I look back at our financial journey now and it’s clear the one thing we did that totally changed our financial future was to try out living on one income before we had to. It’s such a simple idea, yet it completely transformed our finances and has allowed us to live the life of our dreams (on a very average income).
The idea came to me when we were on our annual two-week holiday in Fiji. Crazy ideas often occur on tropical islands, I’m pretty sure that’s a scientific fact.
In the taxi to the airport at the end of our holiday, we were feeling a little glum. I said something like, “I don’t want to go home. Let’s just quit our jobs and go travelling”. Now, I only kinda meant it. But my husband said yes, even though he had no idea how we could afford it. (Side note: My husband has a way of validating my crazy ideas. He almost always agrees with my plans, and sometimes he says nice things like ‘being married to you is such an adventure’. )
Never one to let the lack of money get in the way of a good idea, I quickly started to brainstorm ways we could afford to travel. We both earned OK incomes, and perhaps more importantly, we lived in a shared apartment with another couple which meant our weekly rent was about 10% of our combined income. We had no consumer debt but we did have rental property mortgages and my student loan payments to consider.
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From some rough scribbles (I’m such a pen and paper gal) I figured that we would be able to save 50% of our income if we were prepared to live frugally and make some sacrifices.
How we started living on one income (when we actually had two).
1. Write down your combined expenses
The first step was working out our actual cost of living. I completely ignored what we earnt and focused on what we needed to spend to stay alive. That included rent, food, insurance, medical, clothes, transport. With our very low rent, we had a surprisingly low essential cost of living. It was a complete eye-opener for me, as I realised then we’d been spending most of our money on nice things like eating out most nights, drinking at the pub (a lot) and going on holiday whenever we felt like it.
Related post: The Opposite of Living Beyond Your Means
2. Give yourself an ‘allowance’ for fun money
Once the essentials were covered I set aside an amount for each of us to blow each week. It started off at $170/wk each (that sounds crazy to me now) and we eventually got it down to $100/wk each. I know that’s a lot of money but we were young professionals we liked to spend a lot on our social lives. So at the time, it was tough to reign in our spending to under $170/wk.
3. Open a joint bank account and have both incomes transferred in
Both of our incomes went into one joint bank account. This was a simple online saver.
4. Establish an automated transfer of one income to a savings account
I set up an automated transfer out of the holding account each payday into a high-interest online saver. As I was on a salary, my income did not fluctuate so I allocated my entire paycheck to the savings account
5. Set up an automated transfer of joint living costs to an everyday/checking account
From the holding account, all joint living costs and expenses were paid. Plus our weekly allowance was transferred into there. We each kept our own personal cheque accounts to access our ‘blow’ money.
6. Micromanage your money for extra savings
This was my favourite part of each week (I know how sad that sounds). As Dave was paid each Friday I would get up early to log on to internet banking before work. If he’d worked overtime the week previous we’d have extra cash to allocate towards our savings goal. I kept a spreadsheet with percentages and would text him things like ‘today we are 2% closer to our goal – YAY!!!!!’. Poor Dave stuck with a money nerd like me.
If we were able to spend less on groceries than we’d budgeted, or we had quiet weekend we’d have more to go into savings. I cannot tell you how many times I transferred micro-savings of $1.26 or $3.34 into our high-interest online saver. It probably wasn’t healthy but I totally nerded out about that.
7. Invite as much extra cash in as you can
One of the largest benefits of living on one income is that any extra cash can be saved. So even though I’d earn more in my day job, little extras like taking paid online surveys, market research and using coupons and cash back sites whenever possible actually went a long way. Anything made from those little extras went straight to the savings fund.
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If you’ve never saved money before you are in for a treat. Have you heard that saying ‘Money attracts money’? Well, it’s totally true. Once we had a few thousand in our savings account money just seemed to accumulate itself. At the time we were earning around 4.5% interest which helped greatly, but it was something else. We’d changed. Our whole perspective on money had shifted. We now knew how powerful our combined incomes were and with a little planning and sacrific, we could do whatever we wanted. Most importantly, we were shooting for the same goal – it was a joint effort and we were equal players. I don’t think we could have done it if one partner wasn’t highly motivated.
In May 2011 we boarded a flight from Auckland to Santiago de Chile. From there we worked our way up the continent to Bogotá, Colombia. We had a daily budget of $60USD to cover food and accommodation, and we managed to stick to it. We splurged a little on an eco-lodge in the Amazon rainforest and to stay in slightly nicer hotels when we were feeling burnt out. But that was just the beginning of our trip, after that we met my husband’s parents in Los Angeles and enjoyed the City of Angels and Las Vegas with them before flying to the Cook Islands where we had a little wedding in the garden of our bungalow.
In total, we spent less than $9000USD for 4 months in South America, the US and for our super-cheap wedding in the Cook Islands. 3 months later I threw up in the waste-paper basket of my new temp job and realised I was pregnant. Thankfully, we had our money mindset all sorted so my first thought wasn’t ‘how are we going to afford to have a baby?’.
(It was ‘Can you travel with babies? No seriously, before I even told Dave that I thought I was pregnant I went to the library to research travelling with babies. If you’re interested, you can read more about that here and here)
My tips for living on one income (so you can save the other)
1. Start living on one income before you actually have to
We started ‘living’ on one income when had 2 incomes. It meant we could mess up and fail and make adjustments. Now we truly only have one income as I’m a stay at home mum but we are totally fine, we know how to live like this because we’ve been doing it for over six years.
2. Set a budget that gives you some wiggle room, you can tighten it later
Be kind to yourself when you are making major life changes. Give yourself an allowance to blow whichever way you like. And budget more than you think you’ll need, you can always tighten it up later when you’re in the groove of living on one income.
3. Have big audacious goals to keep you motivated
Whether you want to be a stay at home parent, buy your own home or travel the world with your kids, your goal has to be big. Little goals are easy to disregard, but having an audacious goal and letting everyone know about it will help keep you motivated.
4. Be prepared to change your lifestyle
Nothing changes if nothing changes. If you want to live a big, full life and do all the things, you need to make sacrifices. You might downsize your house, move to a cheaper suburb or take on an extra job. You might sell your car and start cycling everywhere. Keep your goal top of mind and it’ll all be worth it in the end.
All our travel was amazing, and we have more planned. But it’s the everyday living that is made easier by living on one income. It’s the one reason I’m able to stay home with my boys and write this blog, taking freelance writing jobs as they suit. There is no pressure on me to earn money (although I’m super-ambitious so I have big plans for the near future) which is a lovely way to live when you have young children. For us, living on one income skyrocketed our savings account, taught us how to live within our means and on a budget and gave us the ability to appreciate the simple life.
It’s my number-one tip for couples with two incomes – if you can do it (and I realise many can’t), live on one income and save the other. I promise you won’t regret it.