I’m going to tell you the secret to my success today. My entire financial situation is tied back to a single decision coupled with many of the tips and tricks discussed on this site. This decision combined with good planning and investments has ultimately given us our current life. It truly is the secret to my financial success.
About 10 years ago I was single, and living in an apartment working a decently paying job. I was moving through life contributing 10% to my retirement a year, and building a healthy career. While I definitely wasn’t frugal, I also wasn’t digging myself deeply into debt by overspending. I was just like your average person on a path to retiring at 65. Then I met my wife who was on a similar path and everything changed.
The Secret to My Financial Success, in One Decision
My wife lived much the same life that I did. She lived a lifestyle of saving 10%, and was steadily moving towards retiring at 65. So when we decided to get married the question became, did two incomes still equal 10% or something else? The reality is much of an individual’s spending comes from housing, automobiles, heat, and insurance. I’d estimate these values combined equal over 60% of our expenses. Combining two incomes should always result in a significant reduction in costs compared to income if both people keep working. In fact it should at worst equal 120% (60% fixed plus 2x the 30% in variable expenditures we both had with the remaining 10% in savings for each). This would leave 80% of one person’s income for savings. Knowing this coming in, we decided to implement the secret to my financial success, we decided to live off the total value of the lower of our two incomes. Essentially our expenses became one person’s original income. To facilitate the remaining 20% reduction, my wife experienced a 10% pay raise around the time of our marriage. We further cut variable expenses by about 10% because my wife replaced my habit of eating out with more home cooked meals. This brought us to the point so that we were essentially living off 100% of my wife’s income.
Consistency in Following that Decision
We followed this decision religiously over the last 10 years. When it came to buying a house we purchased one that could be paid for on my wife’s income alone. For automobiles, we stuck with the cars we had, and combined insurance policies to drop costs. For heat, we chose a house that was only slightly larger than what we had originally, and only increased it once we needed the space for kids. This kept heat and air-conditioning costs in check. For daycare we picked options that would fit in with any pay raises in my wife’s income. Using these steps we were able to maintain the status quo of living off her income and saving mine.
Now to be honest, a big part of this decision was inspired by the fear of the 2008 recession. We had a real fear of loss of employment due to the down turn. It seemed only logical to live off one income because the likelihood of simultaneous job loss was minimal. Thankfully this fear never materialized, but even if it had we would have been prepared. Ultimately living off one income and saving the other ended up being the best decision we ever made. The result, for 8 years we’ve always lived off my wife’s salary. Sure, my wife still contributed to her 401k due to the flexibility of allocation across accounts. However, the amount of my income was banked into our retirement and savings accounts.
The Ramifications of our Decision
As my life progressed, my income has increased dramatically. My wife’s income has also increased, though it remained lower than mine as she is earlier in her career than me. Recently much of her increase was eaten up by daycare expenses, but before that any increased expenditures were accounted for in her pay increases. Meanwhile, with my income increases we simply did not increase spending. My increases in income were pushed into increased contributions to 401k, Roth, and other accounts. Before we ever had a chance to spend it, we made the money disappear into savings. Our savings rate increased even further as the years passed. This ultimately led to us reaching our current Financial Success.
Which brings us to my wife’s decision to be a stay at home mom. As noted previously mine was the higher income by about double. So, effectively we could convert to a one family income and still save 50% of our income a year. That single decision, to live off one income, ultimately gave us options and flexibility enabling us to make this decision later in life. It also ultimately led to our current net worth. Simply put that single decision has been the secret to my financial success.
For those married folks in the audience, how did you handle setting a budget when you got married?