Living on Less Than $28,000 A Year: Managing the Money

by Kimberlee Stokes Affiliate Link Disclosure B

Living on Less Than $28,000 A Year: How our family of six survives (and even thrives) on an income that is less than half the national median income, and what the government calls “below the poverty line” (less than $29,990 annually) for our family size.

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Click here to read other posts in this series.


To get things started I’m going to share a money management technique that helps us to stay on track with our budget. There are many ways to manage your finances and many online resources, I am simply sharing what works for us. The key to managing your finances well is to find a system that works for you. (By the way, if it’s not the way I do it, you won’t hurt my feelings.)

(If your eyes just glazed over you may want to wait for the next installment in which I will be talking about something less math-related. :))

First of all, let me say that growing up was financially confusing. I had a father who was a super spender, had more credit cards than photos in his wallet and left us with quite the load of debt when he divorced my mother. My mother on the other hand was super frugal. That woman could do miracles with a dollar bill and she loved to save them. She always had a rainy day fund.

Fast forward to my adult life. I decided the spending route was more fun and ended up in several thousand dollars worth of debt before I was 22 years old. Thankfully I married a man without any debt, but neither of us had any financial training.

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After having four children in five and a half years with no real financial plan, I realized we were in trouble. While researching on the internet I stumbled upon The Cheapskate Monthly newsletter (now Debt Proof Living) and immediately signed up for a subscription. Mary Hunt rocked my world with a little concept called the “Freedom Account.”

The Freedom Account is a separate checking or savings account that you set up for irregular expenses. Mary Hunt’s idea is to calculate your irregular expenses (the ones that aren’t monthly) like car insurance, clothing, medical expenses, car maintenance, Christmas, etc. and then divide the amount by 12. That amount is what you should be depositing into the Freedom Account each month (you can divide it further if you are paid weekly or biweekly). She suggests automatic withdrawal from your paycheck so you don’t have time to decide if you are going to spend it on something else.

When it’s time to pay a bill from one of those categories, the money is there in your second account and you don’t have to use credit cards to pay that “surprise” bill. (If we’re honest, we knew that the bill was coming, we just didn’t want to think about it.)

I liked the idea, but because I tend to look at the checkbook balance and spend whatever is there, I had to adapt her plan. Here is what I do:

Each week on pay day, I have a morning money appointment. I write the direct deposit amount from my husband’s check in our checkbook register and subtract our weekly gas and grocery money (I will take the grocery money out in cash before shopping.). (You can see my weekly shopping here and my $100 Budget Weekly Menus here.) [UPDATE: We have increased the budget to $125/week. You can see the new $125 Budget Weekly Menus here.]

I then transfer the remaining money into our second checking account. As an example, let’s say I transfer $376 from each paycheck from now until the end of March.


I note the deposit on my spreadsheet and update each category with the new amount. (You can see a larger view and read all the gory details here.) You can use something like Excel or Quickbooks, but I like a paper and pencil version because I’m just nerdy like that.

If there happens to be extra money (my husband gets some sales commission and has a part time job that he can work a few hours a week when work is available), we have a quick meeting to discuss where the money is going. If there are multiple needs, we prioritize (daughter #1 needs a hair cut, but that will have to wait because daughter #2 just out grew her shoes).

If you look closely at the spreadsheet you will notice that we are only funding the first four categories with this month’s paychecks. As extra money comes in we will add money to the other categories, but right now I don’t sweat it. The priorities are rent, utilities, food, gas and insurance. We don’t have an emergency fund right now {UPDATE Jan. 2013: We now have a $1000 Emergency Fund!}, but if we had an emergency we would take money from the account that has the farthest due date from today, so hopefully we would have time to replenish it before the bill is due.

On paper, it sometimes looks impossible. I will talk more about that in a future post, but let’s just say we realize we are on the edge and we have to trust that until we can increase our income everything will work out.

By using the Freedom Account in this way, we can see exactly what is going on and have a little bit of a backup plan without resorting to credit card use. (We don’t have any by the way.) We truly have to discern what is a need versus what is a want and I’m not always good at that, but I’m getting better. :)



If you are a great money manager and a whiz at Quickbooks, this entire post probably seems ridiculous. But then if you are a great money manager, maybe you aren’t reading this post.

If your current system isn’t working and this idea seems like it might work for you, here’s what you need to do:

1. Take a look at the spreadsheet and explanation here.

2. Set up a separate checking account. We have both of our accounts at the same bank so we can easily transfer the money once our check is deposited.

3. Print out the blank Freedom Account Page here. Fill in a few categories. If you want to just do irregular expenses, make an educated guess as to how much you spend on each category for the year, then divide by 12. That is the monthly amount you need to deposit (divide by 2 for bi-weekly paycheck, 4 for weekly paycheck).

4. Make a pay day appointment with yourself and write it in your calendar.

5. On payday, make the transfer to your Freedom Account (or set it up to transfer automatically).

6. Fill in your spreadsheet (use Quickbooks, an Excel spreadsheet or print my form here). If this is too overwhelming, you could sign up for mint.com, which many readers have recommended.

6. ONLY spend the money from the Freedom Account on the designated categories. (Do not look at the balance of $300 and say,”Oh goody, now I can buy that expensive pair of designer shoes I have been wanting.”)


If this post overwhelmed you, don’t panic. Think about the concept for a little while and decide if you might like to try it. You can also check out my Financial Resources Page here.

What tools do you use to help you manage money? Leave a comment and let us know how it works for you. :)


next post in this series: Diapers and Swimming Pools

Click here to read other posts in this series. 

*affiliate links are included in this post


  • http://www.thepeacefulmom.com/ The Peaceful Mom

    Unfortunately it does include online transfers, but if you only a make a transfer once a week it would work very well. I agree that putting the money into another account is super helpful.

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