Monthly Archives: November 2016

Living On One Income

Conventional wisdom says save 10% of your income and you are all set. We all know this is bogus. The only thing that will be set is your working career lasting 40 plus years. The two obvious ways to increase the amount of money you are saving is to increase your income and decrease your spending. There is an interesting life event many people go through where both of these scenarios can happen at once, and it is when a couple moves in together.

As I am in my late twenties and everyone around me is getting married or moving in with their spouse, so I have seen the common scenario. Spouse A pays $900 per month for rent and spouse B pays $900 per month, so when they move in together they get a nicer place in a better location for $1,800 per month. For most people housing is the budget category they spend the most on per month, and they miss an opportune time to decrease it. We all know what this is, it is lifestyle inflation. Couples see their income double when they move in together and start spending more right away.

I have another idea about what should happen when a couple moves in together. Try living on one income. You heard me. Pretend as if you only had one income and try to spend according to that one income. I know this can be a hard task, but hear me out as the benefits are tremendous.

Crush financial goals. In essence, living on one income is saving half of your income (if both spouses earn the same). The extra cash flow left over at the end of the month can pay down student loans, save up for a house down payment, speed up investment goals, etc. Saving half of your income means you can possibly retire in 17 years if you invest it. That is less than half the time of a conventional working career.

Remove money stress. If you’re living on one income and one person gets laid off, what happens? Your savings will go down but you will still be able to meet all of your financial obligations. You might not be paying off debt or investing in your brokerage account with the same vigor, but rent will be paid every month. You will be able to pay for groceries. No debt will be wracked up while the second spouse finds a new job. This also makes it much easier when making the decision if you want to start a family and have one spouse stay at home. Is one spouse really burnt out and needs to take a sabbatical? That’s okay since six months off won’t break the bank. Does one spouse have a passion that does not yield much of an income? It actually is now possible for one spouse to go down that path.

Take risk. If you are living on one income, you can go a period of time without the second income. Does one spouse have a great idea and the entrepreneurial itch? Instead of having to raise money from others to start your venture, maybe you can bootstrap it yourself since your spouse is able to pay all the bills. Starting that business no longer has extreme consequences if it does not work out. We know entrepreneurship is one great way to possibly earn an upper class income and it is much easier to take that risk to potentially earn that great reward if you can live on the other spouses income.

I know this isn’t possible for everyone, but I believe it is something to shoot for at a minimum. If you want to take it even one step further, try living off the income of the spouse who earns less. This will boost your savings rate above 50% and help you crush your financial goals in short order. Financial independence will now be a very achievable goal.

Could you and your spouse live on one income? If so, do you?

Don’t Leave Them Hanging

Don’t leave them hanging. Specifically don’t leave your spouse hanging financially. Recently my girlfriend introduced me to someone who recently widowed. She is in her late 60’s and is now trying to figure out life without her partner. I’m sure it is a scary time as I have lost aunts and grandparents and I know their spouses go through a lot trying to cope with their new life, which I am sure can feel lonely. What makes this situation even harder is being thrown into something you have never had to worry about in your entire life, money.

From what I have seen it is pretty common in a relationship where one spouse may fulfill a certain role and the other spouse may fulfill a different role. Maybe one spouse cooks and the other does the dishes and laundry. Maybe one spouse earns an income and the other stays home to raise a family. Maybe one spouse takes care of the home, while the other handles the money. Now this is where a big problem may lie.

Say your spouse has done the laundry for the last 35 years and you don’t know how to wash your dirty underwear. I am sure your kids or relatives or YouTube could teach you how to run a washing machine and clothes dryer in about five minutes. Don’t know how to cook? I’m sure those same friends and relatives could teach you how to bake some chicken or use a slow cooker one weekend so that you don’t starve. All the years of not washing your own clothes or cooking your own food can be remedied, quite easily I might add. The issue lies if your spouse has “taken care of” the household finances your entire life and never involved you in that process. This can leave scars that are very hard to remedy.

Back to the woman I met. Her husband took care of the money throughout their marriage. Now she is left alone trying to learn how to pay her bills, where the money is, where the debt is, and what to do with their little nest egg they have left. Why? “Because he always handled the money and I maintained the house.” People who do this might think they are helping their spouse by not letting them worry about the household’s finances, but what they are really doing is hurting them. When the person who handles the finances passes away, suddenly loans against life insurance policies make their appearance, credit card collectors start calling asking for their payment, and you are stuck mourning your loss while wondering if you need to sell the house to be able to meet your living expenses.

This is a wake up call to those who think they are helping their spouses or even children by saying “don’t worry about the money, I’ve got it.” What you are really doing is making their time without you that much harder. It might be easy to learn how to mow the lawn or vacuum, but leaving a spouse to scrape together an income in their 60’s to survive is not how it should be done. Invite them to a monthly money talk and make it fun with booze, snacks, and maybe some Frank Sinatra. Make it a team effort. Involve them from the beginning of the relationship, even if it isn’t “their thing.” This will be something that stays with them long after you are gone.

Do you and your spouse handle money as a team? If not, why not?