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.