Could You Live on Half Your Income?

Suze Orman was on Oprah last week and one of the pieces of advice that she gave for dealing with the recession was to learn how to live on half your income. The reason behind the advice was that if you have a job loss or a reduction in hours you would have to live on a reduced income for a time, so you might as well prepare for it in advance and know whether or not you could get by. Then you can adjust your spending accordingly while you still have a job. Also, by banking half your income, you build a nice pile of cash that can help you survive the bad times. And even if you don’t lose a job, saving half your income is almost necessary in order to build up a retirement nest egg that will see you through your old age.

Predictably, everyone in the audience gasped and shook their heads as if to say, “Lady, you’re crazy. There’s no way I could do that.” Right after the show aired a spirited discussion broke out on one of the financial message boards that I read. The consensus seemed to be that Suze was out of her mind; that since she now has so much money she’s forgotten what it’s like to get by on less. It’s fine, the discussion went, for someone so wealthy to suggest that people cut their incomes in half, but the reality for “regular” people is that it’s impossible. The majority of the discussion participants simply dismissed her idea out of hand as impossible.

Now, I don’t agree 100% with everything Suze, or any other guru, says but I think in this case she had a valid suggestion. Many people in this country have been living at the limits of two incomes. They spend everything those incomes bring in and then some. And most are like the people on the show and on the message board. They cannot imagine any other possibility. But they also don’t try. They dismiss the idea of living on less as a pipe dream, something for “other,” “wealthier” people. But is it really? Maybe you can’t live on half your income. But maybe you can live on three-quarters. Such a challenge isn’t just for the wealthy; it is for anyone who wants to learn to live on less, to pay off debt, to be secure in the event of a job loss, to be secure in retirement. The problem is, too many of us assume that it takes every bit of money that we bring in to live. We don’t take the time to really try to live on less. We spend our lives mired in the assumption that we have no other choice.

The problem many people run into when trying to live on half or any other income reduction is that they believe too many things are needs rather than wants or conveniences. They aren’t willing to try living with some inconvenience or discomfort in order to bank extra income. But that’s exactly what’s required if you lose a job or have your pay reduced. It sounds harsh, but too many people simply aren’t willing to give up their conveniences or toys. They are attached to too many things that are really luxuries (cable TV, cell phones with huge plans, three cars in a household with only two drivers, a five bedroom house for three people, meals out, etc.) and unwilling to consider that those items aren’t necessary. They are (understandably) attached to their standard of living and are completely unwilling to downgrade, even temporarily.

The problem is, many people are living a lifestyle that they have only borrowed, not that they have earned. Learning to live on half your income brings you closer to the lifestyle you can realistically afford. And it’s likely to be an unpleasant shock to discover that so many things you thought you could afford are really out of reach, particularly if you’re already living under a large debt load. It’s that shock that makes people dismiss the idea of living on half out of hand. They don’t want to face reality.

But there are benefits to learning to live on half, or at least striving for it. Trying to live on half your income:

1. Gets you in the habit of saving.

2. Gives you a feeling for your ability to survive economic disaster.

3. Makes you sort out what is really important and necessary in your life from what it just fun and convenient.

4. Shows you whether your lifestyle is really affordable. If you can’t make it on half (or at least a lot less) of your income, you know you either need to scale back permanently or figure out how to increase the income in order to keep the standard of living that you’re used to and save for the future.

5. It’s likely to greatly simplify your life and save you a lot of stress and time.

Before you say it’s impossible, I’ll tell you that we have done it all our lives. My income has always been banked. We live off my husbands income, but we even put 15% of his away in retirement savings. And no, we don’t make millions. Combined we’re well under six figures. Well under. We live very simply, we keep our lifestyle “small,” and we save for purchases. We don’t have a lot of toys and things that require contracts and payments. As the years have gone by, we’ve been able to add some comforts and extras like travel and nicer furniture, but we started off small and only upgraded when we could afford it while still banking half or more of our income. It’s the opposite approach that a lot of people take today which is to go for the good life right out of school on credit.

So don’t dismiss the idea of living on half your income. Try it. You might like it. And you might discover that a simpler life is worth the “downgrade” in your lifestyle. You might find that some of the things you think you can’t live without are really things you don’t even miss when they’re gone. Or, you might get a wake up call that tells you that life is very unpleasant on half your income and that you either need to make large changes in spending and expectations, or you need to saddle up, go back to school, and get a better job. Either way, living on less shows you where you really stand, not where you think you should stand.

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21 Responses to Could You Live on Half Your Income?

  1. Chris Irish says:

    Great article, I try to save a lot already, but when I really think about it, there is much more I could do. I’m feeling motivated to save! 😛

  2. NJDebbie says:

    Our family now lives on one and one quarter income (we bank three quarters of my husband’s income). Eventually we will give the one income a try.

