Category Archives: Saving Money

Saving: The Foundation for Financial Success

Is your goal to reach financial independence?  Do you want to retire early?  If you have an ambitious financial goal, there are many things that you must do correctly.  For example, you need to always be working on improving your ability to earn more money.  You must live below your means.  You must invest wisely in stocks and bonds.  It is also important to take advantage of tax-deferred accounts like a 401K or IRA.  Yes, all those steps are important, but in my experience, having a high savings rate is the most important step to becoming financially successful.

I see savings as the foundation for being financially successful.  Without savings, there is no money to invest.  It is the foundation for one’s financial house to be built upon.  For a house to last, it needs a solid foundation.  If you skimp on the sand or mortar, the foundation will not be suitable to support the structure that you are dreaming about constructing.  If you are not saving enough money, you will not have enough to support a high quality of life when you retire and draw from your savings to pay your expenses.

Savings Rate

This will probably not come as a big surprise, but American’s are not saving enough.  The current national savings rate is just over 5%.  As recent as the 1980’s, the saving rate in the United States was over 10%.  If your goal is reaching financial independence and ultimately early retirement, a savings rate of 5% is not enough.  Even with compound interest, it would simply take too long to grow into a substantial enough nest egg to cover your living expenses.

How Much is Enough

In the classic personal finance book The Richest Man in Babylon, a savings rate of 10% is suggested.  I feel 10% is the bare minimum that the average American should be saving.  I do not think that is nearly enough if your goal is early retirement.  It might be suitable if your goal is to reach financial independence by age 65, but not if you want to retire at age 50.

If you are just entering the workforce, start by saving 15% of your salary.  Work on increasing that rate every year.  Try to increase it by at least 1% annually.  Increase it with every annual raise or bonus.

Spending

Spending is the opposite of savings.  Spending is the enemy of wealth creation.  Spending leads to lifestyle creep.  The more stuff you buy, the more stuff you will want.  There is always something new or better than what you own.

Marketers earn a living by trying to convince you to buy what they are selling.  When you see that your friends or neighbors have the newest products, you will want to upgrade your stuff too.  This is a vicious cycle without an end.

The secret to winning this game is to not play.  Every dollar that you spend puts you one dollar further away from financial independence.  On the other hand, every dollar you save goes towards buying your freedom.

Debt

Debt is created when you spend more than you earn.  Some debt is not as bad as other debt.  Student loans provide you with the funds to get an education to obtain the skills to earn a higher salary.  Taking out a mortgage enables most Americans to be homeowners.  You still must use extreme caution before you incur any type of debt.

Bad debt comes in the form of credit cards, auto loans, and payday loans.  All debt, however, prevents you from saving as much as you could be saving.  When you take on excessive debt, you become a slave to your creditor.  It is possible, but difficult to escape from the bondage of debt once you start to slide down that slippery slope.

Why Save So Much

Once you take on the mindset of a saver, you will never be a spender.  Personal Capital is a free online platform that is great for tracking savings.  That feeling of accomplishment of watching your savings grow is far greater than any new product that you can buy.

After you become a saver, you might notice a mental twist occur.  Once you reach a point in life when you could afford luxury cars and upgrade to a larger house, you will realize that you do not want to waste your money on any of that stuff.  Buying new stuff will become unimportant.  You will see it as being wasteful.

At that point, spending is viewed as an opportunity cost.  You will want your money to keep growing.  Financial independence will become the most import thing that your money can buy.  There is no product or service that is more appealing than having mastery over your own life.

As a saver, you will always be trying to optimize your spending and to live on less.  It is fun to try to stretch a dollar as far as it can be stretched. This mindset will greatly help you on your journey toward financial independence because you will need less money to live on.

For example, if you can live on $40,000 per year, you only need to have $1,000,000 saved based on a 4% withdrawal rate.  What about if you want to live on $100,000 per year?  You would have to have $2,500,000 in savings at a 4% withdrawal rate.  The more money you require, the further away you are from freedom.

