Yes, living on half your income will let you keep more money in the bank – since you’re saving half your income (and that’s a good thing). But…
- Is it even possible?
- Will it be comfortable (or even fun)?
Let’s look at these questions and how you can change the math so that it’s easier to live on half your income, in a way that you can THRIVE, and not just survive.
Is It Even Possible? Will It Be Comfortable?
First off – yes, it’s totally possible. There are countless stories about people all over the US that have lived off half their income. In fact, we’ve lived off about half of our income in our household this year. It’s very possible. But, we changed the math, because part two of that question is tougher.
Is it comfortable – not always. When you read stories about people who are living off half their income, it sounds like they are just trading time for money in a not-so-comfortable way:
- Finding and Researching Sales
- Clipping Coupons
- Never Eating Out
- Not Socializing With Friends
- Thrift Store Shopping and Hand-Me-Downs
But don’t think about it this way. That’s where you have to change the math. Instead, focus on the basics – how much you need and how much you can really save. For example, if your living expenses are $3,000 per month, you need to save $3,000 per month. That’s very doable. That means that a family takes home $72,000 per year, or probably grosses around $100,000 per year.
Here are two approaches to consider to get to that $3,000 per month number.
Approach #1 – Maximizing Your Savings
Yesterday we talked about 6 income streams that you need to setup in your twenties. These income streams all stemmed from maximizing your savings. But how does maximizing your savings help with living on half you income? Let me show you what I mean.
First, are you taking advantage of every opportunity to save? For example, are you maximizing your employer match on a 401k? The average employer 401k plan matches $1 per $1 up to 4.1% of an employee’s pay. That’s free money. That’s money that goes towards your income.
Let’s see how the math plays out:
- Husband: $50,000 per year salary
- Wife: $50,000 per year salary
The goal is to save $3,000 per month.
If you and your wife each get a 4.1% match, you have to contribute 4.1%. That means you contribute $2,050, and your employer matches $2,050. If you both do that, that’s $8,200 per year, or $683 per month. That’s a huge chunk of it, and you only really give in half of it.
Now you’re down to just needing to save $2,317 per month.
How Else Can You Maximize Your Savings?
Here’s some other ones that apply to most people. First, how do you pay for your expenses? Have you considered using a rewards credit card?
If you look at a rewards credit card like the Barclaycard Rewards MasterCard, you can get 2 points for every dollar you spend on gas, groceries, and utilities. Everything else gets you 1 point per $1. But the great thing is that you can redeem the points dollar for dollar for cash back rewards. So, if you spend $3,000 per month, including utilities, gas, and groceries, you could be getting upwards of $50 per month back.
Now you’re down to $2,267.
Did you go to a 4 year college and have student loans that you’re paying interest on? You should look to see if your employer offers any type of education reimbursement plans. You could earn up to $5,250 per year simply to pay off your education expenses. That’s $437.50 per month. Now you’re down to $1,829.50.
I think that $1,830 is reasonable to save each month, without having to live uncomfortably.
Approach #2 – Earning More to Save
At the same time, many people neglect the fact that they can earn more. We’ve discussed the truth about earning more money, but it simply comes down to time. But isn’t that what you’re doing if you’re spending time clipping coupons, or searching ads for sales? Instead of living uncomfortably, why don’t you spend that same time focusing on earning more?
How much time do you think coupon clippers spend looking for deals everyday? Maybe 1 hour per day? Less, maybe 30 minutes per day? Even at 30 minutes per day, this attempt at frugality is costing you 14 hours per month. Even if you only made $10 per hour, simply working that extra 14 hours would give you an extra $140 per month. If you side hustle, you could increase that a lot – in our Truth About Earning More Money, we highlighted how you could boost that to $30 per hour, or $420 extra dollars per month.
If you combine both Approach #1 and Approach #2, you would lower the actual amount you need to save each month down to $1,410 per month, or $16,920 per year. If you look at the take home income we talked about originally – $72,000 per year, or $6,000 per month, you’re actually now having to just save 23.5% of your income to get the equivalent of 50% of your income saved.
That is the power of changing the math and finding free money and boosting your side income. It becomes easier to save. It becomes easier to invest.
Now, what’s holding you back from earning more money and getting started investing?
Robert Farrington is America’s Millennial Money Expert® and America’s Student Loan Debt Expert™, and the founder of The College Investor, a personal finance site dedicated to helping millennials escape student loan debt to start investing and building wealth for the future. You can learn more about him here and here.
He regularly writes about investing, student loan debt, and general personal finance topics geared towards anyone wanting to earn more, get out of debt, and start building wealth for the future.
He has been quoted in major publications including the New York Times, Washington Post, Fox, ABC, NBC, and more. He is also a regular contributor to Forbes.