(Guest post by my girl Paula Pant while J$ hangs out with his newborn boy :))
Last January, J. Money wrote a post asking what life would be like if you lived off 50 percent of your pay. That’s what we do.
My partner Will and I pledged to spend the year 2012 living on roughly 50 percent on our income. We want to invest the other 50 percent.
Will holds a traditional j-o-b while I’m self-employed, so we budget by living entirely on his steady paycheck while we shovel my sporadic pay into a separate checking account that we don’t touch. We reasonably guess that we’ll earn roughly the same amount this year, which means we’re saving about 50 percent.
Functionally, we’re a couple living on one income, which isn’t that strange. Lots of couples do this, including J. Money (and he’s got J. Junior to feed!)
But while J. Money says he feels pressure to provide for his family now that he’s the sole breadwinner, Will and I have the opposite reaction. We feel lazier. Yep, saving 50 percent of our income has turned us into lazy bums!
We know that we have a decent cushion, so we tend to be a little more lax about watching where our money goes. That said, we’ve never had to tap that cushion – my income – to cover our normal living expenses, so I suppose our newfound laziness hasn’t translated into hog-wild spending.
So far, we’ve used my income to:
- Max out my Roth IRA (we haven’t started on Will’s Roth yet, but it’s coming!)
- Fix up a foreclosed rental house that brings us $4,400 in net passive income each year.
- Um …. I don’t know what else we’ll do with it. Realize how indecisive I am?
At the moment I’m sitting on about one month’s pay, trying to figure out our next move. Should we buy another rental house? Should I try to flip a house? Or should I pour money into redesigning my blog and hiring assistants?
I’m not trying to throw a pity party, but investing 50 percent of your income is tough. It’s not just the saving-money part that’s a whopper, it’s the deciding-what-to-do-with-the-money part that becomes a real head-scratcher.
Questions We Usually Get
I know someone will pose the question: “How can y’all afford to save 50 percent of your income?”
As an Atlanta girl, I applaud you for saying “y’all.” Here’s my answer, at least in part: Will is 32. I’ll be 29 soon. We live with roommates.
“Aren’t you too old to live with roommates?”
Maybe. But they pay a good chunk of our $2,200 mortgage. You see, we live in a triplex. Our roommates pay $1,100 and the tenants in the other units pay an extra $1,450. This means we bring in $2,550 each month. So not only do we live for free, we also positive-cash-flow on our own home. That’s a huge help.
In addition to our housing costs being covered, Will and I both drive old, used cars that were bought in cash. (Will drives a 1997 Honda Accord. I drive a 1998 Toyota Camry).
Otherwise, we don’t have a lot of expenses. Food. Beer. Clothes. Health insurance. Contact lenses. Cat food. The occasional vacation. Frankly, I’m surprised to see us spend even half of our income. I wonder where it all goes?
Guess I should stop being so lazy and read the bank statements to figure it out. I’ll start tomorrow :)
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Today’s guest post is written by J. Money’s dear friend in the Peach State, Paula Pant. Paula has traveled to 27 countries and her latest obsession is buying rental properties. Her blog, Afford Anything, is based on the radical idea that money should never hinder your dreams. Check it out!
(Photo by Howdy, I’m H. Michael Karshis)
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Congrats on being able to pull it off! I agree that the hard part would be figuring out what to invest in. You could always go for another rental and build a rental empire. What do you do for your self-employment money? I can understand the getting lazy part but if you set a big goal by a certain date maybe that would help to drive you? Good luck and keep us updated.
“Our roommates pay $1,100 and the tenants in the other units pay an extra $1,450.”
Wait, so it costs more for the privledge of living with you than it does to rent a seperate unit in the triplex?
We live mostly off my wife’s income, which, like you, is the steady and predictable one. Unfortunately, I make more like half of what she does, so we live off about 70% of our income.
I saved 50% of my income for a long time. I also lived in a studio apartment until I was 39. Despite the “oh you are throwing your money away, you should buy!” argument, that choice – and being a renter – allowed me to establish a great cushion and develop financial security. Buying a house in the SF Bay area would have meant saving much, MUCH less.
We saved more then 50% of our income for a long time now and it paid off. I’m able to retire early and become a stay at home dad. I hated sending baby RB40 to daycare because he was sick all the time. Now he’s feeling a lot better and gaining more weight. All those saving went into asset generating income and those extra income gave me the confident to quit working for corporate America.
That’s awesome that you can save 50% of your income. We hope to do that one day also but it probably won’t happen until our mortgage is gone. That will hopefully be in 5 years.
One thing you might consider is simply putting away money in a liquid investment, something like a savings account. Why go for something with such a low return? Because, like it or not, we will have a recession again, and that’s the time to pounce on the real bargains. No, this is not one of those doom and gloom things. Just take a look – in our lifetime we’ve had a recession every 7-10 years, like clockwork. 2009, 2002, 1992, 1982, 1975, 1967, 1961. You do the math.
And we’re already three years from the last bottom, so it’s not like you’re going to have to wait that long for the next round of bargains to present themselves.
So, if you like rental houses, save your money and get two or three when the market tanks again. It will. It always does, and it always recovers again. Never fails. This is where you make the real money.
And the time to save for those bargains is now. If you tie up your money into something fixed, you won’t be able to get at it in the next recession, so that’s why you need to have it set aside in something like a savings account.