Compound Interest

Compound interest works no matter what your saving rate is.  It is just math.  It just works better if you have a high savings rate.  For example, Joe saves $800 per month and Bill saves $2,000 per month.  Their savings both grew by 8%.

How much will Joe have in savings after ten years?  He will have over $147,000 saved.  That is a nice sized nest egg.  It is a solid foundation to build upon.  However, he is still a long way from financial independence.

How much will Bill have saved?  Bill will have over $368,000 in savings.  Bill is well on his way to reaching financial independence.  He is starting to see the light at the end of the tunnel.

As you can see, compound interest worked out well for both Joe and Bill.  Joe has a nice financial foundation.  Bill, on the other hand, has almost 10 years of living expenses stashed away assuming he can live on $40,000 per year.

Conclusion

Start saving early.  Save as much as you can.  Always try to save more.  Don’t be fooled into thinking that you are missing out on anything because you are saving too much.  Once you become a saver, you will have established the required foundation that is needed to fuel the wealth building process.

This post might contain affiliate links.  Please be sure to read the Disclaimer page.

How we reached a $1,000,000 Net Worth

What does it take to reach a $1,000,000 net worth?  In our case, it took a long time, hard work, saving a large percentage of our income, and putting our money to work for us by investing wisely.  Rob from Mustard Seed Money has a great post on how much you have to save each month to reach a $1,000,000 net worth.

I initially was going to title this post “reaching a $1,000,000 net worth by age 40”, but that would have been misleading.  Even though I was, in fact, age 40 when I reached this financial milestone, I did not do it alone.  Individually, I would not have reached this milestone.  My wife and I worked as a team and did it together, so I must give her the credit she deserves.

When we got married, I had over $100,000 saved up in my investment accounts.  As far as assets go, she brought our current house to the marriage. There was a mortgage on the house, but she had about $100,000 in home equity at that time.  By combining our assets, we started out with about $200,000 based on our investment accounts and home equity.

Career Growth

Over the past 10 years, we managed to double our household salary.  Considering that we both have college degrees, we never earned a large salary.  When we first got married, my salary was only $30,000 per year.  My wife was teaching for a few years and was earning about $50,000 per year.  In the past 10 years, our combined salaries have grown to over $150,000 per year.

Savings

When we first got married, our savings rate was 38% of our gross earnings.  We started by maxing out our Roth IRA accounts, I contributed 15% per year to my 401K, my wife contributed 10% to her 403B, and 8% to her defined contribution pension plan.  We also built up a large emergency fund and invested money in taxable accounts.

Every year, we have tried to increase our savings rate by 1% or more.  Our current savings rate is 50% of our gross earnings.  We still earn under the IRS threshold that allows us to max out our Roth IRA accounts.  I now work at a not-for-profit and max out my 403B.  My wife is close to maxing out her 403B and still contributes 8% to her pension.  We are happy with the size of our emergency fund and now just add to our taxable accounts.

Lifestyle Creep

We are always aware of how much we are spending each month.  While some lifestyle creep has occurred, we manage it well.  We travel, but do not fly first class or stay in 5-star hotels.  We buy reliable new or 1-year old certified used cars and drive them for over 12 years/200,000 miles.  We eat at home during the week and only go out to eat on the weekends.  We closely monitor the cost of monthly subscription expenses such as internet, electricity, Netflix, and other bills.  When we do spend money on needs or wants, we always shop around for the best value.

Investing

Our approach to investing has been very simple.  We have invested primarily in index funds.  Our asset allocation has been 25% in bonds and 75% in stocks for the past 10 years.  In the stock allocation, it was well diversified with large-cap, small-cap, and broad international index funds that included emerging markets. From 2007 until 2017, that asset allocation averaged a return of 10.5% per year.

