Making six figures is not a mandatory prerequisite for early retirement, although it can help. In order to achieve financial independence light years ahead of your peers (yes, even the presumably rich ones) commitment is key. Financial responsibility is the ‘magic pill’ that can help achieve this goal quickly. Razor sharp focus on eliminating debts, decreasing bad spending habits, reducing the monthly budget and earning more income are vital for achieving Financial Freedom.

How to live off of 50 percent of your income in real life

In order to successfully live off of half one’s income it takes a large amount of discipline, financial awareness and a fairly aggressive savings plan.

Adopting an aggressive savings plan can provide the following advantages:

  • Eliminate wasteful or unnecessary spending - Living off of half your income forces you to take a snapshot of your current budget and spending habits to distinguish and prioritize what is important (‘needs’) and what is not (the vast majorities of our ‘wants’).
  • Take advantage of compound interest - The earlier one gets started saving the better because of the power of compound interest. With this financial concept, the interest that is earned each year is added to the principal balance allowing money to grow (or compound) at a progressive rate. Think interest on top of interest. Compound interest is essentially reinvesting interest (instead of paying it out, like many people do to their credit card companies each month), in such a way that interest in the next cycle or period is received on the principal amount in addition to any previously-accumulated interest. Essentially if you are a recent college graduate begin saving as much as you can now preferably into a tax-deferred Retirement Savings Account such as a 401(k) , Roth IRA or SEP-IRA (for freelancers and self employed individuals) even if the amount is small, the gift of time will allow compound interest to occur and ultimately have a great impact on your savings. However if you are older and have to catch up this is where saving a higher percentage of your income each month can benefit and allow you to experience the power of compounding as well.
  • Diversify investment options - The more money set aside for saving, the more money that can be allocated towards investment opportunities. As previously mentioned contributing more to a 401(k), SEP-IRA or other retirement accounts will have a significant long term benefit. Saving more will also present the opportunity to consider other lucrative investments, such as annuities, certificates of deposit (CD’s), life insurance, mutual funds, real estate, saving for college and stocks.
  • Reduced levels of stress - Saving more money provides a protective umbrella or a safeguard against the Murphy’s Law theory — Anything that can go wrong, will go wrong. A strong financial cushion provides a piece of mind for unanticipated expenses that are bound to occur such as; a car accident or repairs, home upgrades, medical bills or even getting laid off or fired from your job.

Reprogramming your mind and your current lifestyle to survive off of half of your income commands a lot of discipline but it is in fact attainable.

Use the following strategies as a compass to get started saving 50 percent of your income today.

Track your spending in order to pinpoint a comfortable and realistic savings goal

Before attempting to live off of half your income, assess if this goal is achievable via your current circumstances.

Compile a list either on paper or via a spreadsheet and document all of your current spending habits. Highlight all fixed costs, needs or necessary expenses such as mortgage, rent, phone bill, car payments and insurance, medical insurance, etc.). Use a different color to highlight variable costs, wants or expenses that vary from month-to-month and do not add value to ultimately becoming financially independent.

These costs include cable, credit card payments, dining out, entertainment, groceries, vacations, etc. Determine the variable expenses that you can live without and get rid of them. Tracking your expenses will help to pinpoint exactly where your money is going and enable you to move forward with your goals.

Some people may have to adjust by not buying designer clothes, eating out less, grocery shopping at a more affordable store or even forgoing the expensive gym membership to exercise at home (or at a local park) for free. While others may have to make more radical adjustments to their current spending habits to accomplish their monthly savings target.

If the thought of making financial sacrifices, such as downsizing from a two bedroom apartment to a studio or swapping your car out for a bike or even public transportation frighten you, then consider starting out saving 20 to 40 percent of your income and gradually working up to 50 percent or more.

The key is making a commitment to live below your means in order to achieve your financial goals.

Eliminate debt

Any existing debt will greatly limit your overall ability to improve your finances. Clear all bad debt first such as credit cards, payday loans and car loans. Doing this first will provide a substantial difference in the amount you can save once there is no longer lingering debt hanging over your head.

To get rid of debt fast consider doing the following:

Stop borrowing money now - Make a conscious decision to stop using debt to fund your lifestyle. Cut up all but one credit card and do not apply for anymore. Stop financing furniture, smartphones, televisions and anything else that you can not afford to pay for in cash.

Get the lowest rates possible on debt - Always look for ways to reduce the interest rates on your existing debt. By getting the lowest possible interest rates you increase the opportunity to pay down the debt faster and for less money. Consider seeking out better interest rates in the following loans

  • Refinance your mortgage
  • Home equity lines of credit
  • Credit cards
  • Car loans
  • Student loans

Establish an emergency fund - According to financial expert Suze Orman, in an emergency fund, “you should have at least eight months. Not six months, not three months, I'd like to see you have eight months to one year.”

