Six Steps To Half-Price Living
By Ellie Kay
Fall 2007
Army SSgt. Thomas and Georgia Gentry were tired of their consumer debt, so they decided to do something radical: They cut up all but one of their credit cards, closed other lines of credit – and began to live on only one income.
Neither Thomas nor Georgia quit their jobs. They just acted as if
If you are considering a one-income lifestyle as a way to pay down debt or just stay home with your kids, these six steps can help you reach your goals:
1. Assess your current income. On a sheet of paper, make three columns. In the first column, list all monthly income sources, such as salaries, dividends and interest. The second column will contain the dollar amounts you bring in for each. If you earn a salary of $1,200 a month, for example, you’ll list it in the second column. In the third column, under the heading, “Variable, Yes/No,” indicate if each income source varies from month to month (commissions, tips or other income that isn’t consistent). Add everything in the second column to come up with your total current income.
2. Calculate current monthly expenses. This is similar to planning a budget. Use these categories (along with the recommended percentages):
- Housing/utilities (30 percent)
- Food (10 percent)
- Savings/investments (10 percent)
- Taxes/charitable contributions (10 percent)
- Transportation/car loan/gas (10 percent)
- Recreation/vacation/gifts/Christmas (6 percent)
- Clothing/dry cleaning (5 percent)
- Debts (5 percent)
- Education/miscellaneous (5 percent)
- Insurance (5 percent)
- Medical/dental (4 percent)
3. Determine current assets. Once you gain a clearer idea of your assets, consider items you may be able to sell or liquidate to reach your goal of one-income living. In rare cases, couples find that they need to move to a less expensive home or sell a car to pay cash for an older vehicle. Do your homework to obtain accurate numbers. For example, you may have more equity in your home than expected; review your latest mortgage statement, then go to a website such as www.zillow.com to find a rough idea of the fair market value of your home. Do the same for car loans, via www.edmunds.com or www.kbb.com, to determine the “private party” value of your vehicles.
List each asset: home, checking account, savings account, retirement plan, stocks/bonds, mutual funds, other funds, cars, boat/RV/luxury items, furniture, household items, jewelry, antiques. Next to the asset, list the amount owed (if applicable), the equity or actual cash value and whether you can sell or liquidate.
4. List current liabilities. Determine your debts and decide what must be paid down before living on one income. Next to each liability or loan, list three things: total balance due, minimum monthly payment and months until paid off. List each liability: home, cars, furniture/computers, student loans, boat/RV/luxury items, outstanding taxes, store credit (list each separately), credit cards (list each separately). Add your totals in each column.
5. Project your one-income numbers. Basically, you’ll deduct any second income and include your primary income and investment earnings. Use the total amount of this adjusted income as a basis to determine goals for projected expenses that allow for one-income living.
Take out your sheet from step two that lists all current expenses and break down your projected numbers, just as you did for the current numbers, by applying the percentages given in each expense category. The new numbers are your projected expenses. For example, if the new projected income is $40,000, then according to the percentages, the monthly “housing/utilities” expense would be: $40,000 x 30 percent ¸ 12 months = $1,000. Next, subtract each “projected expense” number from the respective “current expense” number and list that amount as “difference.” These numbers show how far you’ll need to go in making the jump from two incomes to one.
6. Find variable savings factors. Compare projected income with expense goals and see how they match up. If projected income doesn’t jive with the expense goal numbers, then tweak the numbers to fit your unique situation and establish realistic expense goals.
Several variables may help you reach your one-income goal. For example, some expenses may decline when you’re on one income – child care, a professional wardrobe, commuting expenses, meals eaten out, etc. – thus lowering your overall cost of living. You are not required to stick to the exact recommended expense percentages. If you live in base housing and you don’t need 30 percent for “housing/utilities,” then adjust it accordingly and shift funds to another category. Are you willing to part with any assets to meet your one-income goal? Consider selling the Harley to build the savings account safety net you need.
There is no “one-size-fits-all” to match your goals for half-price living.
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Ellie Kay is an author, radio/TV commentator and motivational speaker at military events. Her newest book is “Half-Price Living: The Secrets of Living Well on One Income” (Moody Press, 2007). She is the wife of an Air Force pilot and mother of seven children. To receive Ellie’s free newsletter, browse money-saving tips or invite her to speak at your military base, visit www.elliekay.com.