  3. Monkey Mama says:

    When my spouse and I graduated college we made a commitment to never live beyond one of our incomes. It is so much easier when you start out with that mentality. It is HARD to live up to your means and then move backwards.

    As a single breadwinner for a family, I find 50% much more difficult but it is definitely something we strive for as long as my spouse does not work. 5 years ago we were saving $0 (when he quit working). These days we are nearing 33%. The main thing we have done is saved most of every raise since we graduated college. I don’t expect the raise train to ride forever, but my dh could always go find work to continue to increase our income (if I did stop getting raises, etc.)

    I thought Suze’s advice was outstanding. It really makes you prepared for life’s emergencies if you simply do not live fully up to your means. I can’t tell you the financial freedom we bought in a mere 2-3 years with this method.

  4. Lori says:

    I have a question. By “banking”, do you mean that you have never touched the saved income? Or just that you save it away and spend it only on Wants once you have enough?

  5. mmgarren says:

    I am retired and my income is a little over $20,000 a year. I’m trying to save about 30% of my income. I find it difficult and somewhat unpleasant, but I do it. If I had to I could save 50% but on income this low, it would be hard for me. I have no car, rarely go out, and vacations are almost non existent.

  6. Jennifer says:

    @ Lori: A little of both, but mostly it has been saved. Sometimes we use it for a trip or new furniture, or something else that is beyond what my husbands regular paycheck will cover. But that’s pretty rare. We try to keep most of our wants within range of what that one income will cover.

    We used my income to quickly amass the down payment for our house. It was amazing how fast we saved 20% that way.

    We put the max allowable into retirement vehicles and the rest is saved and used to cover emergencies, unexpected expenses, and bigger things like repairs/replacements as things get old. It also provides a car fund so that we don’t have to take out a loan when a car croaks and we need a replacement. So we do eventually spend some of my income, but not generally on wants.

  7. A Marino says:

    I didn’t see the show you mentioned, but I have noticed that Suze has become more saving conscious with each passing year.

    Her advice is not new. ALL YOUR WORTH’S author Elizabeth Warren had been teaching this concept for years. She has the 50/30/20 approach of net take home pay. 50% is for needs, 30% is for wants, and 20% is for savings and debt.

    She also believes that you need to learn to live off of 50% because that’s approximately what you would receive from unemployment insurance.

    I was never able to get it down to 50%. It was more like 56% and that mostly because we have high health and homeowner’s insurance. But it is doable.

  8. fern says:

    I’m basically doing that now, by saving 46% of my gross income. I am a single income household of 1 person + 1 cat.

    Granted, no kids, but i do have a mortgage and an old house. However, it can be done!

  9. nance says:

    I could easily do it, but my DH is a spendthrift, and won’t. He grew up poor, and is making up for lost “things”.

  10. Dana says:

    I like most of your points, but I’m not sure about the “stress” part. For me, the merits of having a high income is to have more freedom. For example, freedom associated with offloading certain tasks, freedom of not having to penny pinch. I think a lot of advice given nowadays targets frivolous consumerism. But high income should also be commended for offering people with more choices and more freedom, not only material accumulation.

  11. swaymonae says:

    I agree that you should have to be capable of living off of half your income.. if not, you should be doing everything in your power to getting to a point where you can.

  12. Patricia says:

    Great article. I had similar thoughts after I watched that episode of Oprah. I don’t always agree with Suze but I thought her advice was great on this show. I especially liked her last point which was along the lines of “be grateful for what you have now and forget about what you had.”

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  14. Scott says:

    Now, I understand the idea of living below one’s means but the idea of trying to live off of 50% of your income seems like a stretch for most people.

    I fully advocate saving 10+% for retirement, stashing an emergency fund away, limiting housing expenditures to <30% of income, but living off of 50%?

    I take issue with a couple of statements.

    1. Gets you in the habit of saving.

    Fine, if you aren’t in the habit of saving you should be.

    2. Gives you a feeling for your ability to survive economic disaster.

    How so? If you know where to trim the fat if required and have savings to help you along, how does forcing yourself to constantly live at 50% help you to survive an ‘economic disaster’? (other than the implied savings, which you should be doing w/ #1).

    3. Makes you sort out what is really important and necessary in your life from what it just fun and convenient.

    It’s fine to have some (even many) fun and convenient parts of your spending, if that’s how you choose to spend your money.

    4. Shows you whether your lifestyle is really affordable.

    Not true. If you can save for retirement, pay your mortgage, have an emergency fund, and have other investable assets by living at 70% of your salary or 80%, that’s just fine. Enjoy the rest.

    It’s funny, there seem to be two rat races in keeping up with the Joneses on either end of the spectrum… one for saving and the other for spending.

