If you would like to live on half your income, you will need to make some adjustments to how you live, work and stay entertained.
I won't sugarcoat it, living on half of your income will challenge everything about your life, but it will be so worth it. Because living on half your income means saving the other half.
And you don't have to make all these drastic changes overnight. You can work up to them over time. With some testing and research, you can transition to living on half of your income in a few months.
Calculate Half Of Your After-Tax Income
To make the math work, you’ll be living off of one of your biweekly paychecks per month, essentially, two weeks’ worth of pay.
While many people start by listing their expenses and work their way back, it will be disappointing to see that your current lifestyle, even a super frugal one, likely won’t fit into half of your income.
Instead of tallying up your expenses and finding it doesn’t work, start with half your income and see what you can fit within it. This process will require a bit of work and strategic cutting.
Question everything: from the expenses you consider essential down to the most frivolous splurges. It is important to keep in mind and plan for some less regular, but essential spending like travel to see family, or self-care when needed.
After those are tallied up, it's likely you'll have nothing left over to consider as discretionary income. However, with some tricks mentioned below, you’ll be able to create some wiggle room in your budget.
Hack Your Housing
The biggest gains you can make are in cutting your housing expenses. If you’re married with a family, house hacking or renting out a room on Airbnb for extra income may feel untenable. Here's how to get started with Airbnb.
Here's the deal: if you want to live on half your income, you’ll need to get creative to make it work. Simply saying you “can’t” do something means giving up before you even start. Creativity and flexibility mean you’ll see big gains to make room for some “nice-to-have” expenses later.
According to Lending Tree, the average mortgage is around $1,030. You can lower your housing expense by getting a roommate or renting out a spare room. A roommate could also help lower utilities, food expenses, and even the cost of childcare and pet sitting.
Another option for lowering housing expenses is to move to a smaller home. By downsizing your living quarters, you will spend less on insurance, maintenance, and utilities. This will also save you money since you can only fit so much in a smaller space. Here are some tips for downsizing.
Moving to a place with a good layout can make even a small house feel bigger. The key is having good storage options and getting creative with furniture. For example, a sofa that has a pull-out bed can offer guests a comfortable place to sleep. Fewer rooms mean less furnishings and other expensive items.
Related: What Is House Hacking
Cut Car Costs
A tenet of FI is to never buy new. If you’re already driving a used car, you can save more by carpooling, sharing a car with a roommate or friend, biking to work, and/or learning how to do basic maintenance yourself.
You can save hundreds by doing basic car maintenance tasks yourself. Also, each year when your insurance renews, research if you could get a better deal and evaluate if your coverage still fits your needs.
Whenever possible, lower your transportation costs, especially if you need more room in your budget.
Address Your Triggers & Reroute Your Behavior
Every FIRE walker has their own triggers. Even the most frugal have certain things that will eat through our budgets. It’s unique to each person. For some, going out to the bars would be our undoing, or tech gadgets easily tempt our willpower, making it hard to stay on track.
When you recognize your triggers, you can plan for them. There are ways to optimize your triggers, by either rerouting the behavior (like inviting friends to do other activities that don’t involve $12 martinis at the bar) or finding ways to put your expensive hobbies to good use.
You can start your own side hustle to learn photography, website editing, dog sitting, or selling consignments on eBay. Starting a side hustle around an existing hobby can be a great way to indulge while getting tax write-offs and even earning extra income.
Listen: The Hobby Checklist
Learn New Skills & Take A DIY Approach
Most of us pay a high price for convenience and time-saving tools, so if you’re looking to save half of your income you must take a DIY approach and skill hack your way to savings.
Learn how to cook your own meals, entertain at home, borrow instead of buy, and research a purchase before pulling the trigger. This means you’ll need to invest some additional time, but it will save money.
While it can be overwhelming to learn to do things you used to outsource, you’ll be empowering yourself and your family to learn new skills and talent stack. Spending time instead of spending money can be a lifestyle change that yields memories and not just cash.
Get A Side Hustle
Sometimes living on half your income requires having more income. You can ask for a raise or try finding another, higher-paying position. There’s a third alternative: getting a side hustle.
Side hustles are an easy way to increase your income and save a bigger percentage. They’re a great option on the path to FI since you can scale your earnings up or down, depending on how much time and energy you have.
