In my 2014 financial summary post, I mentioned that our family of four currently lives off one salary – mine. Since then, I’ve received a number of emails from readers looking for details on how we do it. It’s not only online readers who have questions, when I tell friends/co-workers that my wife is taking the year (or two) off, a pause and blank stare usually follows. I can almost see the cloud above their head thinking…”how the heck are you doing that?”
It’s one thing to have a stay at home spouse when the other spouse is a high income earner, like a medical doctor specialist. But I work in a mid level job for the government (I’m not supposed to talk about salary figures, but less than $100k a year). In addition to that, we have couple of young kids (both under 7), live in a modest but nice house in a quiet suburban neighbourhood, and have two newish cars in the driveway (a 2010 and a 2013). From the outside looking in, considering my job, house, cars and supporting two kids, it doesn’t seem possible. Most families in this society require two incomes to live the same lifestyle.
Having the option of having one parent stay at home with the kids does not happen by accident. It has manifested from years of financial discipline. Now mind you, not all parents would consider staying at home with the kids a luxury. Some would prefer to work – but to each their own.
While we have some “side” income (dividends and online income), we are committed to living off my 9-5 salary only. The dividends are simply reinvested, and online income is kept in the corporate account as savings. So how did we prep our finances to live off one modest income?
How we Prepared our Finances for One Income Family Living
We Paid Off Our Debt
We currently have no debt besides our investment loan that pays for itself (capitalized). In other words, we do not have any debt servicing costs. Mind you, we’ve had plenty of debt in the past. My wife graduated university (in 2002) with $45k in student loans, we then proceeded to finance a brand new car with little down, obtained mortgages for our first house and first rental property.
However, over the past decade we committed to eliminating our debt, and we did so in quick fashion. We paid off our mortgage in three years and became mortgage free in 2010. Some people may find this silly, but we build up our cash reserves and pay cash for our vehicles.
If we still had debt servicing payments, it would cost us at least $2.5k per month which is more than half of our current take home salary. Obviously, with debt, it would have been impossible for us to live on my government salary.
We Built a Backup Fund
While we have a habit of keeping a cash reserve, we would not have pulled the trigger on going to a single income without having a healthy backup or emergency fund. While everyone will have their own level of comfort for emergency funds, we are comfortable with 1.5 times our annual expenses. This does not count investment accounts or accessible revolving debt like a line of credit.
We Practiced Living off One Income Before Pulling the Trigger
A number of years back when we had our first child (2008), my wife decided to work part-time after her year-long maternity leave. After our debt was paid off, to really get aggressive in building our savings, we came up with the idea of living off my salary while saving hers. This worked out relatively well, but there were times where we did need to dip into her income to cover the bills. This gave us a good trial run on how things would go if she were to take an extended leave.
Living off One Income
Now that it’s been several months living on one income, I can honestly say that not a lot has changed in terms of our lifestyle. Since we basically lived off one income before taking the plunge, things just kept flowing as normal. The biggest downside is that we aren’t socking away as much money as we are accustomed. But the intangible benefits of having a stay at home spouse more than makes up for this. It just means I need to work a little harder on my business to make sure our savings rate remains high.
So what else are we doing to ensure that we continue to live on our reduced means?
We Keep our Expenses as Low as Possible
Since reducing our household income, our frugalness has increased further! I will admit that in previous years, I wouldn’t think much about randomly picking up a seemingly useful tool at Costco (everything is a deal at Costco right?!), however now, we follow a fairly tight budget. We’ve also found that some expenses have decreased such as new work clothing, gasoline usage, going out for lunch, and other work related miscellaneous expenses.
Our biggest expense over the years has been groceries. We really like to eat. One trick that we have discovered that helps keep grocery costs as low as possible is to make less trips to the grocery store. Sounds so obvious, but it has really helped us reduce our bill about 20%. Before, we would buy groceries several times a week (smaller purchases), now we are down to a couple trips a week. It also really helps to eat something before grocery shopping.
Here are more tips on saving money.
We Track our Spending
One way that we are keeping expenses in check is by tracking our spending. Since we flow most of our expenses through a cash back credit card, tools like mint.com do a great job grabbing my spending data from my online statements and organizing them into categories. I’m a numbers guy, so it’s not uncommon for me to login to mint on a daily basis to check our budget for the month.
While I use mint.com for organizing credit card expenses, I refrain from connecting it to my bank account. Using your banking password on a third party site may violate your terms of service with your bank. Not only that, I’m simply not comfortable with a third party site having access to my banking information.
We are Focused on the Future
Although our savings rate is a bit lower than usual, I’m still focused on opportunities to increase our income, grow the business (maybe start new ones), and increase our passive dividend income. While we have the benefit of a healthy nest egg, we are still on the quest for financial freedom.
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