Here is a direct Q&A answer from one of the websites I advocated yesterday earlyretirementextreme.com. The question was: I find it hard to believe that you/anyone can live on $5-7k/year [without living in hardship].
"That's alright, I find it hard to believe how you/anyone can spend $30,000/year [without flushing money down the drain]. A simple break-down of the most important expenses (in year 2011) would be $270/month for my half of the rent+utilities; $95/month for health insurance; $75-100/month for food; $95/month for martial arts; $50/month for my half of the car; $50/month for my half of the dog; $20/month for internet. My other expenses are negligible. The car, dog, and the gym are more recent optional splurges which I’ve added as my portfolio has increased. So my core expenses are $5,820/year and my optional expenses are $2,340/year almost half of which is spent on martial arts. Take away the martial arts and it comes to $7,020/year. Also keep in mind that we currently live in one of the most expensive areas of the country (sf bay area) which has a cost of living index of 131 relative to the average US city of 100. My wife spends a similar amount per year."
The fact that this guy (Jacob) can only pay $270 for rent and utilities seems extraordinary for San Fran. But it's actually not extreme or crazy for a single person to pull off. Not to mention you can actually get it to where you're living for free or receiving income from your home.
You can do this by getting a roommate and paying off your home. Or buying a duplex/triplex and having the renters pay for your portion of the dwelling. People do it all the time. I did it for over 5 years and the renter paid my interest, taxes, and insurance. The only thing left was my payment in order to pay down the principle on the mortgage. All of this was able to be done after taxes.
I've run the numbers on the other figures and they're completely doable as well, but you're never going to be able to eat out on this budget. Another thing people lose track of is the amount of money that people in order to do their job. Most notably the driving, food, and clothes that people must consume just to do their job. Much of this goes away when you retire.
If I can cast some criticism on the American lifestyle for a second I will. Two recent documentaries surprised me. One had to do with the migrant workers here in Florida that pick oranges and the other had to do with legal American workers that worked for Wal-Mart. The Wal-Mart workers were making $8/hour and found that they couldn't get by, whereas the illegal migrant workers were making $10/hr on average since they were paid strictly on performance. When asked how much the migrant workers sent home to Mexico they said half. Which would put them at living somewhere between $7-10k a year. The Wal-Mart worker had a hard time living off approximately $16,000 even though he had cable and was I would say he was approximately 150 lbs overweight, so nobody was on the verge of starvation.
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This website was created due to the atrociously misguided financial advice that I've heard over the decades. Financial freedom is not intellectually strenuous, but it takes discipline.