My husband and I have always toyed with the idea of living off of fifty percent of our incomes— not necessarily because one of us wants to quit our job right now, (ummm…that’s really not true…so let me stop LOL) but because we are serious about wealth and understand that our daily decisions impact our ultimate financial outcomes.
Even though we live pretty simple lives, I never sat down to figure out what it would take for us to actually stash away two full paychecks each month. Now that it’s a top priority for us, here are some of the facts and data that we have to get straight before we getting to saving one income. If you are thinking about doing the same, follow these steps to get your numbers organized and your financial plan focused.
Sidebar: Even if you are single, these steps are helpful for you if you trying to save 50% of your income– so keep reading. 🙂
- Figure out how much income you both bring in. Have you sat down to figure out how much each partner brings in to the penny? Take an afternoon to pull out your respective paychecks and get those numbers down. If you have other sources of income (that have been agreed to be a part of the communal pot), then add those as well.
- Create an accurate budget. When it comes to creating budgets, there is a tendency to underestimate how much is actually spent and where money is spent. In order to create a real picture of what’s going on with your family’s finances, you will have to take and keep accurate records of spending and savings. You can use online tools like Mint.com to track.
- Determine what percentage of your household budget is saved and what percentage is spent. This is a VERY important step. If your combined monthly income is $10,000 and your household expenses use $7,000, then you spend 70% of your income and only save 30% of your income. This will give you a baseline to see how far off the 50% mark your family finances are. If you are lucky and your expenses are less than 50% of your budget, then you set a goal for another percentage like 55% or 60%.
- Code your budget. If you find that you are spending much more than 50% of your double income, then you will need to disaggregate your budget data some more. Take two highlighters. Use one highlighter to code all of the fixed expenses like rent, insurance, or car payments. Use the other highlighter to identify all of the variable expenses like vacations, personal care, entertainment, groceries, and utilities.
- Try to eliminate highest cost variable expenses. If you are looking to save 50% of your family’s income, then you make want to either reduce or completely eliminate the variable costs (expenses that vary from month to month) that add no value to your family’s quality of life or wealth quotient. If you find value in all of the variable costs, consider cutting down on all of them in order to reach your 50% savings goal. This may mean having one less family vacation, going from two cars to one car, cutting the cable, and going vegetarian twice a week.
- Find additional income. If you just can’t find any extra money in your budget to cut costs in order to meet your 50% goal, then you will have to increase your income. That’s the only other way to make your money stretch— that’s to make more of it. Consider working overtime, starting your side hustle, investing, or property ownership.
Frugal Feministas- Have you run your family’s numbers? Have you considered living on one income? What has been your process?
Saving your money and budgeting correctly are two of the foundational tasks needed to take control of your finances. If you need additional support, I invite you to check out my budgeting course and my savings course.