Hey everyone! Andy here! A fellow Michigander and budding personal finance blogger, Brian Kubacki from Financial Zen has a guest post today. He's discussing how to live on one income. This is something his family is working on so they can achieve their own version of financial independence. Enjoy!
Living off of one income is a goal my wife and I are enacting this year now that she has started a new career. It's all a part of our financial strategy for achieving FIRE.
Unfortunately, my wife and I do not make the exact same salary. While she does make a good living at her new job, I’m the major breadwinner. While we are living on one income, it’s more like living on 2/3 of our income for now.
Don’t get me wrong, two incomes are WAY better than one and it sure beats where we were a couple of years ago. Our goal though is to live on 50% of our combined income within the next 2 years.
The extra money we make now goes to debt repayment and to catch up on our retirement savings.
Until recently, we thought “living below our means” would be near impossible. Oh sure, we heard about all those people who supposedly were living off one income and we were thinking, “Yeah right! They probably make $400K a year. NO WONDER they can live on one income!”
We found out that wasn’t the case. In fact, we found that a lot of people who were able to live off one income were just like us. The big thing that changed for us was our mindset and our approach.
The good news for us was that we were a single-income family for over 15 years. We KNEW we could maintain that. What we had to learn to do was not add on any extra expenses, manage our splurges, and take on an abundance mindset.
Why Live On One Income?
For the longest time, just like a lot of other people, we lived from paycheck to paycheck. Our decision to live on one income was born out of absolute necessity.
Soon after we were married, we found out our son was autistic and really struggling with his new school life. To help him out, we decided it was best if my wife became a full-time mom to take care of and tutor him in order to get him back on track.
At first, it seemed impossible, but as they say, “necessity is the mother of invention.” Boy was it ever! We had to decide what was really important to us. A 4,000-square-foot home? Nope. Luxury vacations at all-inclusive resorts? Not on your life. Retiring before I’m 50? Yeah right! Good one! Lol
What became most important to us was helping our son. Nothing else mattered at that time. To make it happen, we adjusted our spending habits and our lifestyle.
You know what? We must have been trendsetters because other people throughout the country are deciding the same thing. They are deciding that working 80+ hours a week busting their tail to earn a promotion and rise up the corporate ladder for a measly 8% raise just isn’t worth it.
Instead, they want to enjoy their life and their family. Do you know how they are doing it? By adjusting their spending habits.
It’s the magic bullet. It’s not rocket science, it’s discipline. Couples who succeed at saving one salary and living off the other are very disciplined about their spending. This discipline is opening new doors for them.
Want some examples of what living off 1 salary can do for you?
Become a Stay-at-Home Parent
Living on a single income can allow one spouse to handle the childcare duties and be a stay-at-home parent. Money can buy a lot of things but time with your children when their toddlers is not one of them.
Make a Career Change
Want to go back to school and pivot careers? Living on one income can do that for you.
I’m a prime example of that. It allowed my wife to go back to school to pursue her dreams. There was no way we could have done that if we needed both incomes to survive.
Feeling stressed out about money? Holding your breath every time the credit card bill comes in the mail?
If you can learn to live off one income, a lot of your financial stresses will disappear because you will not have that overwhelming feeling of not knowing if you can pay your bills. You’ll know for sure you can weather that storm.
Feel Financially Secure
Is your job unstable or cyclical? Wondering if your company will have job cuts coming soon? I’ve been there.
It’s a scary feeling to wonder if you'll be laid off and knowing you're the family’s only source of income. For those families that rely on both incomes, it’s just as bad.
If you live off of one income, you know you’ll be alright no matter what happens. While it can happen, both spouses being laid off at the same time is rare. A built-in backup plan is a beautiful thing!
Want to start a “2nd act”? Want to retire before the age of 65 but don’t know how? Living on 50% of your household income allows for greater flexibility. You’ll have more money to build up your savings, pay down debt, and achieve other life goals along the way.
As Tom Tresidder stated in his book, “How Much Money Do I Need to Retire?“, the magic formula for calculating how much money is needed to retire is a direct correlation to how much money a person can save.
In other words, the more a person can save, the faster the road to retirement. It’s that simple.
From his book, the years to financial independence for each savings rate if starting out with no money previously accumulated (assuming a 7% investment rate of return) is shown below:
- 10% Savings Rate = 42 years
- 20% Savings Rate = 32 years
- 40% Savings Rate = 21 years
- 50% Savings Rate = 17 years
- 60% Savings Rate = 14 years
- 70% Savings Rate = 10 years
- 80% Savings Rate = 7 years
Ever hear of people who managed to save 50, 60, or even 70% of their income and retire in 10 years or less? I have.
The point is that it can be done, and we are working towards that goalpost as well.
How to Live on One Income: 5 Steps to Make it Possible
The 1st steps in this journey? Find ways to reduce expenses down to 50% of your current combined income. Ultimately, managing expenses and learning to live on less than you make is the foundation to providing more options which will lead to more peace in your life.
Review Your Overall Spending
The first thing you need to do is assess where your money is going, what it is going for, and where you can cut back.
The goal here is to plug as many leaks as possible and figure out the order to attack your debt.
This is a family-type of discussion since everyone needs to be on the same page. The goal here is to raise awareness, enable understanding of family goals, and obtain buy-in from everyone.
