Back in May, I announced that my wife was quitting her job and we were starting to live on a single income. I didn’t win the lottery, no  promotion either. I actually dropped in revenue as I am now working 4 days!a week! We didn’t inherit or receive financial help either. So how and why can we live on a single income with 2 kids at home?

There is no easy answer to this one. You know that I am not the most frugal guy on the planet. We haven’t really cut our day-to-day expenses much either. Yet the very first step was to decrease our existing expenses:

- Exit the cleaning lady (aaahhh… I miss her… well not HER personally but the super clean house!)

- Benefit from the low interest rates. Some smart people are paying down their mortgages at high speed; we simply lowered our mortgage payment according to the ridiculously low rates. It is not the wisest choice, but it allows me to do other stuff while keeping my house.

- I really wanted to add something extra, like that I was able to miraculously drop my expenses by $1,500 per month… but I didn’t…  In fact, the difference in my mortgage payment has been replaced by a car payment. As you can see, I am not really saving much right now.

I am diving directly into the bankruptcy hole! (this is why my parents and a few friends feel bad for me… hehehehe!).

Seriously, I have a plan. I actually have 2 plans! So here’s how I intend to live with a single income without cutting my expenses (and bringing back my mortgage payment to a normal rhythm).

#1 Quebec Pension Plan (QPP) has been paid in full

In Quebec, we have to pay a general pension plan for all workers (withheld at source by the employer). However, there is a maximum of what you pay in one calendar year. I had reached the maximum a couple of weeks ago so I won’t feel my net income cut until January 2010. This leaves me 3 months to generate more income. Since this is recurring annually, I have 3 months with the same level of net income (this surplus was never calculated in my budget… we used to spend more until the end of the year!).

#2 Getting a nice fat bonus

As funny as it seems, I might be able to get a bonus big enough to cover most of my wife’s missing income. Considering she was not earning much and I am having a really good year at the bank, I will be around 50% of her income by the end of the year. This should buy another 6 months to find more revenue.

#3 Dividing my single income into multiple sources of passive income

While point #1 and #2 help me find 9 months of my previous income level, I am still far from keeping the same lifestyle with a single income. Therefore, I have to find a solid, reliable solution to increase my income.

Well, increasing my current income would be the “normal reflex”. As this is how we have been raised and educated; work harder = get a bigger pay check. But what if I could multiply my sources of income and live from passive income? I would become a single income earner with tons of checks coming into my bank account…

Ok, back down to earth. My main plan is obviously to improve my blogs and other websites. If John Chow can make $40K/month, why can’t I? The best part about this plan is that I can still “survive” with a single income for at least 12 months. This is long enough for me to realize if I can keep up with my sites alone or not. Worst case scenario would be that I keep my day job and have a bigger side line with blogs. This would also work.

What about plan B?

My second plan is quite simple. It is the “hard work and earn a bigger pay check” option. I could probably change offices at work, move closer to downtown with a bigger book of clients. They offer a bigger base salary and bonuses are the same. This way I could compensate for my wife’s income and still live with a single income.

I prefer to take more risk and give my business a try. If I have to lose money, I rather do it in my twenties. I have the rest of my life to get it back

image source: Krish Tipirneni

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It’s okay ‘cause I am good with chaos. I actually got that nickname when I was a kid. Chaos would not exist without planning and planning would not exist without Chaos. This is an interesting balance.

So, Chaos knocked on my door once again over the weekend. We are not starting the daycare at home anymore. Say what? I asked my wife. “I changed my mind”. Hum… that sounds very familiar hehehe!

However, I must admit that I have to take my share of responsibilities in this mind turnover. I am actually trying to convince her of having a third child (since we are at it!). The thing is that if she keeps her job and she becomes pregnant, she will automatically stop working (because her job is too dangerous for the foetus health) and still get paid. Therefore, she will get 21 months paid at 90% (9 months), 70% (6 months) and then 55%(6 months) of her pay cheque.

