Are you part of a double income couple? If you are then one of the easiest ways to create a budget is to live on one person’s income and save all of the other person’s.
Let us being by saying you and your spouse are both working outside of the home. One of you earns $40,000 per year, and the other earns $60,000 per year. At this point, you are used to living on both of your incomes. To turbo-charge your finances, consider something completely new and financially innovative. .
Take the First Step
As your first goal, both of you should aim to live on the higher of the two incomes rather than living on $100,000 a year combined, Try to live on $60,000 a year. If you can achieve it then you have just enhanced your savings rate to a great extent . You’re now saving $40,000 annually before taxes.
Take It a Step Further
If you truly want to become even more ambitious, then try and live on the lower of the two incomes. After you are accustomed to live on $60,000 a year, try to start to save the higher of the two incomes and living on the smaller of the two. This effective practice will quickly gallop your savings . .
How to Maximize Your Savings
What you should do with the savings ? There are a plethora of financially viable options:
Accelerate Your Mortgage Pay Down
Often couples have completely paid off their entire mortgage in as little as three to five years by living on one spouse’s income and using all the other earnings to pay off the mortgage.
Create a Strong Emergency Fund
Keep aside three to nine months of all living expenses. Also create a special sub-savings accounts earmarked for future home and car repairs, health co-pays and deductibles, and family vacations.
Make a Car Payment to Yourself
You should put aside adequate funds to enable buying of your next car in cash.Max Out All of Your Retirement Accounts
It is probably the easiest way to get on course to the path of secured retirement. If your employer offers matching contributions, make sure you take full advantage of it. If you’re age 50 or older, you should make "catch-up" contributions.
Max Out Your Child’s College Savings Fund
A child born today will need at least $200,000 to attend college in 18 years time.Save for a Big Leap
You should keep adequate savings to enable you start your own business, take some major career or entrepreneurial risk, or retire as early as age 35 or 40.
How to Start Living on One Income
How can you get down to saving one person’s income? Start by closely monitoring your budget. Budgeting worksheets will give a clear idea at exactly how much you are saving or spending.
Figure out how to cut down your costs in every single category. You should start with the categories that will give you the biggest wins. Can you cut your mortgage in half — maybe by rightsizing into a smaller home? You may minimize driving by living in a more pedestrian-friendly location and cut back on your gas money?
Cutting the expenses in these big-ticket categories will bring about the best impact, but don’t forget about the smaller categories as well. Giving up chips, soda, and other unhealthy foods can help cut your grocery bills substantially.
Lowering your thermostat while making it energy-efficient updates to your home can lower your utilities. Also taking in a renter or a roommate for your guest bedroom will quickly give you around $500 a month (or more) boost in your savings rate. (That’s $6,000 a year!). Wow!
To live on a single person’s income and saving the rest is probably one of the best ways to really ramp up your savings and live a more financially secured and peaceful life .
The Balance does not provide tax, investment, or financial services and advice. The information is being presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk, including the possible loss of principal.
