A $500 a Month Retirement Budget

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Jacob at Early Retirement Extreme recently posted an example $500 a month retirement budget.  It is displayed below.

  • Rent $200-250
  • Health insurance $75 (get the cheapest possible and stay healthy!)
  • Food $50-75
  • Transport $0-$75
  • Utilities $25-100

I found this very interesting because I’ve been making over $500 a month in alternative income lately.  If I could get my budget down to $500 a month I could “retire” and live off my alternative income.   Here is one possible budget.

  • Rent $250
  • Health Insurance $70
  • Food $75
  • Transportation $25
  • Utilities $80

It is possible to rent an apartment for $250 in some areas.  I think there are even some place in KC that rent that cheap but I wouldn’t want to live there.  A better alternative is to move to a small town or live with a roommate. The health insurance is what I actually pay now.  The food budget would require a little more self-discipline on my part.  I used to spend about $100 a month on food and if I were to cut out fast food I could get that down to $75 or lower.  The transportation cost is for an occassional bus or giving a friend gas money for a ride.  Ideally I would live somewhere I could walk to most places I needed to go.  The utilities expense of $80 would include a phone.  This amount would vary somewhat but an average of $80 seems easily achievable.

An alternative would be to live in Guatemala (or any low-cost country) for part of the year.  Or to spend several months hiking.  Both would allow me to live on about $300 a month.  A possible budget would be.

  • Rent $100 (if hiking would be for hostels, hotels, showers, etc.)
  • Food $75 (would probably be more while hiking)
  • Health Insurance $70 (this would be the same although I could consider going without in Guatemala since health care is so cheap there.  I wouldn’t want to take the chance of being uninsurable upon a return to the U.S. though.)
  • Miscellaneous $55 (entertainment, postage, gear replacement, transportation, etc.)

The $300 budget would allow me to spend a little extra when visiting the U.S. or not hiking.  Some of the difference would have to go airfare to get to Guatemala or transportation to and from the trailheads but the savings would more than make up for this amount. These budgets might seem a little extreme but based on my experiences living in Guatemala and hiking long distances I’m confident that they are feasible.  I’m planning on doing a $200 a month hike for several months next year.

For now though these budgets are just musings but after I get out of law school they could very well become reality.

Changing My Investment Strategy

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I have decided to change my investment strategy for retirement.  My previous strategy was to max out my retirement accounts first before setting aside any additional savings.  Since my plan is to retire at 50 though it doesn’t make sense to have most of my savings in retirement accounts where it will be difficult for me to access them without paying penalties.  The main benefit of having your money in retirement accounts is that it is allowed to grow tax-freee.  This isn’t much of a benefit to me due to my short time frame and low tax bracket.  I expect to stay in a low tax bracket for the foreseeable future.

I’m also not happy with the performance of the mutual fund in my Roth IRA.  I know the stock market is taking a beating but I don’t like the idea of paying a management fee to lose money.  I could lose my money myself.

My new strategy is to invest in dividend paying stocks.  I won’t go into too much detail since this isn’t an investment blog.  Right now I have a portfolio of five stocks and I plan to expand that to ten to fifteen stocks.  I’m more concerned with yield than capital appreciation.  I want companies that will continue to increase their dividend.  This way I can use the dividends to pay my expenses and still have a hedge against inflation.

So far my results have been pretty good.  I’ve had the stocks about two weeks and I’m up a small amount and I should receive about $250 in dividends for the next year.  This represents an almost 10% yield but that is skewed due to one very high-yielding stock.  Most of my stocks are paying around 6%.  If anyone wants to know how I chose my stocks I’ll do a post on that.  My selection process is somewhat based on guessing though so I wouldn’t recommend anybody follow my picks.  I feel I’m taking an acceptable risk to have a good shot at retiring early and am willing to live with the consequences if this strategy doesn’t work.

Getting Rid of My Car

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After much consideration I have decided to get rid of my car.  My plan is to get rid of it after my last final for the semester in early December.  Next semester I’ll only have class on Monday afternoons.  That is the only place I’ll really need to go.  I’ll be relying on public transportation to get there and anywhere else I want to go.  Since I’m living with my GF I should be able to combine any trip I need to make with our other trips.  I’ve been reluctant to give up my car because I haven’t wanted to get up early twice a week to take the bus to school.  Now that I will only have to take the bus once a week and not have to get up early to catch it I don’t have much excuse for not getting rid of my car.

I’m not sure whether I’ll sell my car or donate it.  My plan is to try to sell it for a low price and if it doesn’t sell then I’ll go ahead and donate it.  Since I won’t make enough money to itemize I won’t get any benefit from donating the car but I’d still like to see it go to a good cause.

Getting rid of the car won’t save me a lot of money because it has been paid off for a long time and I don’t drive much anyway.  I’ll save $20 a month on car insurance and and another $40 or so in gas and some more from not having to make repairs or pay taxes and registration.  I will have to pay for bus fare and I might have to pay something to be added as a driver to my GF’s insurance although I will rarely be driving her car.  My net savings should be somewhere around $60 a month.

Even if I get nothing for this car my cost per mile based on my purchase price alone is less than two cents per mile. I bought this car cheap and put over 90,000 miles on it. I didn’t keep complete records of my repair, maintenance, gasoline and other costs so I can’t figure my total cost per mile.  I am sure that it was much lower than average though.  Someone buying an average priced new car would still have a higher cost per mile than me even if they put a million miles on their car.  I definitely received good value out of the purchase of this car.

October Investment Income- $41.34

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Last month was not a good month for my retirement savings. I lost about $1000 in my Roth IRA which was a significant amount considering I only had $5500 in there.  I managed to increase my monthly income but only because I added $3000 to my savings last month.  Increasing my monthly investment income from $32.01 to $41.34 was good though.  Unfortunately I won’t be able to add a large amount to my retirement savings until sometime next year.  I’m rethinking my investment strategy for retirement and I’ll share that strategy in a post later today.

Disclaimer:This is not my actual investment income. To get this figure I first add up my retirement accounts, emergency fund, and any other money I consider permanent savings.  What the total of my savings would earn at 6% interest for a month is my monthly investment income.

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October Income- $709.64

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Here is a breakdown of my income for October.

Online Income $475.59
Bonuses $200
Interest $20.95
Surveys/Cashback $13.10
Total $709.64

My income was pretty good considering I didn’t work.  This is all alternative income. I’m going to have a tough time matching this in November.  I count my income when it is paid rather than when it is earned so I know that this month’s Adsense payment will be considerably less.  It is also unlikely that I’ll make anywhere near $200 in bonuses. I hope to make up some of that elsewhere but it will be difficult.  I’m going to have to come up with some new income ideas or put more work into the existing ideas.