One of the things that I’ve learned over the years is that the principles for saving money are the same whether you’re coupled or a singleton.
Pay yourself first… Live below your means… Invest in the stock market for long-term growth… Always have an emergency fund… Buy the proper insurance… Use low-cost index funds to invest… Take advantage of your employer match at work… Maximize any tax-advantaged investment options… Get out debt… Stay out of debt… Save as much as you can as soon as you can…
While these principles work just as well for singletons as they do for couples, the fact remains that it’s more expensive for a single person to pay for the costs of daily living than it is for a couple due to economies of scale. For example, a single person might bring home $2500 and have rent on a one-bedroom apartment for $1000. This represents 40% of the single person’s net income. A couple might bring home $5000 and have rent of $1500 on their two-bedroom apartment. The couple is paying 33% more in rent, but spending only 30% of their net income. The couple has more money – both numerically and proportionally – to devote to their other goals. The couple has 70% ($3500) of their money left over to devote to the rest of their lives after paying rent while the singleton only has 60% ($1500). A monthly difference of $2000 is not insignificant for most people!
On the flip side, the single person doesn’t have to discuss her money decisions with anyone. The singleton is free to spend or save or donate money however she sees fit. Couples are required to compromise and make joint decisions about money, lest they fight once too often and find themselves singletons once more. Single money means a lifetime of never having to justify an expenditure to anyone other than yourself.
I’ve been a singleton my whole life. The personal finance acronym for people like me is SINK – single income, no kids. And while there was a time when I worried if I would ever find a life partner, that time has passed. I simply don’t worry about it anymore – what will be, will be. I haven’t taken the same laissez-faire attitude towards my money. I apply a laser-sharp focus to that area of my life because I don’t have the insurance of a second income tiding me over if I lose my primary source of money, i.e. my job. I know that it’s expensive to run a house, to make renovations, to replace vehicles, to stock a pantry, to do all those things that my coupled friends do on bigger household incomes.
When I look at my married friends, particularly my married professional couple friends, I sometimes get envious of the six-figure incomes that they bring into their homes every year. However, all of these friends have children and they’re spending atleast 5 figures every month to run their households, raise their families and service their debts. While they have the larger – okay, much larger – annual incomes, they are not matching my 40% after-tax savings rate. They simply don’t have the room in their budgets to set aside 40% of their take-home income. When their children are finally raised, educated and launched, my friends will be in a position to save as much or more of their money as I do. Their mortgages will be gone and they will hopefully all be out of debt. They will most likely still have much larger household incomes than me. Yet the reality is that their investments will not have as much time in the market for their returns to compound – I will have been saving for close to three decades, while they will only have 10-15 years to save before the traditional retirement age.
You know those comparisons of twins who invest and one twin starts ten investing years before the other one, then stops investing in year 11 yet still winds up with way more money than the twin who started investing in year 11? I’m the first twin, while my coupled friends are represented by the second twin. I’ve been investing for years longer than all my coupled friends, so the math says that I will have a significantly larger cash-cushion even if they start investing buckets of money after their children are grown.
Check out this article which does a damn fine job of explaining the benefits of long-term compound investing growth. My situation is akin to that of Chris, or possibly Susan should I choose to stop investing before retirement. My coupled friends will be Bill. They will do well, since half a million dollars isn’t an insignificant sum of money. However, they simply won’t have the same amount of time to let compound interest work its magic on their investments.
My savings & investment habits were ingrained early. My parents saved $10 from each of my father’s paycheques when I was growing up and that money was earmarked for university expenses. This explains how I knew to start my investment portfolio by setting aside $50 every 2 weeks from my part-time job as a grocery store cashier. I was 16 years old when I started to save my own money. Fifty bucks was roughly one third of my net income, but it was enough to get the ball rolling. I continued to save money from every paycheque for the next 30 years. Over time, my income grew which meant that my investment contributions grew too. As I paid off my debts (student loans, vehicle loans, and my mortgage), my bi-weekly investment contributions increased. I used part of my former debt payments to increase my standard of living and the rest of it went to investments for my future. Along the way, I happily celebrated my friends’ weddings and the births of their babies.
Let’s go back to the example above of the singleton and the couple. While the couple may have an extra $2000 on paper, that money is more than likely going towards the costs of raising a family. They might not be saving anything as that “extra” $2000 gets eaten up by family-related expenses. The singleton might only have $1500 leftover after rent but she has the choice of putting aside the minimum 10% of her net income towards her investments. This would leave her with $1250 (= $2500 – $1000 – $250) to pay for the rest of her day-to-day life but the odds are that her income will go up over time and give her some breathing room. That little pot of money that was started with 10% of her net income will likely continue to grow too, giving her options about whether to continue renting. She might decide to buy a home and to get a roommate to share household expenses. She might decide to become a house-sitter to eliminate her housing costs. So while it is more often than not more expensive to be single, the fact remains that singletons have more options about how to lower their expenses and to increase their income because they only have themselves to think about when it comes to money decisions. Couples with children do not have that same level of flexibility with their money – their kids need to be fed, clothed, housed, educated and entertained.
The fundamental principles of personal finance have allowed this singleton to create a comfortable life for herself and I don’t have many regrets about my money. Thanks to my love of all things personal finance and my commitment to continually educate myself about money, I’ve reached a stage in my life where my portfolio kicks off a four-figure income every month. Is the amount enough to retire? No, not yet. However, I’m earning more money every month because I’ve created a positive feedback loop which automatically increases the amount of cash flow that I earn from monthly dividend payments. I fully expect that by the time I retire, my side income will be over $3500 per month. My coupled friends are not in a position to do what I have done, nor to expect what I expect because their priorities dictated different choices with their money.
Singletons who follow the principles of investing steadily and starting early are likely to do just as well as couples who earn more money but are raising families. Earlier I said that the expenses of life are more expensive for singletons because there simply is not as much disposable income leftover after the necessities are paid. I stand by this statement. The added expenses of keeping body and soul together makes things harder in the beginning, but they don’t make the final goal impossible. Singletons can still achieve financial independence should they wish. All they have to do is start investing for the long-term, stay out of debt, maximize their tax-advantage investment accounts… In short, all they have to do is follow the principles of personal finance in order to achieve their financial goals.