Asset Breakdown

House (appraised in 2012): $220,000

PSERS Pension (Cash Value): $100,000

Taxable Accounts: $240,000

Combined IRA & 403B Accounts: $480,000

Other assets not included (cars, firearms, collectibles, jewelry, electronics, etc)

Debts

Mortgage Balance: $30,000

Monthly Expenses: $2,800

What’s Next

We have more work to do.  We have ambitious goals.  Our next goal is to reach $1,000,000 in investable assets.  We should be able to reach that in the next 3 years based on savings and historical returns for our asset allocation. We also want to pay off the balance on our small mortgage over the next five years.  Our goal is to have $2,500,000 saved by the end of 2028 (see the countdown to FIRE on the right margin).  To reach that goal, we have to keep up our savings rate and have our investments return an average of 6.5% per year.  That is well within reason with our current asset allocation of 65% invested in stocks and 35% invested in bonds.

Conclusion

The main purpose of this post was to share that it is possible to reach a $1,000,000 net worth by just being average.  My wife and I went to average universities, have average jobs, live an average lifestyle, and accept average market returns.  Yes, our savings rate is above average, but that too is possible for almost anyone to achieve if they create a solid financial plan.

If you want a more comprehensive list of steps to follow, check out The K.I.S.S. Approach to Financial Independence.  That is the foundation of our financial plan.  For more reading on reaching financial independence, please check out the Resources page.  It is full of a collection of great books, blogs, and forums that will provide you with unlimited wealth building information.

Where are you at on your journey toward financial independence?

Please share your financial milestones and what you did to achieve them in the comment section.

Planning on working until age 70?

Should you plan on working until age 70?  This suggestion has been surfacing in the mainstream financial media.  It is perfectly fine to work until age 70 or beyond.  It should not, however, be the age that your retirement planning is based upon.

Some people like to work.  It gives them purpose.  Work adds structure to the day.  For many people, it is their identity.  Their job is who they are.

Even if you truly enjoy your job, it is practical to have exit strategy in place.  Life happens, and changes occur on many different levels.  It is prudent to have a plan that enables you to exit the workforce sooner rather than later.

There are many reasons why a person should not set their target retirement age to 70.  Planning on working at such an advanced age is difficult because there are too many variables.  Below are some of the concerns that I have with planning on working until such an advanced age:

Financial Planning

If you set your target retirement date for your 70th birthday, it will have a negative impact on how you manage your finances.  It might even prevent you from creating a financial plan.  Savings will not be a priority.  Without an ambitious goal of retiring at a young age, the temptation to spend most of your money will win out every time.   The motivation to save a large percentage of your earnings for retirement will not be a priority while you are working.  It can easily lead to the mindset of thinking that retirement will never occur, you only live once, enjoy it while you are young, and other poor money management theories.

This mindset can easily lead to a financial disaster.  It would also be much easier to take on debt.  Spending leads to more spending.  If you must work forever, you might as well have a nice car, house, and other stuff to show for it.  You will be stressed from all that work, so two or three expensive vacations would provide just enough rest and relaxation to keep you motivated.

Health

Unless there is a major medical discovery, our time on this planet is finite.  Nothing lasts forever and that includes our ability to work.  As time goes by, we break down.  Everybody is different, but it happens to the best of us.  If you have a physical job like a construction worker, your ability to perform your job is shorter than if you have an office job.

Even though Office work is not physically demanding, it is not healthy.  Some say that sitting in front of a computer all day is as bad for your health as smoking.  In other words, sitting also breaks down the body from lack of exercise.  Along with our bodies, our minds are not able to manage stress and deadlines the way it did when we were young.  Our egos might not like to accept these facts, but it is just part of being human.

Family

As life goes on, our family obligations change.  Parents age and require more of our attention.  They might even require us to become their primary caregiver.

Children require attention past the age of 18.  Grandchildren are born and need to be cared for.  Daycare is expensive.  Your children might ask you to watch their children, so they can go to work and earn a living.  There are many family situations that could require a person to have to stop working much sooner than age 70.

Job Loss

What will you do if you get laid off in your 50’s, but your financial situation requires you to work until a much later age?  Recessions occur about every 10 years as part of the business cycle.  Some companies go out of business.  Some companies survive by cutting labor expenses to remain profitable.

Unless you have a tenured position, in many cases, the first employees to get laid-off are middle managers or older employees.  Loyalty is a thing of the past.  Just because you were loyal to an employer, it does not mean that they will be loyal to you.  Just because you want to retain your position, it does not mean that they will retain you.

