I have lived on a very small income for about three years now. What I have found:
The good:
You can spend an amazingly small amount on the basics and be just as happy. Food, entertainment and even housing etc. When you cut out the advertising/consumerist driven rubbish you realise you can be happy spending almost nothing. A beautiful sunset is free.
Making your life simple and cheap is in itself very rewarding. You go from buying coffee to making your own. You start to really appreciate the simple rituals.
When you cut things out of your life because you don't want to spend money on things it really really teaches you about what you like and don't like. You find yourself giving up things you never thought you could live without and not missing them at all. Conversely, you start to realise things that you took for granted and appreciate them in a way that you never did when they were just a part of so much other stuff you had. You get to really understand yourself and your place in the world and appreciate it.
So much time. Just having time to really enjoy and do stuff.
The challenges:
In the process of giving up a materialistic life you may discover a few things that you really love and realise you do not want to give up. Things which cost a reasonable amount of money. You might realise you really enjoy welding, or cycling or something like that. While you can get access to them frugally, you really need some level of money to enjoy them properly.
It can be socially isolating. The friends you grew up with will not really understand and this gets worse as they start having families etc. You really can't just hang out with them when they spend time at restaurants etc.
You often trade time for frugality. Taking public transport everywhere as an example. Not all time spent saving money feels rewarding.
Unexpected and important costs can sneak up on you. I used to love the fact that running costs nothing. It seemed amazing to me that I could enjoy this for nothing. Then I tore my calf muscle and could not really get it sorted for two years. Eventually I got some money and spent $2k getting it fixed up by people who actually knew what they were doing. Even running isn't free.
You can spend down your assets without realising it. You're not spending much on food etc, but your clothes may wear out, your shoes get old, computers phones start aging. If you don't budget for it then you might be spending down this stuff without realising it.
When you get your head around the challenges, and actually understand how much you really need, then its amazing way to feel connected to the world. To really know what you are here to do and what you love. You feel like you're in control of your life.