A little unconventional perhaps, but it works, It’s what allowed me to retire comfortably.
Congratulations on saving 50% of your income! My wife and I are going to start separating out our paychecks to see how much we are saving. Lately we have been putting payday leftovers into the stock market without figuring out actual savings amounts. We have been discussing getting into the rental business. Your post has increased our interest in it.
Congrats on the new rental property!
I do the same thing living with roommates, definitely is nice having someone else pay your mortgage.
That’s awesome! I love the idea of earning money to live somewhere, but I would probably settle for living in our own unit even if it meant paying a little extra.
@Lance — Thanks! My “day job” is as a freelance writer. And yes, a deadline would help — once I figure out what that deadline will be for!
@Edward — “the privilege of living with you?” The most expensive unit is (obviously) the largest and nicest. The other tenant’s units are much smaller.
@Diane — I’m a big proponent of crunching the numbers to see if each individual (based on their goals, age, location, financial position) should buy or rent. I totally disagree with people who make blanket statements saying it’s ALWAYS better to buy … because sometimes it’s not!
@RetireBy40 – Congrats on retiring early! I hope I have that to look forward to!
@DebtsnTaxes – Hooray for almost having your house paid off!! Woohoo!!
@William — That’s a good idea. Housing prices are still low in my area, so I could pick up a cheap rental house right now, if that’s what I decide to do.
@GetWorth – I’m a big fan of rentals — there are a LOT of posts on my site detailing my adventures as a landlord. Check it out if you’re interested!
@Jenna — It’s great, ain’t it!!
@20’s Finances – Haha, sometimes I have the same thought (especially when I have to share fridge space, etc.) But I think I’ll stick with having roommates until I’m ready to have kids in a few years … then Will and I will switch to a more traditional arrangement.
This is such a terrific idea to try to live on just 50% of your income. I am sure not everyone can do it, but if you make decent income, there is not reason not to do it. Whether it’s for building emergency fund or saving for a big purchase or IRA, everyone should be able to save at least 35% of their income if they budget correctly. Thanks for posting!
Sounds tough! I call that a #firstworldproblem. Well done on saving 50% of your money. Though it is tough to invest that money, the best part is all of the options it affords you. You can be a bit riskier, hoping for a bigger payoff. Or you can put a little here, put a little there.
I’m with J$, only one income here, but I’m working on eventually getting to where half our income is not touched by monthly expenses. Thanks for the motivation :)
Paula, I hope I didn’t come off as snotty; it was 5 am when I wrote that.
What I was trying to get across was that the roommates in your unit are getting a room while the tennents in the other units are getting an entire apartment. Despite how much bigger and nicer your unit is than the others in the triplex, you are still only renting out a room and access to common areas, wheras the other units have much more privacy.
so, what exactly you are doing to increase your sporadic income? I guess you can’t go on and on buying rental properties..
I’m really jealous! It’s amazing that you are doing that!! It gives me something to think about when I get out of school (debt free) and start working full time. You are a great role model.
Chase
My DH and I were able to save about 50% of our take home income (after retirement and taxes) for about three years. Then we bought a house, and said house has been a money pit, and we’ve had various other expenses pop up. So over the past six months or so, our monthly savings have slowed, but we haven’t had to use our efund . I think our expenses will stabilize somewhat. While we likely won’t quite get back to 50% anytime soon, when our retirement contributions are taken into account, it could be close. We do not make huge incomes, but we do still have a large cash cushion, were able to buy a car with cash and put 20% down on a home, plus buy some furnishings.
@Paula, I guess I should have written it differently, but the house isn’t close to being paid off. We still owe $109k out of the original $129k loan, I have a plan to pay the rest of it off in 5-7 years. Not close yet on the actual payoff.
Paula,
Great post, girl! You offered valuable insights on the benefit of living in a triplex and buying used cars. Awesome :-) Talk to you later!
Congrats!!
As you know, we have a goal of living on 50% of our take-home pay and saving the rest in permanent savings accounts. This was our goal last year as well, and we managed a 38% savings rate. I calculated the other day, and we need to bring up the rear in the latter part of this year; I think we are at 34% saving rate right now.
Thanks again, Paula! Your post is allowing me to spend more time with the mini one before starting back up again ;) Looking forward to hanging out with ya at FINCON for round two!
These are some pretty impressive numbers – congrats on being able to achieve them! I know we’re advertising for a roommate for the first time in 15+ years – at 40 I find it a little weird, but the extra income out weighs the weird.
As for driving older cars with no payments, that’s alway good sense. One of the worst money mistakes I made was selling my paid for Toyota Tercel for a gas guzzling brand new Pontiac with a huge loan. Pffft! Bad idea.
Hell yeah no car payments! Been driving my 93′ caddy around town for years now without any loan on it – feels great! Of course, things keep breaking down here and there (like our AC!) and it takes some extra maintaining, but MAN does it feel good saving hundreds of dollars every month I keep running it into the ground. Plus, I feel like a pimp! ;)
I know this isn’t the point of the post – You say “partner” what protections do you guys have set up in case you break up?
That’s great that you’re renting out parts of your house! We have a condo that we rent out but it is not cashflow positive. However, even after topping up the strata fee and paying the rent in the apt we live in, we still pay less than if we lived IN our condo. Weird how these things wok out!
Best of luck to you.