Age Discrimination

Age discrimination is a real issue.  Under Title VII of the Civil Rights Act of 1964, an employer cannot discriminate based on age.  The protected age under Title VII is 40 and older.

Even though it is illegal to discriminate based on age, unfortunately, it occurs.  I have had to coach hiring managers and executives many times about this law and practice.  They do not set out discriminate.  They just tend to see younger prospects as being more budget-friendly and motivated than mature workers.

Just because you want to keep working, there is no guarantee that the type of work that you performed during the prime of your career will be available.  You might think that you can still perform at a high level.  The hard part is convincing an employer that you still can do it.

It is Not Fun Anymore

Even though you enjoy your job today, it might not always be that way.  Your assignment might change.  That great boss who supports your development takes on a new assignment and your new boss is a jerk.  The co-worker who you are friends with gets a new position.  The demands change.  The company is bought by a competitor.  There are countless things that can occur that can turn a good job into a terrible job.

What Age Should People Plan on Retiring

It is prudent to plan on being able to retire much earlier than age 70.  I would suggest setting a goal of having the option to retire by age 55 or younger.  That does not mean that you must retire at that age.  It simply means that you have the means to step away from work if you must.  By being financially independent, you simply have more flexibility for whatever life has in store for you.

By setting a younger retirement age, you will manage your finances more wisely.  It forces you to start saving a large percentage of your earnings as soon as you enter the workforce.  It will force you to spend less and avoid wasting money on stuff that you do not need.  It will also help you to avoid consumer debt like credit cards or auto loans.  It will force you to live and spend smarter.

If work is your passion, don’t give it up.  I hope that you can work until you are able to call it quits on your terms.  Never the less, life does not always work that way.  Plan for the worst and hope for the best.  That is why planning to work until age 70 is not a good plan.

I am Frugal, not Cheap

While my wife likes to tell people that I am cheap, I am just frugal.  I don’t like to spend money.  When I must spend it, it is like saying good-bye to a close friend.  Well, that might be a bit dramatic, but it honestly does sting some when we part ways.

When I do spend money, I seek out value.  I want the best quality product at the lowest price.  In the past, there have been times when I bought the lowest priced product, but the quality was not there.  Most of the products that I bought based on being the lowest price did not last long and had to be replaced.  I follow the German phrase: Weniger aber besser.  In English, that translates to: Less but better.

The internet has made finding value easier.  I am a big fan of reading product reviews.  I find that Amazon is a good starting point for most products because they seem to sell almost everything.  Amazon also tends to have the best price on many items.  When I am looking to buy a product,  I like to read 10 or 15 reviews and try to verify that the review was made by someone who bought the product.

I am a brand loyalist.  After I find a brand or product that I like, I stick with it unless they make changes that reduce the quality.  Two areas of where I display frugality by shopping for high quality at the best price are cars and clothing.

Since I live in Pennsylvania and use my car for work, I need a high-quality vehicle that is good in all weather.  A few years ago, I was in the market for a new car.  My Honda Civic had 212K miles on it and the clutch was shot.  I decided that I wanted to buy a Subaru Legacy.

When I started looking, I knew I wanted a certified used car, so I would not get hit with the depreciation costs.  I searched a 25 miles radius from my zip code on Cars.com.  One-year-old Premium models were selling for $24K with over 25K miles on them.

I decided to expand my search, I changed the search radius to 150 miles.  I found a one-year-old certified Legacy at a dealer in Philadelphia for $19,500 and it had only 9K miles on it.  We drove 2 hours to Philadelphia and traded in the Honda for the Subaru.  That car now has 130K miles on it and I will keep it for 3 more years.

I am not a clothes horse or a fancy guy.  My job requires that I dress business casual.  My position involves interaction with the public at career events, universities, and health care centers.  I don’t have to wear a suit, but I do have to look presentable.