If this amount is not immediately available budget for it and work your way up to it, try to start one by putting away at least $1,000.

It is important to set this account up as soon as possible, because if an emergency arises you can fund it with this money instead of a high interest rate revolving debt credit card.

Consider using a high yield CD, there are short term options available such as 1, 3, 6 or 12 months. Funds that are withdrawn before the end of term are charged a penalty, but this can be a deterrent from retrieving the money for anything other than a true emergency.

Make a new budget - After you have tracked your monthly expenses and determined how much debt needs to be paid off make a new realistic budget and stick to it. Review the budget at least once a month to make sure that you are not overspending.

Automate payments - Use apps like Mint or Personal Capital to aid with budgeting and to set up automatic payments for all bills and expenses.

Consider setting up payments to go directly to your checking, savings and retirement accounts. If there is money left over allocate funds to pay down debt (i.e., credit card balances, student loan debt, etc.). Automating payments ensures that you will stick to the budget and follow through with your financial plan. You also do not get the opportunity to ‘miss’ the money, since it never touches your hands directly.

Shop less and shop smarter - Delay shopping for things unless you absolutely need them. Challenge yourself to get the best deals around on the items that you need. Look for bargain prices, discounts and sales. Use coupons, promo codes and mail-in rebates to save even more money. Again, use the savings to pay off debts or save in a tax-deferred retirement account.

Live on one income

One of the easiest ways to save half of your income is by being married with dual incomes. The key here is to live off of one spouse’s income while saving and investing the other. Try to live off of the the lesser of the two incomes so that you can save and invest more money faster. An additional advantage of living on one income is that if one partner decides they want to become a stay at home parent or needs to stay home for some other reason they will already be prepared to do so.

Earn more money

If you are expecting to save a lot of money, clearing out existing debts alone is not going to magically do the trick (unless you are already making a six figure salary). Earning more money will ultimately boost your income therefore quickly amplifying the ability to save 50 percent or more of your income.

All the money earned from the extra income source can be distributed directly into the savings or retirement account. Increase your income by doing the following:

  • Ask for a raise in salary or hourly wages
  • Apply for a promotion
  • Work extra hours
  • If your employer offers a 401(k), Roth IRA or other retirement savings account with an employer match and you are not participating sign up as soon as possible, and be sure to get the maximum match allowed.
  • Continue your education via a seminar, webinar or an online graduate course
  • Look for a new job that pays more
  • Get a side hustle or a part time job

Save raises and windfalls

Adopt the mindset that money is currency used to invest (make more), instead of spending (save less).

If you receive a raise or bonus from work use it to pay down debt or invest in your emergency fund, savings, investment and retirement accounts. When you receive a lump sum on birthdays, holidays, tax refund or other windfalls; skip the new expensive wardrobe, latest gadget or high-priced vacation —save, save, save instead!

Don’t give up if you miss the mark

If you do not reach your financial savings goal in any given month do not quit or feel like a failure. Adjusting to living off of half your income takes time and practice. Keep going and remember that even if you miss the mark, you are still better off than where you were before you began saving aggressively in the first place. Track where you went wrong, learn from the error and move on.

Learn more about money and personal finances

Take every opportunity to become financially literate. Read personal finance blogs and websites catered towards investments and getting out of debt.

Check out books from the library or sit down with a reputable financial planner to learn more about savings and investments. Never miss an opportunity to learn more about becoming financially independent.

Conclusion

Committing to saving 50 percent of your after-tax income can be a lofty goal but even if you miss your target and fall short, as long as you upgrade your current savings efforts you will still come out victorious in the long run. Stay focused and positive throughout the journey and celebrate your success along the way.

Regarding living on half of your income, personal finance blogger, Taylor Milam commented on her blog, “Living on fifty percent of your income is not normal, and is definitely not common.”

Milam continues, “As a result, you’ll probably partake in other behavior that is considered ‘abnormal’ as well. Whether that behavior involves owning a small wardrobe, riding a rusty bike or having four roommates, there will be people who think you are weird. Don’t let it bother you. In fact, you should take it as a sign that you are doing something right. Saving 50 percent (or more!) of your income means that you are different than most people, and that’s a good thing. Be proud of your ‘weirdness’ and wear it like a badge of honor.”

Could you live on 50 percent of your income to achieve financial success? Let us know, comment below!
© ALL RIGHTS RESERVED