If looking for ways to lower your budget, print a list of all your monthly expenses and circle everything you can do without or substitute.
Do you really need that premium cable package? Probably not.
Do you want to keep spending $75 a month on the CrossFit membership that you haven’t used in 6 months? No way.
Here are some other examples:
- Your Food Budget. Eating out a lot? Enjoying steaks and lobster a bit too much? For a lot of people, their food budget could use some refinement, and is something my wife and I are constantly refining.
- Your Cable Bill. One thing we eliminated a few years ago and never looked back on is cable. We use a digital TV antenna and purchase Disney+ so the kids can stream movies online. This alone reduced our cable bill by over 80%. On top of that, my son knows of several ways to find his favorite shows online for free. Worth looking into.
- Auto, Home, and Life Insurance. Odds on you are paying too much for auto and homeowners’ insurance. We did until I recently did an evaluation and right-sized it. Every 2 years or so, my strategy is to reach out to several insurance companies and see if we can lower our premiums.
- Personal and Student Loans. Personal loans, especially student loans, are a great candidate for refinancing. Refinancing allows you to lower your payment and frees up cash for other things. Want to compare a lot of companies to find the best refinancing rate? Try Credible. You can use it for finding the best rates on student loans, personal loans, and even mortgages.
Now that you have assessed where to plug money leaks and figured out the order to pay down your debt what should you do next? Earn more income!
Earn More Income
I know this sounds a bit counterintuitive but hear me out. Most of us tend to live paycheck to paycheck because we have the habit of growing our expenses to match our income. It’s human nature.
After figuring out where your money is going, next you will need to figure out how to generate extra money in the short-term that can be applied to paying down debt and boosting savings.
In other words, you’ll need to put in a little extra effort in the short term to enjoy yourself in the long term.
One great way to make more money is to start a side hustle.
It could be as simple as starting a retail job. Making $15/hour for 20 hours a week allows you to earn an extra $15,000 a year! No fooling!
Don’t want to work retail? That’s ok! How about converting a hobby to a side hustle?
I have a childhood friend who is a sales rep and took up photography as a hobby. After a few years, he became quite good and had several friends ask him to take wedding photos and their kid’s graduation photos.
He built quite a following. My friend quit his sales job and now sells his photos online. He loves his work, is good at it, and can earn a living from it — the hat trick of life!
Check out this list of side hustles parents can do from home.
Pay Off Debt
Now that you are making a few extra bucks and found out how to minimize your expenses, the best way to ensure you can live off one income in a two-income household is to pay off your debt.
If your debt is gone or greatly reduced, it significantly reduces the amount of money needed to pay your everyday bills and live off of each month. Don’t know about you, but that would take a HUGE burden off my shoulders.
High-interest credit card debt or student loans can be a budget breaker and often makes living on one income impractical. Figure out how long it will take to pay down debt while still a two-income household.
Don’t forget to account for all the extra money you are earning as well when figuring out when that magic day will come where you can live off one income!
Here's how Andy and his wife Nicole paid off $50,000 of debt in one year!
Improve Financial Education
If you have leftover money each month and have developed a solid strategy for paying off your debt, don’t forget to leave some leftover cash for investing. Paying down debt is great, but that is only one part of the equation. You also need to grow your savings as well and get on a track to retirement or even FIRE (Financial Independence Retire Early).
Don’t think that it is possible? There are a lot of examples of people who achieved FIRE while living off one income. They used that 2nd income to super-save and achieve financial independence faster.
- Dylin Redling and Allison Tom used frugal living, stock market and real estate investing to retire in their 40's.
- Maggie Tucker and her husband retired in the same year after investing and avoiding lifestyle inflation.
- Julien and Kiersten Saunders said goodbye to their corporate careers by investing in their online business and real estate.
Outside of these inspiring couples, there are a ton of good resources out there to educate yourself on how to do it. Check out these top investing books to help you get started.
Stop Comparing Yourself to Others
Last but not least, stop comparing your financial journey to others. Like working out, each person has their own unique story, personal journey, and specific path to success. Each person has their own strengths and skills.
Just because someone managed to save $5M in 10 years doesn’t mean that you can, and it doesn’t mean that you can’t. It just means that was what THEY were able to accomplish.
It doesn’t limit you or give you a comparison since you are on your own specific journey. The trick is to figure out what that journey means to you and what YOU want to accomplish.
Comparing yourself to others is a trap that promotes failure. If you don’t “measure up” to others’ success, you’ll feel like a failure. The mental hurdle can be hard to overcome once self-doubt starts to creep in.
Just like working out, your financial journey is unique to everyone else. The key thing to keep in mind is that even though others may seem farther ahead than you, they ALL had to start at the same place (or worse) than you are. The only difference is that they are just a little farther ahead on the same journey.
If there is anything to learn from comparing yourself to others, it is to understand what pitfalls they had to overcome and how they overcame those pitfalls. It may give insight into your journey to financial independence.
Final Thoughts on How to Live on One Income
Once you follow these five steps, you’ll have a much better understanding of what your financial picture will look like.
Speaking from experience, the transition to a single income can be both intimidating and liberating at the same time.
Once you’ve made the transition, you’ll be amazed by what is possible with a purpose, a little preparation, and a strategic plan.
Until next time … Live The Life You Love, Want, And Deserve!
Are you figuring out how to live on one income? What are your goals for the future?
Please let us know in the comments below.