So if it takes money to make money in real estate investing, how can you set aside more money for your investments? Here are several tips to start living on 50 percent of your after-tax income.<\/p>\n
6 Tips to Live on Half Your Income<\/h2>\n1. Your monthly budget must be based on four weeks\u2019 pay, not your annual pay divided by 12.<\/h3>\n
Budgets don\u2019t live on paper. They live or die in the real world, based on actual dollars coming in and going out.<\/p>\n
In the real world, you get paid four weeks\u2019 worth of paychecks in most months, and occasionally you receive six weeks\u2019 worth of pay in a month (assuming you\u2019re paid biweekly). Your budget needs to be based on what you can consistently expect to earn, not based on a theoretical fraction that exists only on paper.<\/p>\n
On months when you do receive that third paycheck, congratulations! You can shunt that entire paycheck into your savings account. (What, you thought I\u2019d tell you to go buy another trendy gadget or a 15th<\/sup> pair of shoes to almost-never wear?)<\/p>\n Most people start their budget by looking at their current monthly income and writing out their expenses. Don\u2019t do that.<\/p>\n Practically speaking, investing half your income means living on one biweekly paycheck per month\u2014two weeks\u2019 worth of pay.<\/p>\n I can see you sitting there shaking your head and thinking, \u201cThere\u2019s no way.\u201d But if you got fired tomorrow, spent the next nine months unemployed, and eventually took a job making half the income you are now, would you figure out how to survive? You would, of course, but probably not without making some serious spending adjustments.<\/p>\n Now that you have an income to start from, list out your fixed monthly expenses: mortgage\/rent, car payment, etc. Then list out your recurring but variable monthly expenses: utilities, groceries, gas for your car, etc. Finally, list out all annual or semi-annual expenses, both fixed and variable: insurance, accounting, gifts bought for others (Christmas gifts, birthday gifts, wedding gifts), and so on.<\/p>\n You\u2019re undoubtedly deep, deep in the red by now, and you probably haven\u2019t even accounted for discretionary spending yet. That\u2019s OK.\u00a0We\u2019ll help you trim the fat.<\/p>\n Related:<\/strong> 7 Toxic Money Habits That Harm Your Financial Future<\/a><\/em><\/p>\n Housing is most people\u2019s biggest expense, so start by looking to cut there first.<\/p>\n SmartAsset released a study showing that on average, a person splitting a two-bedroom apartment rather than leasing a one-bedroom apartment saves $420.70\/month on average<\/a>. In some cities, like San Francisco and New York, that number is well over $1,000\/month in savings.<\/p>\n Married? Have a family? That doesn\u2019t mean you can\u2019t rent out a spare bedroom.<\/p>\n The benefits don\u2019t stop at cheaper housing payments. Utility bills suddenly divide into smaller pieces, and roommates can help out around the house with cleaning, cooking, upkeep, and errands.<\/p>\n If you\u2019re lucky, you\u2019ll even end up with a lifelong friend. I lived with several roommates in my 20s and 30s (before my wife kicked out the last one), and they remain some of my closest friends to this day.<\/p>\n Sure, some things you shouldn\u2019t buy used. Sheets, towels, toilet paper\u2014you get the idea. But most \u201cthings\u201d in life you can\u2014and should\u2014buy used.<\/p>\n On average, new cars depreciate 20 percent in their first year of ownership<\/a>\u2014and another 15 to 25 percent in their second year. Is a two-year-old car 40 percent lower quality than a new car? In most cases, not even close, but you\u2019re getting a 40 percent discount nonetheless.<\/p>\n Furniture loses value even faster but doesn\u2019t lose functionality, and in many cases, it doesn\u2019t even lose aesthetic value. None of your guests will be able to tell the difference between a two-year-old used piece of furniture you bought yesterday and a new piece of furniture you bought two months ago.<\/p>\n But the difference in cost? It\u2019s routine to see furniture that retails for $1,000 selling on Craigslist for $100.<\/p>\n The list goes on: clothes, electronics, appliances. I\u2019m not saying you should never buy new, but your first impulse should be to check available used items first. If you can\u2019t find a used, quality version of what you want, then look into buying it new. But train your brain to think \u201cused\u201d first.<\/p>\n The average markup on food and beverages at restaurants and bars is 3 to 4 times the retail price. Why pay that markup all the time when you can eat and drink the same quality stuff at your friend\u2019s dinner party instead of a restaurant?<\/p>\n Start shifting away from always going out and toward organizing events at people\u2019s homes or nearby public areas. From backyard decks to pools to parks and beyond, there are plenty of places you can congregate without needing to pay the steep markup charged by businesses.<\/p>\n We and two other families spent last Friday evening having a bonfire on the beach underneath a nearly full moon. I enjoyed some high-end Dogfish Head beers (the Immort Ale, for enthusiasts) while roasting s’mores and occasionally venturing knee-deep into the water.<\/p>\n The total cost? A whopping $15.<\/p>\n Another group of friends went out to local bars and spent around $100 apiece. When we ran into each other the next day, they were surprised to hear about my Friday night and said, “That sounds really fun. I never thought of that!”<\/p>\n Get more creative and stop just defaulting to the same old patterns of going to businesses for your social life.<\/p>\n Sick of playing defense and slashing your spending? No problem\u2014go get a raise. Whether that means talking to your boss about a raise or going and finding a higher-paying job, don\u2019t be shy. Explain in detail to your boss or a hiring manager why you do\/can provide them with incredible value. Demonstrate in as many creative ways as you can that you will help them reach the next level and why you\u2019re an invaluable addition to their team.<\/p>\n Remember, you aren’t limited to your current field, either. Think bigger about what other career paths intrigue you and may pay better.<\/p>\n But here\u2019s the thing: When you get the raise, you\u2019ll be tempted to spend more. Remember that the goal here is to invest more of your income in real estate or other investments, not to show off to your friends and family how well you\u2019re doing.<\/p>\n You don\u2019t need a bigger house; you need a bigger real estate portfolio. You don\u2019t need a flashier car; you need a way to get around town to your properties. Love a bleu-cheese-encrusted ribeye? Don\u2019t go to that pricy French restaurant. Instead, learn to cook (and then pair that ribeye with a delicious Haut-M\u00e9doc that you bought for a quarter of the price at the wine shop instead of snooty Chez Pierre).<\/p>\n Reining in your spending is scary and painful at first. But as you watch the Benjamins start stacking up at an astonishing rate, you\u2019ll suddenly find yourself OK\u00a0with a gently-used couch instead of the same couch bought at a store. As your investments (real estate and otherwise) mount, you\u2019ll start seeing extra income from them. Reinvest these returns as long as you can rather than spending them, and one day in the not-too-distant future, you\u2019ll find that your investments are actually bringing in enough to cover your modest expenses.<\/p>\n2. Start with your after-tax, after-savings income.<\/h3>\n
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<\/p>\n3. Slash your housing cost with a roommate.<\/h3>\n
4. Buying used should be your first impulse.<\/h3>\n
![\"clothes-shopping\"](\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2016\/04\/clothes-shopping.jpg\" "\\"\\"")
<\/p>\n5. Shift your social life away from businesses.<\/h3>\n
6. Get a raise!<\/h3>\n
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\nRelated:<\/strong> 12 Reasons You\u2019re Poor<\/a><\/em><\/p>\n
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