    Just find a happy medium that supports yourself in a fiscally wise manner and remember that life is short and it should be enjoyed.

  15. Kelly says:

    After a job loss last year, I had to learn this the hard way. I enjoyed how articulate this article presents the idea concerning how much we believe are “needs” rather than “wants.” I just discovered this website today and really appreciate it!

    Kelly Wilson, Author
    Live Cheap and Free! Strategies to Thrive in Economic Times

  16. ThiNg says:

    LOL, this is the kind of article that makes my little brother run screaming from savings forums and websites.

    There is no mention about what you do with the remaining 50%. “Banking It” means nothing. If you took 50% of your income and shoved it under a mattress it wouldn’t help you. What about the people, who like my neighbour, never do anything with their lives, save all their money for retirement, then find out they are going to die at 48!

    It’s called LIVING for a reason. You need to LIVE your life. You can do it cheaply – see a free play or help at the community theatre versus $500 seats to a broadway show, but at the end of your life you will only have your memories to show for it.

    I spend 10% of my income on just me and my children. Remote control toys, fishing trips, hockey equipment, etc. But, I have a headful of great times and fond memories to show for it.

    I agree with poster, Scott. You need to find a middle. 50% saving is just as extreme as 100% spending.

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  18. John says:

    If anyone think it is impossible, pick up a backpack and go live in the woods for 1 wk. You will learn a lot about life and how simple it can be. We save 50% of our income.

  19. pen says:

    late post but here goes… I am well below the poverty line. I do save every month, but half my income is more then rent. In some cases, saving 50% is not possible, save what you can.

  20. Janet says:

    10years ago our income was $450K then it suddenly dropped to $180K for one year , then to $60K for 8 years and now it has been at $58K for the past two years. I have cut everything we have zero debt but we don’t know how to start getting ahead. Thing is when we made 180 K we had tons of debt we paid it off before things got down to the $58K but we can’t seem to break the cycle and start saving last year we did manage to save $10k but this year we have had zero income so far and are having to dip into the $10K to survive. What would Suze do???? Suze what would you do if you were still a waitress trying to make ends meet and someone told you to start living on half. Suddenly even living out of a van would seem like it was too much for the half. We don’t buy anything don’t go anywhere do not see anyone we don’t live anymore and still it runs $48K just to live and breath. We have no health insurance, no phone , no cable. We eat and we do eat what we have to stay well. We go to the doctor when we have to and pay cash, we go to the dentist when we have to and pay cash , we have a 10 year old car paid for , it needs maintenance, we have a small mortgage and HOA fees, taxes , etc… We have not had Christmas in 6 years. We do not go out so we do not spend any extra money. $48 K is what it cost to live!

  21. Hana Kim says:

    There are lots more ways to cut costs. These are just a few.
    1) drop the smart phone and get a “dumb” one. Save about $50 per month. Get a low-priced tablet (e.g., Kindle Fire) or use your old iPhone as a wi-fi only device. Wi-fi is available everywhere; you really don’t need to pay for cell-based data plans
    2) call your car and home insurance company and tell them you want to go through all your coverage because you found another carrier that is cheaper. They’ll probably help you “find” 10% off or more.
    3) speaking of car insurance – An expensive policy from GEICO, Progressive, etc. is not needed. You can find one usually for less than $30/month from a place like Insurance Panda (4AutoInsuranceQuote​ also has good rates). If you spend too much on car insurance from one of those big companies, chances are you are simply funding their expensive TV ads with cute animals.
    4) compare what your house is really worth to your assessment. Many assessments have never been properly adjusted down to reflect the market over the last 4 years. We cut our property taxes by about 20%.
    5) re-fi your 30-year mortgage to a 15. The interest rate will drop by at least 50-75 bps, more depending on your current rate. The payment may go up slightly, but it is because you are paying off your loan faster. If it’s possible, get the mortgage paid off before the kids go to college. At a minimum, have it paid off before you retire.
    6) review your credit card bills for all the things you are paying $10-20 per month for that you no longer need. I bet everybody has at least a couple
    7) drop all magazine (paper and on-line) subscriptions. Sorry WSJ, but that includes you too. If you look around, you can find comparable content for free.
    8) review your investment portfolio for ways to replace higher fee mutual funds or ETFs with lower fee ones. S&P500 funds/ETFs shouldn’t charge more than 0.10% in fees. Fees may be higher for specialty funds, but they are all coming down fast. If your company 401K uses high-fee funds, talk to the folks in charge. A difference of 25 bps in fees will mean a difference of about 5% in your portfolio value after 25 or 30 years.
    9) and of course the most impactful — never carry a balance on a credit card. If you can’t resist, cut up the cards.

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