Some Thoughts on Living on One Income

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In 2012, we invested more than 50% of our net household income. In 2013, according to the numbers I just ran, we’re going to repeat that success.

What that means, in essence, is that Sarah and I (and our children) are living off of one income and banking the other income streams.

Our financial efforts in the five years before this have made this much easier. We paid off all of our debts, including our mortgage, our cars, our student loans, and our credit cards. Along the way, we got used to living below our means as we channeled so much of our income toward debt repayment.

Still, the last two years have taught us several useful lessons when it comes to one’s finances.

It is very much worth it to have money in the bank. Having money in the bank is an incredible stress reliever that echoes through every aspect of your life.

If either Sarah or I were to lose employment, we would be fine for quite a while. If a major accident happened and we had to replace a vehicle, we could easily do it. Appliance failure or furnace failure? We could cover it without breaking a sweat.

This simply reduces the stress of everyday life. A strange noise in the car isn’t cause for panic. Rumors of a layoff in the workplace doesn’t cause stress-filled nights. A washing machine breakdown doesn’t leave us wondering how we’re going to pull this off.

To achieve that sensibility, you have to sacrifice some material pleasures. Again and again, though, I see how having less stress throughout your life is well worth letting go of some of the lesser desires and some of the more unnecessary luxuries.

Allowing lifestyle inflation to occur once your debts are paid off is a mistake. When you finally pay off your debts, you’re going to suddenly have quite a bit more cash in your checking account at the end of the month, particularly if you are using a “snowball” method for paying off your debts (meaning you were throwing a huge monthly amount at that last debt to pay it off quickly).

This is where Sarah and I found ourselves at the end of 2011. All of our debts were completely gone – even our mortgage. Our monthly income blew away our monthly bills. If we wanted certain luxuries in our life, we could have them.

We chose not to indulge. Why? We recognized that our life is pretty enjoyable as-is. Acquiring new things might be fun in the short run, but over the long run, it just establishes a more expensive level of “normal.”

More importantly, we couldn’t really explain what many of the more expensive items we considered would really add to our life. As I explained above, having cash in savings reduces our stress throughout our lives. What does leather seats in a car or a better guitar get us? It’s really hard to articulate how such a purchase is better than the security of money in the bank.

We’ve found that such expensive purchases really only shine in the very short term. It doesn’t take too long for the shine to fall away – and then you’re left with less security than before.

Banking one income in its entirety makes budgeting simpler. We simply budget all of our family’s expenses out of one salary, knowing that the other one is going straight in the bank.

Thus, our functional budget doesn’t really include any savings. It focuses instead on things like food, household supplies, automotive expenses, property taxes, educational expenses, family entertainment, and so on. Since one salary is pretty much going straight in the bank, we don’t worry about it when figuring out where our money goes.

It also pushes us to keep our spending under control, which is one of the real benefits of a budget. A budget convinces you to put caps on various kinds of spending so that you’re not spending too much per month on entertainment, for example. By budgeting with only part of our household income, our expenses in many of these areas are far tighter than they would otherwise be – but, as I mentioned above, we don’t really feel deprived.

Once you get past a certain point, more money really only buys you more stuff, most of which you don’t really need. Living on one income for two years has shown us the truth of that idea.

If you live in a two-income household, once you are free from all debts, I strongly encourage you to consider living off of one income for a while and banking the second one. It builds up your savings ludicrously fast and you find that you’re really not missing out on anything, either.

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