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Five Ways Living on One Paycheck Provides Flexibility for Your Family

Chopping wood
Chopping the budget isn’t the only way to get there.

“Too long a sacrifice can make a stone of the heart. O when may it suffice?”
–William Butler Yeats

One of the quickest paths to financial independence is to have a two paycheck family but only live on one of them. Thomas Stanley, the author of The Millionaire Next Door (#aff) outlines stories of families who do just this. One of my favorite blog authors, Paula Pant, lives exactly this way, and, by the way, she worked from Paris this summer. Of course, if one of you makes $100,000 per year and the other makes $1, then living on the $100,000 paycheck won’t help much. But, assuming that wages are roughly equal, then this is a good prescription to live on.

It’s a formula that my wife and I have lived on for years. When I worked at Capital One, we pretty much put everything we could into paying off the student loans I had from law and business school, but we made sure that our actual living expenses were under what she made. When I started my last company, once I actually got paid, we used my paycheck to knock out our mortgage and then for investing.

Once I sold a significant portion of my share in the company, we achieved financial independence. My wife really enjoys what she does and loves the company she works for, so she had no desire to change things. I, being the entrepreneur at heart, wanted to start the work I’d been planning on and thinking about doing for nearly two decades, which is why you’re reading this article.

Since virtually no company starts with revenues from day one, we were prepared for another period where I’d bring in no income. We also had no desire to tap into our accumulated assets for a while yet, so we needed to make sure that we continued to maintain a standard of living that ensured we could live just on her paycheck while I worked on building up my financial planning practice. Through years of practice of doing just that, we went through no change whatsoever when the golden handcuffs from my buyout deal ended and I started Hull Financial Planning. I can assure you that there were no revenues on day 1!

Were we dependent on both incomes for our living expenses and had we allowed our lifestyle to expand along with our incomes, we would have never had the flexibility to allow me to take a crack at entrepreneurship. We also would not have had the flexibility to allow me to get bought out, because we would have been dependent on my income as well, and I would have needed to find a job immediately after the buyout.

Having that flexibility was and is very important to us as we pursue our priorities in life. Here are some other ways in which living on one paycheck in a dual income family creates flexibility for you:

  • If one partner has the entrepreneurial urge, then there is flexibility to pursue it. Had we needed a second paycheck to support our lifestyle, then I’d have never started my last company. As it was, my wife, I’m sure, was pretty close to the end of her rope of supporting me before we started bringing in enough income to allow me to take a paycheck. If you can reasonably live on one paycheck, it does buy you (so to speak) time to take a crack at starting up a small business. If you have a plan for how you’re going to catch up on the other goals you’ve set for yourself if the business doesn’t succeed, then it’s OK to delay saving for six, twelve, or even eighteen months while you take a crack. Just make sure that you have clear milestones and know when to concede defeat if you need to so that you can get back onto your original plan.
  • It allows you to have a stay-at-home parent. I have several clients who either would like to or have made the decision to have one parent be a full time stay-at-home parent because they planned appropriately and their living expenses are sufficiently covered by the working parent. This isn’t to say that you should make the leap if you can live hand-to-mouth and barely get by on one income. There needs to be room in there for liquidity in case of a job loss as well as, if you plan on saving for your child’s education, doing that as well.
  • It allows you to search for a “dream job.” I know people who have stayed in jobs that they were miserable at, going to work day after day in dread, but needing (or, rather, perceiving that they needed) the paycheck to keep up with their lifestyles. They traded lifestyle inflation, which, arguably, came at decreasing happiness for each increase in lifestyle, for unhappiness 22% of their lives – the time that most people spend at work. If they can stand to have a decrease in income for a while during the time that the unhappy spouse finds a better career fit, then they’ll have the flexibility to pursue those opportunities without needing to look at benefits and compensation first.
  • It sets good habits for retirement. Many people, because they’ve expanded their lifestyles to fit their paychecks every time they got a raise, find that retirement is a time of sacrifice and cutting back. They don’t have the huge paychecks anymore, and since they were too busy spending it and throwing bananas in Monkey Brain’s cage, they didn’t save nearly as much as they could or should have in retirement. Social Security, they discover, is meant to be a safety net in retirement, but not much more. As a result, they don’t want to go back to work, but now they’re experiencing a systematic shock as they have to significantly dial back their lifestyles. Prospect theory abounds, as they view this as a loss, and losses are much more painful than their equivalent gains in our lives. Retirement is miserable, at least for a while, until they can adapt to the new, slimmer lifestyle. If you never get on this course, then retirement is simply an addition of free time to pursue your interests.
  • You can probably retire earlier. I already evaluated how powerful increased savings rates are. If you’re saving 50% of your income, then you’ll get to financial independence much more quickly. Some people, like Mr. Money Moustache and Jacob from Early Retirement Extreme got there in 10 years. Your results may vary, but saving 50% of your income certainly won’t hurt you.

Not many people or families can actually get to the point where they can live off of 50% of what they make, but if they can get to that point, it opens up a world of possibilities. Having no debt and a significant income-to-expenses buffer has created significant flexibility in our lives, which also turned out to be significant opportunities for us to accelerate our goals.

Can you live on one income? What would it take for you to get there? What would living on only 50% of what you make mean for you and your family? Let’s talk about it in the comments below!

By Jason Hull, CFP®

6 replies on “Five Ways Living on One Paycheck Provides Flexibility for Your Family”

We are taking the same approach that you are, though my wife’s income (via a stipend through her PhD program) is coming to an end soon. It allowed us to pay off our home early (every penny from the stipend went right to the principle).

I think segmentation of income is a way to use the monkey brain stuff you write about to your advantage. Just like how expense accounts are all in the same spending bucket, somehow having different buckets of income directed at savings works to our advantage even though it’s technically all just in the “income” category.

Congratulations on paying off the house! Wasn’t that an amazing feeling? I imagine that marathon runners feel the same way: “Did I really just finish? Wow.”

You do point out a way that we can use mental accounting in our favor when it comes to retirement planning. The simplest key to keeping Monkey Brain in his cage when it comes to squirreling money away is to hide the money from him in the first place. Monkey Brain no see, Monkey Brain no spend.

I’m a HUGE fan of the live-on-one-income, invest-the-other method of personal finance. This is the single biggest reason why Will and I are in the great financial situation that we’re in today: we’ve completely adjusted to an “imagined reality” in which only one of us is a breadwinner. We live according to that “reality,” and save 100 percent of the money that comes from the other person. It rocks.

If you never hop on the hedonic treadmill, you can retire SO MUCH EARLIER! Your savings rate is much more of an influencer of retirement success than rate of return on your investments. I was recently at a 401k conference, and one of the presenters noted that his funds could consistently achieve top of class returns, but if the 401k plan participant saved 1% per year, they’d have a future of sad trombones.

Occasionally, I get dragged up to the line of temptation.

Monkey Brain: “WE HAVE ENOUGH MONEY TO BUY [FILL IN THE BLANK]”

Me: “But do we really want this? Will it make us happy?”

Monkey Brain: [THROWING BANANAS AND SQUEALING]

I don’t think the temptation to live beyond one paycheck ever leaves, but focusing on the rewards (travel, independence, charity, paying for kids’ college, etc.) will keep us from giving in to it.

This is a great way of financial planning. My wife and I are basically at this point now and she’s considering going part-time to spend more time with the kids. It’s a great feeling to know that we’ve setup our lifestyle to make this a potential choice.

Hey, Derek – thanks for commenting!

Going part time is one of the options that I didn’t mention in the article, so I’m glad that you brought it up.

I lived right down I-64 from you in Charlottesville until last year.

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