A British Man's Take on Debt, Saving & Investing

Could You Live on Half Your Income?

Posted on September 29, 2009 by Lee

In 2006, long before I came to the realisation that my finances were in a dreadful state, Trent over at The Simple Dollar proposed a simple question.

Living on Half Your Monthly Income: Could You Do It?

I’m going to pretend first of all – for the sake of this financial experiment – that I am not still living at my parents house. In my mind that is cheating when it comes to the spirit of the question. So I will for the moment assume that I had a rosy life before now, and have managed to buy myself a wonderful little apartment and have a mortgage to go with it.

That seems a little fairer.

Ground Rules

  • My monthly income is calculated without any potential overtime
  • Income tax remains at 20%
  • V.A.T. calculated at 15%

With those rules set, half my present monthly income after tax is around about £1,000 (or $1,600 USD for my American visitors). That is a little better than some folks, and between a little and a lot worse than others.

Playing With The Numbers

Continuing the assumption that I had been financially astute in my prior years and hadn’t been taken to the cleaners by my ex wife instead, for this little paper experiment I bought a wonderful flat with a £32,000 deposit and a mortgage of £71,000 for a 70% LTV (or as our American friends would say – a little over 30% down).

  • According to the Barclays Mortgage Calculator: £336.
  • Gas and electricity bills are £50 each, so: £100.
  • Water Rates (Supply & Drainage): £40
  • Council tax on a flat with 25% single-person discount: £82.
  • Landline telephone (with broadband of course) £15.
  • My mobile phone bill: £20
  • Groceries: £75
  • Road Fund License (Tax): £14
  • Car Insurance: £30
  • Fuel to get to work: £120
  • Car Servicing: £20
  • TV License: £12
  • LoveFilm Subscription: £15.65
  • Blog Hosting: £12

How Did I Do?

Half of my monthly income (without figuring overtime into the equation) is £1,000.  My total outgoings in my simulation above come out at £891.65.

Fantasy Finances Pie Chart

I can continue my standard of living without making any changes whatsoever if my income suddenly halved! This is quite a surprise actually. In fact, I could continue to save over 11% of my monthly take-home if I agreed with myself not to go out or conduct unnecessary spending.By the end of a year, excluding holidays I could actually still save £1,300.

And If It Dropped Tomorrow?

In the spirit of the question as things stand for me right now (rather than my fluffy fantasy above), could I survive?

  • Rent: £120
  • Mobile Phone: £20
  • Mobile Broadband: £5
  • Landline Telephone: £10
  • Groceries: £50
  • Road Fund License: £14
  • Car Insurance: £30
  • Fuel: £120
  • Car Servicing: £20
  • LoveFilm: £15.65
  • Blog Hosting: £12
  • Credit Card Payment: £120
  • Loan Payment: £413

Total monthly expenditure would equate tomorrow as £949.65. Still just under half my income, but a little tighter. My savings goal would struggle. This would leave me with 4.9% of my pay left to save, totaling just £604 for the year.

Tomorrow's Finances Pie Chart

What Did I Learn

Every exercise you do, try and take something away from it. I have learned that I am pretty frugal already. I don’t spend excessively, and I even upped my normal food spending in the fantasy exercise to make it a fair fight. £50 a month on food is very low statistically. As Trent realised – if you can live on half your income, why aren’t you doing so now and saving or investing the other half? What unnecessary money drains are you entertaining?

Could you live on half your income? Would you need to make any changes?

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Category Employment, Family, Money Management, Spending Analysis
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