Half-Price Living

Women need wise financial strategies. The way of fools seems right to them, but the wise listen to advice" (Proverbs 12:15).

Ellie Kay has coauthored a book with Danna Demetre, Lean Body, Fat Wallet (Thomas Nelson, Presale until 12-10-13), and she is a guest blogger today with wise advice for all of us.  Ellie asks the question:

Could you live on just half of your current household income?  
I’ve posed this question to hundreds of families and overall they say learning to live on less could be the ticket to achieving some of their biggest goals, like having one parent stay home with children, or bolstering their savings to pay off consumer debt. Most people unexpectedly face this task as they approach retirement and look to maintain their standard of living well into your golden years while living on a reduced, fixed income.

Not everyone has the flexibility to make such drastic changes in their lifestyle, but there are some relatively easy steps to see if you and your family can live the “Half-Price Life.” 

Step one: assess your current income and expenses
On a sheet of paper, make three columns. In the first column, list all your monthly income sources, including salaries, dividends, and interest, and their amounts in the second column. In the third column, indicate if each income source is fixed or varies from month to month.  On a separate page, similarly list your monthly expenses sources, their values and whether they are fixed or variable. Compare the ratio of fixed to variable income to your expenses. If you are currently relying on inconsistent income sources to cover stable expenses, you’ll need to give thought as to how you could restructure your lifestyle to accommodate a lower income stream.

Step two: determine your current assets and liabilities
Next, you will want to determine your current assets and liabilities to establish your net worth. For each liability or loan, list four things: total balance due; minimum monthly payment; number of months until it’s paid off; and estimated interest paid. Order a free copy of your credit report and check it against your records.  You can go to annualcreditreport.com or directly to the reporting agencies, Equifax, Experian, and Transunion. You may want to eliminate some of your liabilities, such as credit card debt or student loans, in the shortest time at the lowest cost to allow you to live a pared down lifestyle. 

Next, total your assets. Once you have a clear idea of your assets, you’ll know what is at your disposal that might be able to be liquidated in order to reach the goal of one-income living. In rare cases, couples find that they need to move to a less expensive home or sell a vehicle to get their expenses to a number that can be managed with one income. You can conduct some research to determine the value of your assets. Call the mortgage company and see home equity you might have, then go to a website like Zillow or Eppraisal to get a rough idea of the fair market value of your home. Do the same for car loans at sites like Edmunds or Kelley Blue Book to determine the “private party” value of your vehicles and other assets as well.

Step three: project your “one income” numbers
What will the true impact of half -price living be on your expenses?  What income streams will you eliminate? What expenses will remain? There are some great tools available to help you properly align your expectations of life on a reduced income, such as the Retirement Living Expenses Calculator available on the Indexed Annuity Leadership Council website. 

If your current and projected numbers are out of sync, you will need to assess your situation to see if there are any realistic changes you can make to scale down your lifestyle. Can you eliminate any unnecessary expenses, or minimize variable expenses? Maybe you don’t need a premium cable package. Or perhaps, you could adopt some energy conserving practices to lower your monthly utility bills.

There’s no “one-size-fits-all” for the adventure of half-price living, but frugal living can be a path to help you reach your goals both now and in the future. By setting aside 30 minutes a day to devote to each of these steps, it will only take a week to have a good idea if it is feasible to live a good life on a reduced income.

Ellie Kay is a regular expert on national television with ABC NEWS NOW’s Money Matters show. She is also a national radio commentator, a frequent media guest on Fox News, and CNBC, a popular international speaker, and the best-selling author of fourteen books including her newest release, The Sixty Minute Money Workout (Waterbrook, 2010)