Can You Live on 50% of Your Income?

Let’s talk about money. Someone will probably call me insensitive or naive for posting this, but I don’t care. It’s important. Please keep in mind, I’m talking about people with normal to above average incomes, not senior citizens on SSI or single moms on state assistance. I understand there are hard cases.

I heard a 60+ year old man say this today…

When I was 18 I made a decision. I decided I never wanted to be under financial stress. I have lived that decision my entire adult life and have never experienced financial stress. How did I do it? I saved 50% of my take home income without exception. I’ve had months I’ve made $100, and other months I’ve made $100,000. But regardless, I still saved 50% of my income. My income has fluctuated but my saving percentage hasn’t. This has enabled me to purchase several business and a large ranch without incurring debt. I hear people say ‘I couldn’t possibly live on 50% of my income.’ Oh! baloney, you choose not to. Sure it’s harder once you have a 400K mortgage and kids in private colleges, but you decided to live that way. You don’t need to live that way. And if you had decided when you were younger to live differently, you could have your 400K home and private college today without a dollar of debt.

I’m not trying to preach. I don’t save 50%. But I know everything this man said is true. I could have saved more, and if I had, I’d be much better off today.

I’m aiming the following list at the 18-25 audience. Why? Most older people are already working like slaves to pay off debt and can’t imagine living on 50% of take home. A huge percentage of people are living paycheck to paycheck by 30 with college loans, cars, credit cards, and mortgages. Once you’ve accumulated your debt, living on 50% will become impossible due to the choices you made earlier and your financial stress may never subside. Creating financial freedom starts young, requires disciple, and must become a habit.

Here are some ideas you could use to help you save 50% when you are just starting out in life:

(Keep in mind that these lifestyle sacrifices would be temporary – delayed gratification)

  1. Live in a small apartment with roommates
  2. Avoid buying a car. Cars are money pits. If you must purchase one, buy a cheap used car with cash. Never buy a car on credit
  3. Don’t indulge fashion trends. Instead wear practical durable inexpensive clothing. If your friends say you look like a dork, find new friends
  4. Avoid high-maintenance boyfriends/girlfriends
  5. Avoid expensive vacations. Instead make them local and cheap. Maybe go camping or biking.
  6. Don’t eat out
  7. Warning – this one is blasphemy – Avoid student loans. Pay cash (Community College) or learn free on the internet
  8. Don’t upgrade your home, your car, your education, or your clothes until you can pay cash

You may not want to live this way, but you certainly could live this way, if you chose to.

Most people say they can’t live on 50% of their take home. When in reality, they mean they won’t live on 50% of their income because they aren’t willing to make the trade offs. Or maybe they don’t think the trade offs are worth it.

I genuinely want to discuss this with you. Is saving 50% reasonable? I don’t know if it is. That depends on who you are, right? But for many people it is possible. What would happen if your income was cut 50% right now? Would you go bankrupt? Would you die? Would it destroy your marriage? Or could you survive for years?

Today’s post was inspired by Episode 63 of The Focus Society of Overachievers podcast.

29 thoughts on “Can You Live on 50% of Your Income?”

  1. I think that anybody can TEND TOWARDS living off 50% of their income simply by saving whatever they are currently saving then saving 50% of any FUTURE INCREASE in income AND and by saving 50% – 100% of any ‘found money” (eg lottery winning, tax refund check, inheritance, etc.).

    If you start this young enough, then over time, you will indeed tend towards saving 50% of your income relatively – note the emphasis :) – painlessly

  2. Absolutely agree it’s possible for many (most?) people. What’s tough is that spending 50% less (assuming you’re spending 100% of your income) requires such a lifestyle change that very few of us can do it.

    AJC has a point that cutting expenditures in conjunction with saving any future increases in income may get you to the 50% savings rate with less shock on your lifestyle.

  3. I was lucky enough to have finished my bachelor degree on scholarships and grants without digging into student loans. It’s probably no longer possible today, as tuitions and fees have raised a lot, while fundings have been cut a lot as well. If I were to go to school today, maybe I’d spend my first two years in a community college, or maybe I’d choose to take more classes at once and try to finish the degree in shorter period of time. I’d still like to go through a four-year university track, so I would take the student loan while being fully aware that it’s a trade-off that I am making.

    But yeah, beyond that, I did do many of the things on that list.

  4. Too bad this gold nugget of advice will be lost on most 18-25 yr olds…I do know a few that are mature enough to delay gratification but, the majority of that age group are pretty materialistic (as are most people in our society).
    Boy, at 18 I didnt think I would live to be 25, let alone 60!! :)

  5. Kelvin,
    When I was in dental hygiene school there was a girl who worked full time (or as much as she could) and got B’s. I was living off loans and was able to get straight A’s….we both graduated and got great jobs. I paid on loans for 8 years while she was paid up. My employers never once asked me what grades I got in school. To this day I kick myself over that.

  6. @AJC, That’s a great plan. That’s what Christine and I are doing now. Killer advice.

    @Jason, Yep it’s the lifestyle change that holds us back from our dreams. Clinging to what we have prevents us from moving on.

    @Shamelle, Great list. Saving 50% clearly isn’t for everyone. But if you have big dreams and want low stress, savings is the way to go.

    @Anelly, Yes depending on your situation it may be difficult.

    @Kelvin, I think many people do work their way through college today. It’s possible at home state public colleges, but very difficult at outstate and private colleges. If you can get grant or scholorship or parents to pay for it, do it. But a lot of kids are burying themselves in debt before they even get started. Community college is a great option.

    @Fabi, You’re correct few people will do this. That fact alone makes the advice even more valuable for those who do it. I sure didn’t do it. I was like you, at 16 I didn’t think I’d live to see 18. At 18 I didn’t expect to see 25. That’s one reason I blog… to share my story in the hope that it may help others. We’ve come a long way haven’t we Fabi?

  7. Actually I just became debt free and started to put together my first budget and I am actually following it. I planned to save 50% but came up short with about 40% instead but either way my goal is to save at least 50% of my income.

    So it is very possible to do and yes lots of sacrifices such as living at home, no car of my own, eating in, going out to do outdoor activities.

    I don’t regret or feel bad for what I do because I actually feel much more happier this way then when I used to spend a lot of money each month on stuff.

  8. I think saving 50% is still pretty reasonable. I save around 20%-30% of my income, but after reading your post, maybe we should all save up to 50%.

  9. Steve,

    This is an excellent question that truly got me thinking this morning when I read it. After a thorough evaluation of our finances, I unfortunately have to say no.

    We could get by on about 60% of our income if we knock out a few of our monthly splurges. However, as it stands, we save exactly 35% of our income consistently each month.

    But now we have something to work toward. ;-) Thanks.

  10. Marc and Angel,

    35% is damn good! Sure 50% would be better, but it might be too much for your situation.

    Christine and I are shooting for 50%. Right now we are about where you are. We are also growing Christine’s book business. June 1st we are moving into a warehouse. I think we are going to end up sinking income into business growth.

  11. My husband and I unexpectedly split a little over year ago and overnight by income was cut in half. I had to increase my use of credit briefly but overall found I could live on 50%. Obviously, I wasn’t saving 50% but found I was able to get by on a lot less money. In that time I’ve found ways to bring in extra income, have reduced the debt considerably, and have even started saving a little. Once I get rid of the debt I can live on even less and may decide to work less.

    I’m also lucky – I don’t care much about material things – clothes, cars, etc. Not having certain things doesn’t feel like a sacrifice – I prefer the free time.

  12. Saving 50% is a great advice. However it depends on how much you are earning currently and if you’ve a mortgage. If you don’t have a mortgage and can’t save 50% of take home pay, you’re either spending too much or you should find a better paying job.

  13. Swanie,

    Wouldn’t it be best to not put yourself in a position where you must spend more than 50% because you have a large mortgage payment? Maybe buy a smaller home or move to a part of the country where homes don’t cost so much?

  14. I spend much less than 50% now. However, I don’t think it’s good advice for 18-25 year olds. Spending everything you make and then some is one of the joys of being young. Why take that away from them?

  15. quadszilla,

    You make a good point. One of the joys of being young is freedom from responsibility. Spending all you have is one thing. It is another to spend more than you have.

    I’ve known so many people who get buried in debt by 25 and become slaves to debt for the rest of their lives. Credit cards, trips around the world, trendy clothes, student loans, cars, big mortgages.

    My point in this post wasn’t so much that you should save 50% indefinitely with out ever spending your savings balance. It was that if you save 50% and use the balance to buy things like cars and education and vacations with cash you can afford instead of incurring massive debt.

    Case in point, I know a kid from a poor working class family, he’s attending an expensive private college ($35000 per year) for computer science entirely on loans. He just bombed a java course and is questioning whether he likes comp science. Now he’s almost $100K in debt and he feels trapped. He bought the lie that he should get a degree no matter the cost and student debt is always ‘good debt.’ On top of this, he’s never programmed in his life until college, his parents didn’t even have a computer. He would have been much better off getting a job, buying a computer with cash, learning about it, saving some money and taking some programming classes at a community college or tech school with his savings. From there he could find out what he likes without incurring debt. Right now it looks like he’s going to end up 150K in debt doing a job he hates. And that’s if he makes it and is good enough to get a job. I just heard another story just like this about medical school. The student is 500K in debt, has his job as a general practitioner and hates it. Is that any way to start out in life? Buried in debt doing something you hate?

    Make sense? Comments?

  16. I took me escaping the “18-25″ year old phase with a house I could not afford, loaded with student debt and cars loans to know this advice is true. We now work everyday harder to get back to the “zero-sum” game to start over. How much father behind will we be because this advice was not shared? Keep up the message. As someone who graduated from HS in the last 10 years I assure you, the most basic financial advice is NOT taught. We must be louder and stronger in our convictions that pop culture.

  17. Not that I disagree with the point but I do not see how some one can live on $50 for a month as he claims.

  18. “To expand, we need employees, and our house wouldn’t be a good place for others to work”

    – I wouldn’t want employees in my house and lose all my privacy.

  19. talking about …
    Keep tin mind that these lifestyle sacrifices would be temporary – delayed gratification) 2 and 8 totally agree…

  20. I agree with all of this. I would like to add that there is no advantage apart from the maintenance sector when buying a new cars for sale. Used cars are easily found and they sometimes come as a surprise when apon purchasing as they are sometimes as good as brand new at half the cost.

  21. Hi Steve,

    I am currently 21 and every time I receive my salary, I make sure that there would always be something saved for tomorrow. I do not believe in buying things on credit as they would only add to one’s burden. Decision to save, commitment and determination will help one save and keep that savings (not just save then withdraw them soon)

  22. Definitely think it is possible.

    Right now, I save 10% through my employer (to get 5% matching for my IRA).

    From my take home pay (after taxes and the 10% above), I save 25% toward retirement, use the remaining 25% to pay off student loans (should be paid off within about 1.5 years total, due to having gone to my state’s university, effectively cutting my tuition in half.

    So, effectively, I live off 50% of my income. Right now, 25% goes to savings and 25% to school loan repayment. Another year or so and I’ll be able to save 50%.

    It’s definitely a good feeling to be able to do this.

  23. Great advice, Steve! I know many of us have been forced to pare back due to circumstances beyond our control the past 2-3 years. When and if our income resumes to it’s previous level, it would be best for us to simply pretend it doesn’t exist! Think of how great it would feel to save 50% of what we make each month! We could easily save $12K per year or more!

  24. My husband did that- we lived on less than 50% of income – with kids.
    It totally WRECKED the marriage, and I’m glad to move on and away.

  25. If the U.S. defaults on the national debt, it would be the financial equivalent of launching a nuclear attack upon ourselves. In my lifetime I have see the greatest generation and now the worst generation. The second half of JFK’s famous “Ass Not” would now be answered, “Don’t ask me, let somebody else do it.” Everyone must face reality and chip in NOW. There really is no free lunch.

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