Live Debt Free

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Start Living on One Income!

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I strongly urge you to do everything in your power to start living on one income, however and whenever possible.  If you are single, concentrate on living well below your means, paying off any debt you have, saving money, and giving generously.  If you are a two income family, please read on with a hopeful and open mind.  🙂

Why live on one income?

Living on one income does not necessarily mean you’re only earning one income.  Whether both spouses work, or only one works and the other stays home… there are many benefits to living on one income only.

When both spouses work

As it sits right now, me and Betsy have no children and are self-employed, but it wasn’t long ago that we were both working full-time jobs. There are benefits to having both spouses work, but if you do I still encourage you to live on only one income while you save the other.

Here are a few noteworthy benefits of a two income family living on one income:

  • A hedge against job loss. If both spouses work, yet they only require one income for their living expenses, then the other spouses job can be lost without an enormous family crisis taking place.
  • Pay off debt faster. Use the second income to get you out of debt in record time.
  • Save more money. Once you are out of debt, start packing away boatloads of cash.
  • Give more. Because you can, because it will make you happy, and because “…God loveth a cheerful giver.”  II Cor 9:7
  • Retire earlier. Once your emergency fund is established, begin fully funding your IRAs, 401(k)s, and other investments so you can retire earlier and spend more time doing what you love.

When only one spouse works

If you have been blessed with children then most of you will likely be forced to decide between having one spouse stay home and putting the children in some sort of day care.  Let’s take a look at some of the benefits of being able to skip the day care and enable mom or dad to stay home with the children while the other spouse brings home the bacon.

  • No day care. You raise your own kids… full-time.  You do not have to pay for day care, and no longer have to worry about whether or not your children are being properly raised 8-10 hours of the day.
  • Less stress and more quality time. When the working spouse comes home, many of the household duties, cares, and concerns can already be taken care of by the homemaker.  This affords the couple much more quality time with much less stress.
  • Enable one spouse to take care of the home, and everything in it. One spouse goes to work for pay, while the other stays home and works as the support system.  A homemaker taking seriously the job of caring for home and family may just be the most honorable and rewarding position there is – and I think we, as a society, are in dire need of more of this type of thing.

I hold to the belief that a woman will feel more fulfilled in the role of staying home and caring for the home and family while the man goes outside the home to earn.  I am not a chauvinist, and I do not think “stay-at-home-moms/wives” have it “easy,” that couldn’t be farther from the truth.  What I do believe in are the gender differences ordained and given us by God Almighty.  Don’t get me wrong… either spouse can provide, and either can stay home… but we are most interested in how intrinsically fulfilled each of us feel in either given role.

In conclusion…

Living on one income while both spouses earn gives you increased security, speedier debt repayment, more capability to save, give, and retire early.  Living on one income and raising a family will afford you less costs and outsourcing in regard to raising children, lowered levels of household stress, and more time together as a family!

Whichever route suits your family best… don’t the benefits of living on one income sound appealing?  So what are we waiting for?  Let’s start tweaking our budget so we can live on one income and start reaping some of these benefits!

Do you (or can you) live on one income?

We want to be there as soon as possible… so we’re working to get rid of all our debt (and a lot of our possessions.)  We cut costs drastically, are living far below our means, and would probably be fine if we were forced to trim down and live on one income only.

What about you?  🙂

How to Buy A House with a Mortgage

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Owning a home – a.k.a. “The American Dream” – is considered by many as the true sign of “making it”.  There is a right way and a wrong way to make this dream a reality.  The last couple of years have shown that if you do not go about it the right way, you could end up with a real mess on your hands.  Foreclosures and short sales are at an all time high, so I wanted to discuss a few  tips to help you avoid negative housing situations.

Save for a down payment

It is possible to get a mortgage loan with very little down.  This could be considered good in certain circumstances, but overall it’s a bad thing.  It makes buyers think they can afford more than they can.  I suggest instead, saving up at least 20% for a down payment. So, if you’re looking at homes in the $100,000 range save until you have at least $20,000.  That sounds like a lot of money, because it is!

There are two advantages to this strategy: (1) it will insure that you will get a house you can afford.  If it takes you a couple of years to save up $20,000, it will appear clearer to you that you probably shouldn’t push yourself further by purchasing a $150,000 house.  Saving will also prevent you from making an impulse buy.  Trust me, you will want to think through a decision much more critically when you are writing a $20,000 check versus just coming up with $500 to cover closing costs. (2) it will help you avoid PMI insurance.  Most banks require that you pay for this insurance if you don’t have at least 20% down.  It protects them, not you, if you default.  For you PMI is a waste of your hard earned money.  PMI rates vary, but common amounts are $65-$70 per month on a $150,000 mortgage.  That’s money you could be putting to better use right? Like paying down credit card debt or saving for something awesome.

