“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: