Could your family live off one income?
Although the idea of living off one income seems like a luxury in this day and age - it was not too long ago where a dual income family was the exception rather than the norm. According to Stanford University, the proportion of dual earner married couples more than doubled between 1960 and 2000, increasing from 25 percent to 60 percent.
One of the main reasons we were able to fast track paying off our mortgage early (in just over 7 years) was by living off one income and using the other to make extra re-payments.
We came across this ‘strategy’ by accident
My husband was quite stressed out about our mortgage given that the company he worked for went through a few restructures after the purchase of our home. After being shocked at how much interest we were paying on our home loan after the first year of home ownership we started researching ways that we could pay off our home loan early. In my mind ‘paying it off early’ still meant 15-20 years, however we were surprised to see quite a few people had paid off their homes in much shorter time periods such as within 5-10 years. However, we knew that even if we did take steps towards paying off our mortgage early, this was not something that was going to happen overnight. I really wanted to put in place some practical solutions to lessen his stress prior to our home being paid off and felt like being able to live off one income would substantially reduce our risk of not being able to meet our payments.
We did some numbers as to whether we could live off one income
Whilst we were not able to live off one income at the start of our financial journey, what we did do was make mini goals towards being able to do this as our incomes grew and we were more intentional with where our money went. Eventually we were able pretend to live as if one of us had lost our jobs or if one of us had decided to stay at home with kids (if we were to have any in the future). We then directed this income mostly towards our goal of paying off the home asap.
The mini goals that we achieved looked like this:
being able to pay for mortgage, utilities and basic groceries with the higher income
being able to pay all fixed/essential expenses with the higher income
being able to pay all fixed and variable expenses with the higher income
being able to pay all fixed/essential expenses with the lower income
being able to pay all fixed and variable expenses with the lower income
Having mini goals made us more motivated to see what we could ‘trim’ in our budget and increase our incomes so that we could ‘level up’. For example if we could see we were just $400 off from our next mini goal ‘level’, it gave us a much stronger reason to try and save or earn the $400 difference per month.
Because I am all about a holistic approach to money and balancing living a life that you love now whilst also saving and planning for your future - we did also use our other income towards fun things like holidays and renovations - not purely paying off the mortgage every month. By allocating one income to towards our goals each month, it made each trade off very clear. If a holiday cost $8000 and the income being used towards our goals was $4000, then the trade off would be that we would be mortgage free 2 months later. We could then ask ourselves whether the trade off was worth it or not. For us personally we probably could have paid off our mortgage in 6 years if we ‘hustled’ and didn’t take any holidays, didn’t do any renovations and were stricter on our monthly budget. However in the scheme of things a year’s difference was not worth it so we did decide to take a few overseas trips and do a few home upgrades during our mortgage free journey.
Structuring our finances this way also obviously meant that we knew whether we could actually live off one income in practice without having to adjust our lifestyles too much - not just in theory on a spreadsheet.
For those who are not interested in paying off their mortgage early
Practicing living off one income is also a great way to achieve other life goals that you may have, such as planning for children or retiring early. You could use the second income to save up for maternity leave and large one off costs associated with having a baby, and also to see whether one parent staying at home full time if you wished would be a viable option.
You can obviously also use the extra income to go towards different life goals such as investing aggressively for early retirement, saving up for a first home deposit, saving up to start your own business or taking a year off work to travel.
Want to learn more about the other habits and practices that I personally used to go from living paycheck to paycheck to mortgage free in 7 years? Download my free financial wellness guide here.
Disclaimer: A friendly reminder that as always all of my posts are not financial advice and is for entertainment and educational purposes only.
Photo by Erol Ahmed