Monthly mortgage payment amount

This is extremely important.  If you want to do anything to get ahead financially (insert your favorite use for money here), it will be almost impossible if you are house poor.  For example, if 50% of your take home pay goes toward your mortgage, you will be lucky to cover the rest of your essentials such as food and utilities.  The math just doesn’t work. Instead keep monthly mortgage costs down below 25% of your gross income (after taxes).

Matt’s note: I suggest you keep you mortgage costs down to 10% of your monthly income, especially if you’re looking to buy in this amazing buyers market.

Here’s another tip if you’re a two income family – base the 25% rule on just one of your incomes.  Are you really comfortable assuming you’ll both be making the same income for the next 15-30 years?  I know we’re not!  Many young couples I’ve counseled start with two incomes then want to go down to one when a baby comes along.  When Mandy and I bought our first house, we kept our payment under 25% of our take home pay but we based it on both incomes.  When our oldest daughter was born and Mandy wanted to quit her job to stay home, it caused a problem.  All of a sudden our payment was closer to 30-35% of our take home pay.  It wasn’t killing us, but we could no longer accomplish many of the goals set when we had two incomes.  We ended up having to sell our house and move into something more economical.  It would have saved a lot of hassle to buy our current home the first time. Even if both spouses continue to work, you can always use the extra money to give, save, or do whatever you wish.

Shorter mortgage terms

This tip is simple math.  What law says you must take out a 30 year mortgage?  Hint: there isn’t one. Why is thirty years the standard?  Banks set that as the standard so they could make more money (interest on your debt).

Let’s look at an example.  If you take out a 30-year, $100,000 mortgage at 5%, your monthly payment will be $537.  The total interest you pay over 30 years will be $93,259!  If, instead, you took out a 15 year mortage, your monthly payment would be $791, but you would only pay $42,347 in interest over the life of the loan.  I don’t know about you, but $51,000 in savings is a lot of money to me!

Buying a home is a decision to think through very carefully.  Mandy and I learned these tips the hard way and my hope is that you don’t have to.

Use these tips to make sure your American Dream is a dream come true… and not a 30-year nightmare!

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How To Save For Emergency Repairs

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I have an old house (built in the 1920s). I also don’t have brand new appliances and house systems (furnace, plumbing, etc). This means that it is relatively often that something in my house breaks down. Does that ever happen to you? From a financial standpoint, the question then becomes what do we do? How do we afford to fix it? Here are 3 options:

1. Have an emergency fund.

This is my personal favorite. I recommend having an emergency fund of 3-6 months worth of expenses. That way, if a major appliance goes down, then you have the money to pay for it. I realize that an emergency fund of $10,000-$15,000 is not something you end up with overnight. It may take awhile, but if you set it as a goal and put all of your focus and attention on it, it can happen quicker than you think. My wife, Mandy and I had some major furnace repairs right in the middle of winter this past year. Luckily, our emergency fund was used to cover the expenses. It provides a huge level of peace to know that your are not one emergency away from a financial disaster.

2. Wait and save!

This is where a little creativity mixed with some grit comes in. I’ll use an example from Mandy and I’s life to explain what I mean. A couple of years ago, we were saving all of our money towards our health savings account because we had our second child on the way. It was a huge expense coming and there was no escaping it. Right in the middle of that frenzied savings, our dishwasher broke. We literally didn’t have an extra dollar to spare as we were putting away every single one to pay the hospital bill. Instead of paying to have it fixed, we actually did dishes by hand (oh, the humanity!). We did it that way for about two months until we had the money to cover the medical expenses. Sometimes, that is what it takes. Let’s be honest, most people would not sacrifice for a short two months in order to avoid going into debt. Once you make a commitment to avoid debt, however, it makes it the only option.

3. Pay for it with credit.

Unfortunately, this is the option most people choose. The culture has driven into us that fixing or buying a new one when something breaks is just what you do. It doesn’t matter if you have the money or not. In fact, that is exactly what credit is for. The fact is that is how most people end up with $40,000 or more in credit card debt. It starts with an “emergency” you just had to fix. Then another and then another. I have yet to meet anyone whose plan was to get into massive amounts of debt. But the mentality that certain things have to be fixed or replaced immediately, causes us to do stupid things. I know it’s hard, but I highly recommend avoiding this option.

Ultimately, it’s up to you which of the above options you choose. I can just speak from personal experience in my own life and with working with my clients that any option that avoids debt is the best one. If you don’t have an emergency fund, then start one. If something happens before you have one in place, then think of creative ways to work around the problem. It will be well worth it in the end.