How I Live on $38K/Year with a $1.6M Portfolio (And Why I Love It)

I spent ten minutes debating a $3 store-brand olive oil yesterday. Later, I confirmed my net worth was still $1.6 million. This isn’t a contradiction; it’s the secret to real wealth.

So many of us feel trapped on a treadmill of earning and spending, facing burnout while financial independence seems impossible without extreme sacrifice. But a fulfilling life on a modest budget is not about what you give up.

It’s about gaining control through intentional choices. My ability to live on $38,000 a year is built on a financial strategy that provides total freedom from money stress. I will show you the exact math, budget, and portfolio that makes this life possible.

The Unshakeable Math: Why a 2.375% Withdrawal Rate is My Superpower

Let’s start with the simple numbers that make everything else possible. My annual expenses are $38,000, and my investment portfolio is $1,600,000. When you divide my spending by my portfolio value, you get my withdrawal rate: a tiny 2.375%. This number is the bedrock of my financial security.

For decades, the gold standard for retirement was the “4% Rule.” The idea was that you could withdraw 4% of your portfolio in your first year of retirement, adjust for inflation each year after.

And have a high chance of your money lasting for 30 years. But that 30-year timeline is the key problem for early retirees. If you retire in your 30s or 40s, you might need your money to last for 50 or even 60 years.

In the 2025 economic climate, relying on the 4% rule for a long retirement is risky. Recent research suggests that for a retirement lasting 30 years or more, a safer starting withdrawal rate is closer to 3.7%. My 2.375% rate isn’t about extreme frugality; it’s a strategic choice to build a financial fortress against the biggest fears an early retiree faces:

Market Crashes: If the market tanks right after I retire, I’m only pulling out a tiny fraction of my portfolio. This gives my investments plenty of room to recover without me having to sell low.

Inflation: By taking out far less than my portfolio is expected to earn, my investments can continue to grow well above the rate of inflation. In a year where the market returns a historical average of 7%, my portfolio grows by over 4.6% after all my living expenses are paid.

Living Too Long: My plan is built to last for 60+ years. A hyper-conservative withdrawal rate dramatically reduces the odds of outliving my money.

The ultimate payoff isn’t just mathematical; it’s emotional. This strategy gives me peace of mind. The real superpower of a sub-3% withdrawal rate is the psychological freedom from worrying about money, a form of wealth that no amount of extra spending can buy.

My $38,000 Annual Budget: A Blueprint for Intentional Spending

This lifestyle is possible because of a philosophy called “Lean FIRE,” which focuses on achieving financial independence through a minimalist and intentional lifestyle. The goal is to live on a budget of under $40,000 a year.

This isn’t about depriving yourself; it’s about consciously choosing to spend money only on things that bring you genuine happiness and freedom.

Transparency is key, so here is my exact budget breakdown. This is the blueprint that makes a low-stress life possible.

Category	Monthly Cost	Annual Cost	Notes & Strategy
Housing (Taxes, Ins., Maint.)	$1,100	$13,200	Strategy: Paid-off home in a medium-cost-of-living area; this covers property taxes, insurance, and a maintenance fund.
Utilities (Elec, Gas, Water, Int)	$250	$3,000	Strategy: Energy-efficient home, mindful usage, and a mid-tier internet plan.
Groceries	$400	$4,800	Strategy: Meal planning, cooking from scratch, minimizing food waste, bulk shopping.
Transportation (Gas, Ins, Maint.)	$200	$2,400	Strategy: Own a 10-year-old reliable car outright, liability-only insurance, minimal driving.
Healthcare (ACA Marketplace Plan)	$450	$5,400	Strategy: Bronze-level plan, eligible for subsidies due to low modified adjusted gross income (MAGI).
Discretionary & Fun	$300	$3,600	Strategy: Local events, hobbies, library, one restaurant meal/week, select streaming services.
Sinking Funds (Travel, Car, Home)	$267	$3,200	Strategy: Automatic monthly transfer to a High-Yield Savings Account for planned large expenses.
Taxes (Capital Gains)	$200	$2,400	Strategy: Tax-gain harvesting; most income is qualified dividends/long-term gains, taxed at low rates.
TOTAL	$3,167	$38,000

The biggest savings come from the “Big Three” expenses. For housing, I live in a medium-cost-of-living area and have a paid-off home. For transportation, I own an older, reliable car outright, which slashes costs on payments and insurance. For food, I prioritize cooking at home and strategic grocery shopping.