For shoes, I have found that Johnson and Murphy are my favorite.  If you are not familiar with this brand, you might get sticker shock when you see the price.  However, I only buy them when they are on sale or at the discount outlets.  I will pay up to $100 for shoes that retail for over $150.  The reason that I am willing to pay $100 for these shoes is that they last.  I get 5-6 years out of them and they are comfortable.

For pants, I like Eddie Bauer.  I will not pay full price at the retail store.  Their website frequently has good sales on the athletic cut that I wear.  Just like with Johnson and Murphy shoes, these pants last a long time.  I don’t mind spending $50 on a pair of pants that will last 7-8 years of frequent wear.

For shirts, the Jos. A. Bank wrinkle-free travelers are my favorite.  Again, I will not pay full retail.  I wait until they have 3 for $99 and buy them then.  $33 for a wrinkle-free dress shirt is a good price.  These shirts are also long lasting and do not have to be ironed.

There are many other examples of how I am frugal and not cheap that I could write about.  For big-ticket electronics, I try to wait until Cyber Monday.  For sporting goods, I buy out of season.  For groceries, my wife used to cut coupons, but now we shop at Aldi.  For investing, we only use low-cost index funds.

While I have always been frugal, I am always looking for ways to get more for less.  By nature, I like to optimize.  Since I have officially joined the financial independence community, I have become even more motivated to reach financial independence by stretching our money even further.  The next frontier that I am planning on studying and implementing is travel hacking.

Please check out the “Frugal, not Cheap Challenge” chain gang:

The Aldi Experience

The first time I ever visited an Aldi grocery store was when I was 16 years old.  I just passed the exam for my driver’s license.  One Saturday, I wanted to borrow my grandmother’s car to go cruising with my friends.  She agreed to let me borrow the car for a few hours, but I had to work for the privilege to use it.

My job was to go to the market for her.  My assignment was not to go to any random supermarket, but to go to Aldi.  I have never been to Aldi before.  I knew where the store was located but did not even know that it was a grocery store.

Aldi is not like any regular supermarket.  You need to bring some supplies with you.  My grandmother armed me with a single quarter ($0.25) as well as 6 or 7 cloth bags.

At Aldi, customers must put a quarter in the shopping cart to rent it.  By renting the cart, shoppers have an incentive to return the cart back to the rack after they are finished shopping to get their quarter back.  This reduces labor cost because the employees do not have to go around the parking lot to round up the shopping carts.  Plus, Aldi only has a few employees staffed per shift.

Aldi does not have grocery bags.  Customers must bring their own.  They were green and environmentally friendly before it was a trend.  This too is a cost saving measure because they do not have the expense of providing plastic or paper bags for customers to use.

I was only a kid at the time and did not exactly know how much groceries cost.  Even though it was a new experience, I was impressed with the amount of food that I could purchase for $35.  I had those 6 or 7 bags filled with groceries.

When I delivered the groceries to my grandmother, I asked her if there is a big difference in price between Aldi and the other local stores.  She said yes.  A shopper saves about 30% by buying their groceries at Aldi.

Fast forward a couple of decades 

I have recently read a few articles about Aldi.  Their business is booming.  They are currently working on building over 450 new stores.

There is also a ton of buzz around shopping for groceries at Aldi in the financial independence community.   I read that PoF from Physician on FIRE  shops at Aldi and there was a review of Aldi on The Wall Street Physician.  All the buzz motivated me to give it a try.

My wife and I normally go to the grocery store once per week.  We do an inventory and create a list of what we need to purchase for the next week. Our orders are generally the same every week.  At our local Shop Rite, we spend about $110 per week on average.  We are price conscious shoppers and try to only buy what is on sale.  We are also health conscious and mostly buy healthy foods such as fruit, vegetables, lean meats, whole wheat bread or pasta, and fat-free dairy products.

When we went to our local Aldi, it was under construction, but still open.  They are doubling the size of the store.  Other than building new stores, Aldi is also expanding the size of many of their current locations.

The layout of the store was just as I remembered.  Like every grocery store, the aisles are broken down by category.  Being new to the store, it took us about 5 minutes to find out where everything we needed to buy was located.  It was easy to find what we were looking for.

