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I was looking at my budget yesterday and started thinking about how much I could strip away and how I could live cheaper.

This was done from the perspective of a single person with no dependents, although it could easily be changed to include a couple, and even a child or two by adding in a few extra essentials.

Why?

This is a great way to save a lot of money over a short to medium time-frame.Obviously the longer you live like this the more you will be able to save. I would look at 3-5 years to make it truly worthwhile, and worth the sacrifices.

Place to live

To achieve this, I moved from paying a mortgage to living inner-city in a unit, sharing with others. I chose living inner-city as it would cut down on travel costs.I would be able to walk or bike most places, meaning I wouldn’t need to own a car and public transport would be cut to a minimum.

Bills and food

Living in share accommodation also means my bills would be much lower. This could also apply to food, although buying your own food could be cheaper depending on who you live with and what their eating habits are like.

Insurance

I also cut out private health insurance and any contents insurance. Life and disability insurance is covered under my Superannuation.

Private health was just too expensive to justify (but depending on your circumstances you may want to keep it) and there was really no need for contents insurance either as I wouldn’t owe all that much to warrant the cost of contents insurance, but again, you could include it.

Fun and clothes

I still allowed some money for fun and clothes, but it’s not a whole lot. This is a sacrifice but the whole point of this exercise is to save money over the short-term.

Furniture

Most people would already have the basics but you can always get free or cheap furniture online on sites like Gumtree.

Debt

This all assumes you are debt-free, although you could easily use this change of lifestyle to pay off your debt, and then start saving.

Other costs

I have not factored in other costs such as gifts or charity, but you could include these if required, but I don’t see them as essentials.

The budget

So, here is the budget I used. I have calculated it on a fortnightly basis and then showed the annual amounts as well (calculated using the fortnightly amount multiplied by 26).

The pay off

The best thing about living on this minimal amount is what you will save.

Say you earn, after all taxes and such, $50,000 per year. Living on just $20,000 per year would net you $30,000 per year in savings.

If you live this frugal lifestyle for 5 years, that’s a massive $150,000! And this doesn’t include any interest from bank accounts or any money made from investing the money.

Is it worth it?

Is living in a much more frugal lifestyle worth it? This is a subjective question, but having an extra $30K per year (plus interest) would be a boon for most people. And you may find that stripping down your lifestyle to the bare essentials is good for the soul.

What would you do with all the extra money you would make if you live on just $20K per year?