Living on less is the key to making your money stretch further. Most financial gurus will tell you to live on a portion of your income, and bank extra income or raises. It sounds simple, but it takes some work especially if you’re accustomed to living paycheck to paycheck. Here’s are some ways you can make living on one income work.
1. Figure out your goals.
Know what you are working towards.
Is it early retirement?
Buying your first home?
Saving up money for a round the world trip?
This will determine both your passion for living on less, and help you stay focused when temptation strikes. For couples, you need to work jointly to figure out what your goals are separately (like that all-inclusive beach vacation you’ve always dreamed of instead of your husband’s dream golf trip and together.
2. Know your expenses, and slash them.
Make a list of all your expenses for a year. This will include monthly bills, quarterly bills, and less occasional expenses like yearly eyeglasses. Focus on the big picture (cutting cable could save you $1,000/year), as well as small wins like getting your laundry detergent for free by stacking sales and coupons.
If you’re a couple making dual incomes you should trim expenses so that one income can easily handle the monthly bills. This will allow you to save more, and prepare better for unexpected job loss or transitions in your career.
If you’re single try to scale back to 50% of your take home pay. This will allow plenty of extra for saving, having fun, and any emergency expenses.
3. Pay attention to credit scores and your credit report.
Especially in a marriage or relationship where one person works and the other doesn’t. You need to have credit in both of your names, and mind your scores. Learn more about credit reports and credit scores here.
4. Set up an allowance.
Set up an allowance so you can spend without worrying about your larger goals. Having some fun money is a great way to keep on track without feeling like you can’t splurge on a cool iPhone app or eating lunch with a friend.
For couples it’s a great way to have some freedom to spend without criticism about another pair of shoes or yet another video game.
5. Set a threshold for a hold period.
Purchases over a certain limit should have a hold period of 24-48 hours. You may have spent months looking for the best deal on a new TV for instance, but take 24 hours to decide before you buy. Most people won’t return items once they purchase, so instead ask the store to hold the item, and think it over.
For couples this gives you time to discuss the pros and cons, and consider how else that money may be spent. For single folks, talk to a frugal friend or family member.
6. Protect yourself from lifestyle inflation.
The biggest factor in slow growth of wealth is resisting lifestyle inflation. Most millionaires live fairly modest lives.
For instance, instead of upgrading to a new car when you get a big raise, splurge more sensibly on car detailing, or a new paint job.
It can be tougher in social situations, so strategize a bit. Can’t go out to dinner a fancy 5 star restaurant? Instead offer to have friends and family over the following weekend for a potluck meal or movie night at home. There are literally hundreds of activities and options to have fun without breaking the bank.
As much as it stinks not to be able to spend big in the short-term your older self would come back in time and thank you if they could.
7. Consider alternatives whenever possible.
Is biking to work an option? Could one person work from home, so you can live closer to the other partner’s job? What about renting out a room? The possibilities here are endless-it just takes some time to think about other possibilities. Don’t lock yourself into making excuses about why you can’t-look for ways you can make small changes that add up.
Do you live on one income or less? How do you make it work?