To prove this isn’t a life of deprivation, my budget includes money for fun, hobbies, and travel. It also includes “sinking funds”—dedicated savings for big, irregular expenses like a new roof or a car repair. This proactive planning prevents financial surprises.

Finally, I budget for two costs that many people forget: healthcare, which I get through a subsidized ACA Marketplace plan, and taxes on my investment income. This budget is designed for a life that is not only sustainable but also joyful and resilient.

Building the Engine: My $1.6M “Sleep Well at Night” Portfolio

My investment philosophy is simple: own the entire market through low-cost index funds and let it grow. I don’t try to pick winning stocks. Instead, I focus on consistency and keeping fees as low as possible.

My asset allocation—the mix of stocks and bonds—is designed to provide long-term growth while protecting me from market downturns. With a retirement that could last over 50 years, I need my money to grow, but I also need stability to avoid panic selling during a crash.

Asset Class	Allocation %	Dollar Value	Specific Holdings (Examples)	Purpose in the Portfolio
U.S. Total Stock Market	50%	$800,000	Fidelity ZERO Total Market (FZROX) / Vanguard VTSAX	The core engine for long-term capital appreciation.
International Stock Market	20%	$320,000	Fidelity ZERO Intl. (FZILX) / Vanguard VTIAX	Geographic diversification to reduce single-country risk.
U.S. Total Bond Market	20%	$320,000	Fidelity FXNAX / Vanguard VBTLX	A stabilizer; reduces portfolio volatility during stock market declines.
Real Estate (REITs)	5%	$80,000	Vanguard VGSLX / Schwab SCHH	An inflation hedge and diversifier with low correlation to stocks.
Cash / Equivalents	5%	$80,000	High-Yield Savings Account (HYSA)	Liquidity for 2 years of expenses; the ultimate safety net.
TOTAL	100%	$1,600,000

I chose Fidelity as my brokerage because of its zero-expense-ratio funds and user-friendly platform, though Vanguard is another excellent low-cost option.

A more advanced part of my strategy is tax-efficient fund placement. I hold different assets in different types of accounts to minimize my tax bill. My taxable brokerage account holds funds I might need to access before age 59.5.

My Traditional IRA/401(k) holds assets for tax-deferred growth. Finally, my Roth IRA holds my highest-growth assets, which I can withdraw completely tax-free in retirement. This careful planning helps my portfolio work as efficiently as possible.

The Action Plan: How You Can Build This Life, Starting in 2025

This lifestyle isn’t reserved for a select few. It’s the result of a clear plan and consistent action. Here is the five-step blueprint you can follow.

Step 1: Define Your “Why” and Calculate Your Number

First, figure out what truly motivates you. Is it freedom, autonomy, or more time for your passions? This “why” will keep you going. Next, calculate your financial independence number.

A common method is the Rule of 25: multiply your desired annual expenses by 25. For example, if you want to live on $50,000 a year, your target is $1.25 million. For a more conservative plan like mine, multiply by 30 or 33 instead.

Step 2: Build Your Financial Operating System

Success is about building systems that make saving automatic. Start by tracking your spending for a few months using an app like YNAB or Monarch Money. This will show you where your money is actually going. Then, focus on your savings rate—the percentage of your income you save.

This is the most important factor in how quickly you can reach your goal. Automate transfers to your investment accounts on payday and immediately invest any raises or bonuses to avoid lifestyle creep.

Step 3: Eliminate High-Interest Debt

You can’t out-invest credit card debt. If you have high-interest debt, make a focused plan to eliminate it before you start investing aggressively. Getting rid of that burden is a critical first step toward financial freedom.

Step 4: Invest Automatically and Consistently

Set up automatic, recurring investments into low-cost index funds. This strategy, known as dollar-cost averaging, removes emotion from the process. You’ll invest consistently whether the market is up or down, which is a proven path to long-term growth.

Step 5: Review and Optimize Annually

Your plan isn’t set in stone. Once a year, do a financial check-up. Review your spending, rebalance your portfolio back to its target allocation, and track your progress. This keeps you engaged and ensures your strategy stays on track.

Conclusion

A life of profound freedom is possible. It comes from the powerful combination of intentional spending, a high savings rate, and a simple, hyper-conservative investment strategy.

The true value of this lifestyle isn’t measured by the size of my portfolio, but by the ownership of my time and the complete absence of financial stress. This path is available to anyone willing to be intentional with their money.

Your journey doesn’t start with a million-dollar decision, but with the first dollar you intentionally save. Start by calculating your own FIRE number today, and share one small change you’ll make this week in the comments below.