We were in the store for about 10 seconds before I started noticing the prices.  It did not take long for me to pick up on the major difference between our local Shop Rite and Aldi.  When we checked-out the amount owed was $75.  That was for our full weekly order that normally costs $110.

Conclusion

After reviewing the Aldi experiment, we will be shopping there from now on.  On our first visit, we saved $35 compared to virtually the same order at our local Shop Rite the previous week.  That was a difference of more than 30%.

Most of the products at Aldi are their own brand.  When we shop at Shop Rite, we also buy store brands when available.  Aldi also sells some name brands.  The price for name brand products at Aldi still cost less for the same product at our local grocery store.

If we can save $35 per week by shopping at Aldi, that would be over $1,800 in savings per year in our grocery bill.  That $1,800 in savings is just for a household of 2 adults.  Shopping at Aldi would provide even greater savings for a larger household with more members.

If you are interested in finding the store closest to you, go to their website www.aldi.com.

What is nice about their website is that they provide the weekly sales flyer online.

Have you ever shopped at Aldi?

If you have, please share your experience.

Update

It has been over 12  months since this post was published.  Since then, we have done 95% of our shopping at Aldi.  The only time we went to our local grocery store was for the rare product that Aldi did not have in stock.  From a financial standpoint, our average grocery bill from Aldi was $72.  Our average bill at Shop Rite was $110 for the previous year.  By shopping at Aldi for the past year, we have saved almost $2,000.  Unless something drastic happens, we will be shopping for our groceries at Aldi forever.

Saving $100,000 by age 30

Saving my first one hundred thousand dollars was the hardest.  When I started on the road to financial independence (FI), I was only 20 years old.  I wanted financial independence and reaching my first $100K was the first goal that I set.  I was aware that it was a lofty financial goal, but I embraced the challenge.  I wanted to reach this milestone by age 30.  On my way to reaching this goal, here is what I did:

Work

I had to land a job and start earning money.  When I looked for a job, my options were limited.  I did not have a college degree yet.  The economy where I lived was not great.  My options were a factory job, construction, or working in the food industry.  I selected working on an assembly line in a mattress factory.  There was nothing glamorous about the job.  It paid a decent hourly wage for unskilled labor.  It was a means to an end, so I was grateful to have it.

Learning to Save

To reach my goal of building a net worth of $100K by the age of 30, I had to save.  Saving came easily to me.  I was working hard for the paycheck and did not want to waste the money.  Every month, I would put at least $500 away towards my long-term goal.  I also put additional money away for vacations, car expenses, and costs associated with college.

Investing

I had to learn how to invest the money that I was saving.  It was the year 1997.  It seemed as if growth and technology stocks were soaring to new market highs daily.  There were often commercials on television advertising new day-trading platforms.  I was fortunate to have read a few books that taught me to stay away from such speculative approaches.  I learned to invest in mutual funds that tracked indexes such as the S&P 500.

I needed to earn 8% on my investments based on my savings and time horizon.  Historically, the stock market earned 10%.  I was confident in the information that I read.  I dollar cost averaged money into my investment account every month.  I ignored the market volatility and just kept moving forward.

Education

Getting a good college education was important to me.  I knew going to college would help me to learn skills that would put me in a better position to earn a larger salary.  College was, however, a financial challenge to manage on my path to reaching $100K by age 30.  I did not want to incur a large student loan balance.  To avoid that, I took 60 credits at the local community college.  I paid cash for those credits.  That allowed me to incur only $18K in student loans for the additional 60 credits I needed to complete my BS degree.

Conclusion

Yes, I did reach the first goal on my journey to financial independence.  By age 30, I saved almost $120K.  The only debt I had was my student loan of $18K, so that left me with a net worth of over $100K.

Looking back, I did put a great deal of pressure on myself to reach this goal because my salary never exceeded $30K per year during this period.  It was, however, worth it.  It set me up with a solid foundation to build upon towards my next goal of a $1M net worth.

