Ten years ago, we decided to leave our full time jobs in order for me to attend graduate school in Sweden.
And that’s where we learned how to live on a shoe string budget. Through some careful planning and discipline we were able to sustain our lifestyle for 2 1/2 years.
Having learned just about all the nuances and doing a test run, we were ready to become a single income family in the USA.
Step 1
Minimize or eliminate debt! The reason I say minimize debt is because that’s what we did. It is totally doable, but I prefer if debt is totally eliminated that way you have more money in your pocket.
For instance, we payed off Leslie’s student loan before leaving for Europe, but I didn’t pay off the motorcycle loan so I ended up financing $5,000 the entire time we were in Europe. However, I payed the remaining balance of as soon as we returned to the USA.
If you feel as though you can’t eliminate all your debt on a single income, consider creating another stream of residual income. That will give you the ability to get rid of debt faster and have more money at your disposal.
Step 2
Financial tracker! This was the core system for our survival strategy in Europe. Being able to manage our money and know where our money goes is a key to living on a single income.
We took budgeting seriously and we tracked all our spending diligently month after month.
Years ago we started budgeting using simple spreadsheet and now we use the best money management tool on the market called Personal Capital.
Step 3
Eliminate unnecessary cost! Upon arriving in USA, we had to re-establish pretty much everything from getting new cell phones to purchasing a car insurance and the list goes on.
Our approach was simple, eliminate and reduce our bills on all fronts. Instead of signing up for annual contract with AT&T we opted out for monthly contract with H20 at the fraction of the cost. We cut our cable bill and decided to go with Netflix. We signed up for Health Savings Account (HSA) instead of going with the traditional health insurance plan.
Even our car and motorcycle insurance got trimmed down to the minimum state requirements with higher deductibles.
All the scenarios mentioned about are great way for you to add more money to your pocket on monthly basis. Money you can put to work for you.
Step 4
Live in a condo! There is only so much I can say here, this is how our compact life started.
My wife and I bought our condo for roughly $290.000 in 2013. With the shocking news that twins were on the way, we immediately outgrew our space as soon as we purchased it. Despite all deliberation to move to a bigger condo or house, all five of us are still living comfortably in the same 1,200 sq. ft. space.
The point here is to find something that is big enough and comfortable for you or your family. Nothing fancy or luxurious; the key is to keep your monthly mortgage and HOA payments low enough to where you can afford to pay them month after month on a single income and still have enough money left to pay for other living necessities. There is no fun in being house-poor.
I’m not going to get into the details if you should choose a house or condo, as it is a personal preference based on your needs, but I’m going to say that, I have seen a trend where most people live in a condo, move to a house, and move back to a condo.
Although, there are added benefits to living in a house, such as extra space for quests. For us, zero maintenance and upkeep on our part, and ability to save money, we choose to live in a condo and will continue to live in a condo.
If we can make 1,200 sqft. work for a family of five, I’m sure you can too.
Step 5
Be frugal! Wisdom is all you need here, don’t splurge and find the true meaning of the word “enough”. Only then you can learn how to live a frugal life and have an abundance of leftover income.
By doing so, you can focus on things in life that bring you the most fulfillment. Learn how to do things on your own, get involved with DIY projects instead of paying every time for convince.
Forget about all the “wants” and focus on your “needs” and make sure you are consistent with your approach and you are going to see how living on a single income is totally doable. Think next generation.
Step 6
Build cash stash! Call it emergency fund or f-you money; you need to have some “dough” set aside. Life happens and you need to be prepared to face the challenges.
We have tapped into our cash stash several times for various reasons such as paying a doctor’s bill, remodeling our bathroom or fixing our car. Whatever your case my be, be sure to have some extra cash saved to cover at least 6 months of living expenses.
There isn’t a right or wrong way to go about building your cash stash. If you already have one great, if you don’t, you need to start saving TODAY.
Step 7
Take a sabbatical! Now that you made it this far, it’s time to put your strategy to the ultimate test. Once you are comfortable with all the steps above and you have been consistent for few years it is a good idea to take some time and reflect on your accomplishment.
Plan to take at as much time off work as you can and gradually increase your time off and see if you can live comfortably covering all your expenses while not having any income coming in.
There are going to be adjustments you are going to have to make, but that will only better your lifestyle and ultimately teach you how to live on a single income. Remember the only constant thing in life is change, so be prepared to make compromises.
Conclusion
There is nothing complicated or magical about living on a single income. The one non-negotionable is that you and your family have to be on the same page when tackling all the steps discussed above.
While everyone’s situation is different, you can take this approach and tailor it to your preference and comfort. Patience and time are your best friends. Don’t rush it, ignore the noise, and most importantly don’t forget to have fun while experimenting.
