One of the things my fiancé and I are considering doing once we tie the knot is switching to live on one salary. It might seem a little extreme, but the financial reward is so massive it’s hard to find any flaws with the plan.
Could you and your partner live on one salary?
We’ve been talking about it for a few months, and we think after our wedding in October, we’ll be in the right place to switch to living on only one income. If you think we’re crazy, here’s my rationale:
We can afford it.
I think one of the best things about going back to school for my MBA was I was forced to live like a student, and even now that I’m employed full-time again, I’m still living a more modest lifestyle than I would (or will) when I get used to my income. My fiancé is just one of those naturally frugal people, and thankfully has never been foolish with his money. As a result we have only one car between us, we eat most of our meals at home, don’t shop excessively (ok, not too excessively), and have inexpensive hobbies.
Additionally, most of our purchases, from groceries to concert tickets, are already bought together and therefore already coming out of one bank account. So we’re used to sharing money.
We’re both high earners, and the combination of modest living with powerful paycheques leaves a lot of breathing room. I make slightly more than my fiancé (though he recently got a promotion, so the gap is narrowing), which factored into our decision about whose salary to save and whose to spend. Both of us individually make enough to pay all the bills and still have cash left over, but when it comes to picking which cheque to keep in the bank, the bigger one is clearly the better choice. It’s an incredible position to be in, and we want to maximize the benefits of it. I know it’s a luxury to not need two incomes to support two people, and I am very grateful we are in such a position.
How would we do it?
We’d live on his salary while splitting mine equally between our individual savings accounts. In other words, his full paycheque would be deposited to our joint chequing account, and my paycheque would be dividend in half, with each of us receiving the same amount to deposit in our TFSAs, RRSPs, and unregistered savings accounts based on the most appropriate asset allocation. If any of his salary is leftover in our joint chequing account at the end of the month, we’ll transfer it to our joint savings account. This means we’ll be living on 40-50% of our incomes while saving the rest.
It’s easy to use up your salary when you have to split it up into bills, saving, and spending, but if we allocate all my income to saving and all of my fiance’s to bills and spending, it actually feels like more. It’s not, of course, it’s the same number of dollars just allocated differently, but it reduces the burden of budgeting to something fundamentally simpler: two paycheques, two categories – spending and savings. Furthermore, much like contributing the same amount to our joint chequing account, divvying up our money equally keeps any “mine and yours” arguments away because everything is appropriately “ours”. I never want money to be something we worry or fight about, and this is another way to protect against that.
If this is such a great idea, why wait?
It’s tempting to execute this plan immediately, but we’re choosing to wait until the marriage papers are signed for a number of reasons, not the least of which is legally becoming husband and wife before merging assets and incomes. Furthermore, we’re still slightly off-balance individually, as I’m still paying for my MBA and am only 3 months into my new job. We’re taking the months before our wedding day to balance our accounts the way we want them before we go all-in together. For example, he has more in his TFSA than me because I used my savings to go back to school, but I have more in my RRSP because I started saving earlier. Both of us want to “catch up” in our respective registered accounts, so that when savings is distributed equitably from my paycheque, we’re each saving the same amount. We also have the expense of the wedding itself, which some things we are paying jointly for (like the venue) and others we are paying for individually (like my dress and his suit). Ultimately our money is our money from now on, but for the ease of bookkeeping we’re procrastinating this plan until after our nuptials.
Would we do it forever?
Aside from saving in an RRSP, I don’t like to make plans more than 3 or 5 years out. I can’t predict our lifetime earnings, stock market fluctuations, or what kinds of challenges will befall us individually or as a couple. I do know living on one salary is a powerful defense against one partner being laid-off, and that provides a incredible amount of financial security. This is coupled with the financial security provided by amassing a huge amount of savings by banking the other partner’s income. But what we can afford right now is not the same as what we can afford forever. However, if our incomes grow with career progressions, there should be no reason why we can’t commit to living on one income for the foreseeable future.
Crazy or genius? Could you and your spouse live off of just one income?