Yes, my 20s were productive, but I also had a great time.  I went on nice vacations, went out with my friends, and dated the girl who later became my wife.  I would not go back and change it if I could.

Please remember to check with a financial professional before you ever buy an investment and to read my Disclaimer page.

The Power of a Dual Income Couple

Albert Einstein said that compound interest is the 8th wonder of the world.  He who understands it will earn it, and he who doesn’t will pay it.  If compound interest is the 8th wonder of the world, then I feel that the power of a dual income couple is the 9th.  Being in a dual income couple can be a powerful wealth building partnership if managed correctly.

At my first full-time job, I worked with a guy named John.  John trained me when I first started at the company.  He and I became friends and we would often have conversations during lunch hour.

John was more than 20 years older than me.  He and I would talk and he would give me advice about life.  He told me that his wife was a stenographer and they lived off her salary.  They used her salary to pay their mortgage, car payments, buy groceries, and all their other expenses.  He said that they saved all the money he earned from his position.  They invested all his earnings and were planning on retiring in 20 years when they were both age 60.

I was a young man at the time and never heard of living off one salary.  This was just around the time that I was getting interested in personal finance.  It truly did sound like an ingenious plan.

When my wife and I got married, this was the basic strategy that we planned on using.  In my own experience, I have found that being in a two-income household has many financial advantages.  Here are some tips on structuring a plan to get the most out of a dual income household:

Salaries

Start by analyzing both salaries and identify the higher of the two.  Use the higher of the two salaries for paying all the reoccurring monthly expenses including housing, food, insurance, recreation, miscellaneous expenses, and child care if you have children.  Set a goal of one day being able to use the lower of the two salaries to pay these expenses.  This can be done by focusing on reducing expenses, career growth, and even side jobs.

You might be thinking that living on one salary would be impossible.  It might not be easy, but it is defiantly doable.  Check out the Story about Liz who was featured on budgetsaresexy.com.  Liz provides for a family of five people while also saving to reach early retirement (FIRE).  Liz is also the author of the blog Chiefmomofficer.org.

Debt

Before you start saving and investing, you want to analyze your debt.  If you are part of a dual income couple that has a debt, first work on paying that down.  If need be, take a few years of using the lesser of the two salaries to pay down your debt.  Start by paying off all credit cards, auto loans, and any personal loans that you might have.

Next, pay down your student loans and mortgage.  Once you are left with only student loans and a mortgage, pay them down to a debt-to-income ratio (DTI) of under 15%.  After your debt-to-income level (DTI) is at a manageable level of under 15%, the higher of the two earners can work towards reducing the (DTI) even further.

To calculate your Debt-to-Income Ratio, see the formula below:

Debt-to-Income Ratio = Monthly Debt Payments/Monthly Income x 100

Example: $1000 in Monthly Debt Payments/$4000 in Monthly Income x 100 = DTI of 25%

Savings

When you are in the paying down debt stage, you should also contribute to a 401K if there is an employer match.  You want to contribute to get the max amount of what your employer is matching.  To do otherwise would be to refuse compensation.

Now it is time to start saving and investing.  First, establish an emergency fund of 3-6 months of expenses in an FDIC insured savings account.  Second, max out both 401K accounts to take advantage of tax-deferred savings.  Third, max out both Roth IRA accounts to grow that portion of your savings in a tax-free account.  Forth, use any additional savings to invest in broad market ETFs in a taxable account.

Conclusion

No matter if you are newly married or have been in a dual income couple for many years, you too can take advantage of the powerful wealth building capabilities that you have been blessed with.  My wife and I have been following this approach to reach financial independence for almost ten years.  Our savings rate is over 50% because we have learned to live on one salary.

One last note, I ran into my old co-worker John last summer after not seeing him in many years.  I was having breakfast at a local diner one Saturday morning and John was there with his wife.  We had a brief conversation.  He told me that he is retiring next year and moving from Pennsylvania to Texas where his wife has a family.  It appears that he truly did follow the simple yet profound approach to reach financial independence that he introduced to me a long time ago.

Please remember to check with a financial professional before you ever buy an investment and to read my Disclaimer Page.