Summary

The author lives comfortably on $2,500 a month in Los Angeles by maintaining a low cost of living, resisting lifestyle expansion, and prioritizing saving and investing.

Abstract

The article discusses the author's lifestyle in Los Angeles, where they manage to live well on a modest income of $2,500 a month. This is achieved through a disciplined approach to spending, akin to adhering to a strict diet or abstaining from alcohol. The author, who is a freelance writer with fluctuating monthly income, emphasizes the importance of not increasing expenses as income grows, which they refer to as "lifestyle expansion." They attribute their ability to resist spending more to both physiological factors and personality traits that allow them to detach from material possessions and accomplishments. The author believes that wealth accumulation is less about income level and more about the ability to be content with spending less than one earns, thus allowing for savings and investments to grow. They also touch upon the psychological aspects of spending habits and the potential for future research in this area.

Opinions

The author is obsessed with maintaining a low cost of living and sees it as a key to building wealth.
They reject the notion of lifestyle expansion, which is spending more as income increases, considering it the primary reason why people fail to build wealth despite earning good money.
The author equates the discipline of maintaining a low cost of living with the discipline required to adhere to a strict diet or to abstain from alcohol.
They believe that most people are unable or unwilling to adopt such a disciplined approach to spending, attributing this to a combination of physiological and personality factors.
The author values experiences and the well-being derived from a healthy lifestyle over material possessions and status symbols.
They suggest that the ability to live on less is linked to contentment and happiness, and is a significant factor in wealth accumulation.
The author is considering pursuing a PhD in economic psychology to further understand the psycho-social aspects of spending and saving behaviors.
They emphasize that wealth is not determined by income level but by spending habits and the commitment to saving and investing.

How and Why I Live Well on $2,500 a Month in Los Angeles

Your cost of living is more than a number, it’s a ridiculous mindset

As I noted in a recent Making of a Millionaire article, I could spend more money on things such as rent. But I choose not to. Over the past decade, I have developed a mindset that’s borderline obsessed (okay, it IS obsessed) with maintaining a low cost of living.

It’s akin to adhering to a disciplined diet or not drinking alcohol. A vast majority of the population simply won’t do it. Because they can’t, really don’t want to, or don’t see the purpose and value. And that’s fine. It takes all kinds.

But, beyond that, it’s not my role to judge or otherwise prescribe. It’s my job to live and relay the experience of doing life.

Some months I make $4,000. In others, I make $8,000 or $10,000. I have had my share of $20,000 months. For a freelance writer, that’s good money. Like people in most professions, I have had up years and down years.

No matter what I make, one thing doesn’t change — or only changes with a modicum of variation. And that’s my insanely low cost of living.

I don’t believe in lifestyle expansion. That’s the personal finance designation for spending more as you make more. And it’s the number one reason why people who make good money fail to build wealth. It’s why we have so many $60,000 a year millionaires on our hands.

In most places, $5,000 a month is more than enough money to keep a modest dwelling, have access to reasonable transportation, eat good food, and keep yourself entertained. In a perfect world, you save and invest the “more than enough” part.

Trouble comes when you do one of two things:

Expand your lifestyle on the jump from, say, $5,000 to $10,000 a month.
Or, worse yet, live a $10,000 a month lifestyle on $5,000 in income via credit cards and other types of debt.

I’m still trying to put my finger on why some people resist lifestyle expansion and others don’t or, seemingly, can’t. They might genuinely want to. But they can muster little more than a good old college try.

I’m thinking about going for my PhD in economic psychology someday. Getting to the bottom of this psycho-social conundrum might wind up the focus of my dissertation.

For the time being, I’ll make an analogy, rooted, I think, in psychology. I had this discussion with a friend just the other day. Now I’ll have it with you.

When the pandemic hit, I gave up carbs in quarantine. For a guy who loves (or loved) pizza, pasta, bread, pastries, and doughnuts, this wasn’t an easy decision. But it worked.

I look and feel amazing, darling!

So a couple of months in, I was like:

I’ll give up alcohol too!

I look and feel even more amazing, darling!

What’s even more incredible (than how I look and feel!) is that I don’t miss pizza, pasta, bread, pastries, doughnuts, beer, wine, whiskey. Not at all. Okay, I have had a slight craving for Roku or Bar Hill gin on the rocks lately, but only a slight craving.

When I tell most people what I gave up, they’re like:

I could never do that. I would never want to do that.

When I tell them I don’t miss any of the above, they’re even more aghast.

I concede something physiological might be going on.

I ran an experiment the other day. I ate a doughnut. I didn’t feel all that hot afterward. So maybe I lack the craving for sugar and flour because my body knows it doesn’t react well and function optimally under the influence of these two substances.

I get off on saving and investing it.

At the same time, there have got to be personality traits at play. I have always been able to cut myself off from things. Just like that. People less so (not necessarily a good thing), but definitely things.

I don’t care much about most material possessions or even accomplishments. I don’t get attached to things like cars and careers. I still have the baseball mitt I used when I was 14 and concrete pieces of nostalgia from past lives I look back on occasionally. But, beyond that, I’m able to move forward — onward and upward.

This must have something to do with my ability to eschew carbs and booze.

If this much is true, my— some might call — ridiculous frame of mind absolutely plays a role in my ability to be perfectly content — even happy — living in a small New York-style studio apartment in Los Angeles, as part of a roughly $2,500 a month cost of living. I live a great life. This is at least how I observe it from the inside.

When I make more money, I tend not to spend more money.

I get off on saving and investing it.

Of course, there are times when I’ll do something else, like buy a new bed (did that this week) or drink Roku or Bar Hill gin (haven’t done that in a bunch of months) or take a trip to another city. I also like to do things with other people, which sometimes involves spending discretionary income. But, as a rule, I maintain a stable cost of living with the excess going to my and my daughter’s present and future wealth.

This is the how and why of it. And it’s largely rooted in personality and the ensuing psychology. Or at least that’s the theory I’m taking into future research and evaluation. It’s a fascinating subject with tons I don’t know (which is what makes it fascinating).

But I think I know this — wealth has little do with how much money you make. It has more to do with how much you spend and if you can be content with spending considerably less than you make.

In theory, you might say this would be easier to do if you made $50,000 a month. After all, you could live a $25,000 a month lifestyle and bank $300,000 a year. You’d be a millionaire in no time.

On the ground, it seems it doesn’t work that way. At each notch up the income ladder, many people execute a commensurate expansion of their lifestyle. You get used to these enhancements, to the point where they become — at least in your mind — necessities.

If this comes alongside sound saving and investing (buying stocks, a retirement plan, real estate), it’s probably going to be all good. However, if you’re paying no mind to the wealth-building process, you’ll run into the aforementioned trouble. And the crazy thing is it doesn’t matter how much money you make.

The trap of lifestyle expansion — absent real saving and investing — hits people across the income spectrum. Some make mistakes and develop a ridiculous mindset (that’s more me). Others are simply born with it (that would not have been nearly as much fun).

This article is for informational purposes only. It should not be considered Financial or Legal Advice. Not all information will be accurate. Consult a financial professional before making any major financial decisions.