited income. Having an "entertainment budget" will help.
    • Debt and Loan Payments: Debt adds up quickly, and the faster you pay it off the more money you ultimately save. You should always have an eye on paying off debt with spare money. Whenever possible, pay more than the "minimum payment" to avoid growing interest.
    • Savings Accounts: Even low-income workers need to save -- as it is an essential safeguard in case of an emergency like a layoff or injury. You want at least three months of expenses covered, if not six. [1]
  6. The enemies of a good personal budget are surprises. You cannot do this once and get a perfect budget, and you may find that you can spend or save more than you thought with practice. When you are living on a limited income, you need to keep an eye on your money regularly.
    • At the end of the month, compare how you did in reality to how you planned in your budget. Find the places where there are differences and think about how you can fix it.
    7. Advertisement
Method 2
Method 2 of 3:

Saving Money Everyday

PDF download Download Article
  1. Meal plan to get the most out of each grocery store run. Knowing what you are eating ahead of time is essential to avoid throwing out food or over-buying. It also helps you match up ingredients between meals, meaning you can buy some things in bulk to save money. Start small by planning only your dinners, making use of leftovers and carrying over ingredients whenever possible. As you get used to it, expand to plan lunches and breakfasts, ensuring you have the perfect amount of food at the right price.
    • Buy fruits and vegetables "in-season" to save money and get fresher food.
    • Always buy generic or store-brand products. They are just as good and much cheaper. Generic medication must be exactly the same as name brand, too. [2]
  2. Restaurant food will rack up your budget quickly, leaving you with little for the rest of the week. Luckily, healthy foods are often the cheapest, and they are versatile enough to be in many dishes:
    • Fruits and vegetables
    • Canned tomatoes and beans
    • Ground turkey
    • Peanut butter
    • Whole-wheat bread
    • Tuna
    • Eggs, milk, and plain yogurt
    • Oatmeal
    • Seasoning to make different meals with similar ingredients. [3]
  3. The majesty of the internet has made finding deals easier than ever. Head to Craigslist or eBay or, better yet, your local flea market. You'll save money, and you'll save perfectly great things from rotting in a landfill. [4]
    • If you're willing to clean or fix up objects a bit you can often get them for next to nothing. Don't ignore lightly worn or dirty items.
    • Be ready to bargain. This doesn't mean you have to be harsh -- let people know your situation and a decent compromise and most people will give you a discount.
  4. You can shave off some dollars from your "essential expenses" if you buy more things at once. You can grab toiletries, food, and cleaning supplies through the internet or at bulk stores to slash your expenses down bit by bit. Note, however, that you likely need to pay more upfront to get goods in bulk. [5]
    • Unit price, the small "price per pound/ounce/gallon/etc." at the bottom of the price tag, is essential when buying in bulk. The bigger the item, the lower the unit price.
  5. There is so much to do that costs absolutely nothing -- and all you have to do is look. Check out bars with free music, local art galleries or museums (that often have free nights), or your Parks and Recreation Department calendar. The classics -- going for hikes, setting up game or movie night, adult sports leagues -- are also great ways to make your own fun without spending a dime.
    • Join a group or adult team to get weekly fun for almost nothing.
    • Many cities have websites devoted to free activities, like San Francisco's SF FunCheap.com. Do some online searching to see what's in your area.
  6. 6
    Shop with a purpose. Know what you are buying before you go to the store, and stick to it. Making lists of priorities, essentials, and goals will help you keep your head on straight when shopping, allowing you to make the most of every dollar. Remember -- every time you buy something you should ask, "do I need this? will this significantly increase my quality of life a week or month from now?" If you come into each store with a plan you can avoid impulse buys or indecision.
    7. Advertisement
Method 3
Method 3 of 3:

Preventing Overspending

PDF download Download Article
  1. Why are you living on $20,000 or less, and how do you want to change things? Maybe you want to go on vacation, buy a car, move to a new city, save for school, etc. If you have a tangible reason to save money, it will be much easier not to blow it on a new video game. Give yourself an exciting financial goal and saving will be much more doable no matter what your budget is. [6]
  2. Living off of $20,000 a year or less is very hard in NYC or San Francisco, though not impossible. Your dollars go a lot further in smaller towns, rural areas, and inland cities. While your salary or income might not be changing, you can change its relative value by moving to a city where everything costs less.
    • Search online for "Cost of Living Comparisons," which provide up-to-date information on prices across the country.
    • Aim for rent to be no higher than $600, and much less when possible. This is a good financial cap for a $20,000 a year job. [7]
  3. Spending just $3 on coffee every day quickly adds up to $90 a month, or at least 5% of your total yearly income. Cigarettes will get even more expensive. At the end of the day, saving money and budgeting requires sacrifices -- you should find a way to cut out these needless expenses.
    • Even cutting these habits in half can make a big difference and is a great starting point.
    • Find alternative, cheaper habits whenever possible. Whenever you get an urge (smoking), fill in your new habit (taking a walk around the block) as a replacement.
  4. Credit cards aren't free-- they come with interest rates that will gouge your paycheck if you let them run rampant. Managing your money wisely means using your credit cards wisely-- as extensions of your well-planned budget. Some things to remember:
    • Know your rates and how they can change. If confused, call your bank and make sure you understand your terms and interest.
    • Pay more than the monthly minimum whenever possible, as this decreases later interest payments.
    • Stay within 30-40% of your credit card limit. You never want to be reaching your limit, as the interest will become exponentially worse. Staying at our below 20% is a good benchmark for cautious spenders. [8]
  5. A debit card can be dangerous -- you keep spending without seeing the money leave. If you struggle to hit a budget, take all the expense money out at the beginning of the month and put it into envelopes -- food, gas, rent, utilities, fun, etc. This ensures you only spend the money where it was meant to be spent. [9]
  6. Many financial advisers even suggest going further, saving for at least 9-12 months, but 3 is the bare minimum. You need to be financially prepared in case of emergencies. Remember, also, that this money should only be spent in emergencies.
    • Multiply your monthly essential & fixed expenses by 3 or 6 months to get a good number for savings.
    7. Advertisement

Community Q&A

Search
Add New Question
  • Question
    Why is everything based on gross? I am always over because of this.
    Community Answer
    Gross is probably used because people have different taxable brackets. You would need to calculate how much you would pay in taxes and retirement to come up with your net livable income.
    Thanks! We're glad this was helpful.
    Thank you for your feedback.
    If wikiHow has helped you, please consider a small contribution to support us in helping more readers like you. We’re committed to providing the world with free how-to resources, and even $1 helps us in our mission. Support wikiHow
    Yes No
    Not Helpful 3 Helpful 5
  • Question
    It is ok for the younger people, but I have medical co-pays which are expensive and house taxes and car upkeep. To break everything down I actually have nothing left and end up charging groceries. What else can I do?
    Community Answer
    In this situation, cut any expenses possible and do more with less. Be preventative in auto care, house repairs, and health care. Make meals in bulk and freeze them. Buy used clothing and learn skills to be more efficient, like sewing, baking, making simple repairs, and building. Utilize the internet to educate yourself. Offer to mend clothing, make meals, or clean for neighbors and friends to make a little extra cash.
    Thanks! We're glad this was helpful.
    Thank you for your feedback.
    If wikiHow has helped you, please consider a small contribution to support us in helping more readers like you. We’re committed to providing the world with free how-to resources, and even $1 helps us in our mission. Support wikiHow
    Yes No
    Not Helpful 12 Helpful 10
Ask a Question
200 characters left
Include your email address to get a message when this question is answered.
Submit
      Advertisement

      Tips

      Show More Tips
      Submit a Tip
      All tip submissions are carefully reviewed before being published
      Name
      Please provide your name and last initial
      Submit
      Thanks for submitting a tip for review!
      Advertisement

      Warnings

      Advertisement

      You Might Also Like

      How to
      Survive on a Small Income
      How to
      Grow Your Own Food
      How to
      Live in Your Car
      How to
      Interpret Your Residential Electrical Meter
      5 Ways to Generate Your Own Electricity at Home
      How to
      Build a Wind Turbine
      How to
      Dumpster Dive
      How to
      Live off the Grid
      How to
      Reduce Paper Waste
      How to
      Build a Generator
      How to
      Use Baking Soda and Vinegar for Cleaning
      How to
      Manage Your Home Waste
      Advertisement

      References

      1. ↑ http://www.forbes.com/sites/robertberger/2015/03/03/how-much-of-your-income-should-you-save/
      2. ↑ https://www.fda.gov/drugs/generic-drugs/generic-drug-facts
      3. ↑ https://www.psychologytoday.com/intl/blog/how-to-do-life/201407/how-to-be-happier-than-a-millionaire-on-20k-a-year-really
      4. ↑ http://www.businessinsider.com/how-a-family-of-three-lives-on-20000-2011-12
      5. ↑ http://www.sheknows.com/living/articles/808185/tips-on-how-to-save-money-and-spend-wisely
      6. ↑ https://money.usnews.com/money/blogs/alpha-consumer/2011/10/03/the-secret-to-living-well-on-20000-a-year
      7. ↑ http://thecollegeinvestor.com/12961/live-20000-per-year/
      8. ↑ https://www.mappingyourfuture.org/money/creditcards.cfm
      9. ↑ http://www.investopedia.com/articles/pf/08/pay-in-cash.asp

      About This Article

      In other languages
      Thanks to all authors for creating a page that has been read 139,530 times.

      Reader Success Stories

      • Sharon Alice

        Feb 25, 2017

        "We all have to start somewhere, and this article is a good jumping off place. I wish I knew about saving money when ..." more
      More reader stories Hide reader stories
      Share your story

      Did this article help you?

      Advertisement