But what is a side hustle? Anything you do to earn money outside of your regular job counts as a side hustle. Whether that's teaching piano lessons or freelance writing, if it brings in an income outside of your full-time gig, it’s a side hustle.
Here’s how this can help you live off half your income: let’s say your salary is $55,000 per year and you can live on $27,500 (half your income). However, you’d like to take a family vacation and your currently don’t have room in your budget.
Let's say without a side hustle you are bringing home $60,000 per year. Living on half of that would, of course, mean spending $30,000. If after cutting what you can, you are still spending $40,000 per year, your side hustle will only need to bring in $833 per month (after taxes) to make up the difference.
(I know, I know… technically, in this example, your income would now be $70,000 and you'd need to save/ spend $35,000 per year to maintain living on half your income.)
Now that you know why a side hustle is beneficial, here are some ideas to get you started:
There are many more options for earning money on the side. It’s important to find something that fits your skill set and that you enjoy. If you continue your side hustle when you reach FIRE, it can stretch your income in retirement.
Use Travel Rewards To Save On Vacations
Just because you’re living on half your income doesn’t mean you have to give up vacations. Becoming Financially Independent is not about deprivation but about being smart with your money.
Enter travel rewards. Travel rewards are an easy way to have more fun for less money. They can help you cut your vacation spending in half or even more and enjoy travel for cheap.
How do they work? Certain credit cards offer sign-up bonuses when you apply and get approved for the card. This can range from airline miles to hotel points or program points. You can use the bonus you earn to cover travel expenses such as airlines, hotel stays, excursions and more.
If you’re living on half your income, travel rewards are a great way to stretch your money. Using sign-up bonuses, you can get free flights and hotels, leaving you to pay just for food and activities out of pocket.
Quick caveat: to enjoy the benefits of travel rewards, it’s important to pay off your credit cards in full each month. If you end up paying interest, this can quickly cancel any benefits from the credit card.
If you’re ready to try it out, check out our free course which will teach you how to get started. We will walk you through how to create your travel reward strategy and get the most out of each sign-up bonus.
For those ready to jump in and apply for a card with a bonus, check out our list of recommended credit cards.
Build An Emergency Fund
Having an emergency fund is important no matter your financial goals. It’s even more important if you want to live on half your income. That’s because no matter how much you plan, emergencies will happen.
Emergency cash can mean the difference between staying in budget and going into debt. It’s a nice cushion to have when your water heater stops working or you blow a tire on the way to work.
You can get started building your emergency fund today. Just set aside a portion of your paycheck and transfer it to a separate account. Having a separate bank account is critical since it prevents you from “accidentally” spending the money on something unnecessary.
One good option is CIT Bank, which offers online savings accounts that pay up to 1.25% right now. This means you can earn money on your emergency fund to help you grow your balance. Here's our full review of CIT Bank.
Start today and put money in your emergency fund every paycheck. If you get any refunds or bonus checks, throw them in there and watch the balance grow. Just remember to use the account only for true emergencies.
While this is an article about living on half your income, you should not neglect investing to achieve your goal. In fact, the key to reaching Financial Independence is what you do with the money you save. Saving without investing will only take you part of the way there.
Investing doesn’t have to be complicated. If you have a retirement account such as a 401(k) through work, you’re already investing. If you’re getting the maximum match through work, consider opening an individual investing account.
One option is by using Vanguard to open an Individual Retirement Account (IRA) or an investment account. Vanguard has low-cost exchange-traded funds, which make the process easy and painless.
To keep track of all of your investments and to get an overview of your spending, try Personal Capital. It takes a little bit of time to set up but once you do, it can be an invaluable tool. The Personal Capital dashboard gives you an overview of all of your investments in one place. Here's our full review of Personal Capital if you want to learn more.
It will also help you discover hidden fees and show you other ways to maximize your investments. In addition, it has a budget tracking feature that gives you an overview of where your money is going every month.
The Bottom Line
Living on half your income can be done but it requires dedication and creativity. With the right mindset, you can save more and get the maximum value from the money you’re spending.
By keeping with the spirit of self-sufficiency and not sacrifice–you’ll see your budget change and your daily schedule transform to boot. These changes might be challenging, but you’ll be better for it.