When I decided to leave my full-time job, I was surprised how many of my co-workers who are in two income households felt the same way but weren’t sure how to position themselves financially in order to quit their jobs. When I left my job we lost nearly half of our household income. That seems like a huge drop in income, right? However, I can honestly say our lives have improved dramatically despite having a smaller income. How is that possible? Well, allow me to outline the strategies we use to live well on one income.
For anyone who is completely lost when it comes to money management, I highly recommend reading the Total Money Makeover by Dave Ramsay. It covers some basic, but important financial literacy topics. Ramsay’s book helped me understand that we could live well on one income. Ramsay is also entertaining, and a no-BS author. The book is full of practical advice, but is also fun to read.
This post contains affiliate links. For more information, see my disclosure here.
1. We Created an Emergency Fund and Continue to Save
Despite having a six figure income, we had no savings for the longest time. Before I left my job, we focused hard on saving enough money to survive for six months if, heaven forbid, we were both unemployed. The Total Money Makeover discusses the importance of an emergency fund, but when you have tons of money coming in it’s easy to neglect to save for a rainy day. With an emergency fund, we not only have enough money to survive total unemployment, but we have a fund we can use if we have some large, unexpected expense occurs (such as cancer surgery for our dog, Lego, which was a $3,000 bill that we had to put on a credit card several years ago). Additionally, we continue to add to this savings fund, at a more modest rate each month. When our savings gets a little bloated, we use some of the money to make additional payments on student loans.
2. We Have a Budget and We Stick to It
I don’t think I can stress the importance of a budget enough! Before I was considering leaving my job, we didn’t bother budgeting. Big mistake! If you don’t have a budget, you’ll find yourself wondering where your money went each month, instead of knowing where the money went. Before the budget, we were spending close to $1000 a month on food and drinks. Not even kidding. That is an embarrassing amount for just two people. Neither of us was cooking, and we just threw money around on whatever we wanted. True, we built up our emergency fund and paid off a lot of debt during this time, but our spending in some categories was totally out of control (which tends to happen when you don’t have a plan).
Now, we track our spending each month. Setting limits and staying within your limits financially is important, and it’s a huge factor in how we live well on one income. Before the budget, if I wanted to do a project I would just run down to Home Depot and buy a bunch of stuff with no plan and no concerns about wasting money. Now, when I know I have a budget for a project, I find a way to stick to the budget or I wait another month if I need more money to complete it.
If you are new to budgeting, I wrote a guide on how to get started, complete with a pretty printable!
3. We Bought a Modest House
For most people, the mortgage is the greatest reoccurring monthly cost. When we bought our house, we bought far less house than we could afford. Our mortgage is very low (particularly for the Portland area), which has given us a ton of financial freedom. It also gives me a reason to do fun home improvement projects, because homes built in the early 1900s need a lot of work. 🙂
Would I like a larger, nicer house? Sure! Everyone likes nice things! However, if you buy more home than you need or can afford, you will put yourself at a huge financial disadvantage.
4. We Don’t Finance With Debt
Obviously, there are things we bought on credit, such as our house. We also still have student loans. But we made a huge behavior change in the last couple years and stopped financing new things with debt. We also made a huge push to pay off credit cards and existing debt, such as our car.
These days, we pay for things with cash. If we can’t afford it, we don’t buy it! There is this prevailing attitude in our country that we need to have debt in order to get the things we want. This just isn’t true. You can buy whatever you want with cash. 🙂 If you want to live well on one income you definitely want to avoid more debt.
5. We Continuously Reevaluate our Finances
Every month we sit down and look at our spending. What did we do well on? Where do we need to improve? We also look at what we spent on insurance, cell phones, and our cable provider. These are areas that are often neglected but are ripe for real savings.We know that if we want to live well on one income we need to stay on our toes financially!
For example, before I left my job I put my cell phone on my husband’s plan, which saved us $40/month! That savings adds up. It’s another $40 that can be put toward paying off student loans, or transferred into savings, or invested. Another example is our cable provider, Comcast. We are always paying a “promotional” price rather than a full price, simply because we call them when the promotional price is ending and they are always willing to offer another promotion to keep our business.
Finally, we take most of the excess from our budget and immediately put it toward our student loans. Why? Because paying off student loans is our big financial goal, and every penny counts. It helps to define at least one major financial goal because it gives you a place to send any excess savings at the end of each month, which will keep you on track.
Those are our five major strategies that allowed me to peace out from a 9 to 5 job and embark on a new journey, while still allowing us to live well on one income. As a result, we actually live a fuller, happier life than we did when our income was nearly twice as much. I’d love to hear how other people are saving money and cultivating a happy relationship with their household finances! 🙂