By that time, I would probably be able to tell my wife that she can stay home forever! My job is going well, the internet company is growing, everything is in place so she can stop working and take care of the kids.

I was actually thinking about having another one for a while now. However, I had to make sure that the financial advantages were not the main reasons why I wanted to have one right away. It obviously played a role in my decision. However, it was important for me to make sure I was not mainly benefiting from the fact that my wife could stay home as of 2009 without any other effort.

So plans are plans and reality bites you in the neck when you are about start a new project! So the daycare is ready but we are not anymore. The good news is that we have the option to start it whenever we want (and that I now have a 5’ X 3’ full ceramic shower and my basement!!!).

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Our efforts paid!

Those who have been reading this blog for a while will remember that I was working for a year on the $1,500 project. Back in September 2007, I gave myself a year to increase our cash flow by $1,500 a month in order to give my wife the opportunity to stay with our kids until they go to school. Last September, I post my latest results on my project and deception since I didn’t achieve my goal in the required time. However, our efforts were not lost since we increased our cash flow enough to accept the drop of income incurred by the fact of having a daycare at home.

In fact, I was wondering why we didn’t start the daycare right away last year. I pulled out my old calculation sheets and find out that the daycare revenue were not sufficient to cover for our expenses. The irony stands when my wife’s daycare will be accredited by the government. She will actually make more money than she is right now. The problem is that since it’s a government program, we know when we start the process, but we have no clue as of when we will receive our accreditation. Anyway, in both cases, we can live with the “temporary” drop of income.

It requires time and planning

Since we want the children to be in a nice environment, we decided to finish our basement and build a bathroom on the same floor. Those changes will improve both children and my wife’s working environment. This will definitely be a plus to compensate the extra hours.

In order to do so, I need a contractor and to plan everything so the daycare will be ready for January 5^th. We thought it would be nice if my wife can stop working before Christmas and start the daycare after the holidays. So we are now shopping around for the best deals on materials and bathroom equipment.

Projects make us feel alive

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Still less money in our pockets

Even though I said in my previous post that this project was viable, it is still creating less cash flow than my wife’s regular job. Since she would only take four kids (counting that we already have 2) and charge about $22 per day per kid, she would be getting a maximum of $440 a week. This sounds like a good income, but we have to deduct expenses such as food (yes, we have to feed the kids while they are at the daycare ), toys and other stuff for activities (papers, pencils, stickers, etc.). The good news is you can register your daycare through the government system. Once registered, you get $27 per kid from the government and parents are paying you another $7. That would make the whole thing very interesting. However, we have no clue how long it could take to get approved.

More hours

My wife is presently working 35 hours over four days. Daycares usually open at 7AM and close around 5PM; that makes 10 hours per day, five days a week. Depending on days, she would be able to take a break when kids are sleeping during the afternoon. Hopefully she could be lucky enough and they will sleep 2 hours in a row

Added tasks

There are tasks that need to be added such as cleaning and disinfection along with cooking. You need to be able to offer balanced meals every day to these little angels. That will definitely added more “off hours” since she can’t really cook while children are there.

Dealing with our children

The final obstacle is to deal with our children. They are lucky enough to have a play room in the basement. This play room would actually be modified to become the daycare. They would also have to learn to share some of their toys as we won’t transfer everything in their bedroom (only their favourite). This might be a challenge to make them understand what is going on. On the other, I would love to see my children sharing with other kids. This is definitely an important value.

So this is where we are; still thinking about the pros and cons of having a daycare at home. If we ever make a decision, I’ll let you know

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We are now discussing the possibility of having a daycare at home. My wife could take care of our two children and get four more. This solution was brought up by several readers since the very beginning of this project. Back then, it was not possible because it was not creating enough income. Since I was able to increase my revenue, start a company and decrease our expenses, we can now reconsider this option.

This will be a two part posts where I will write down the pros and cons of having a daycare at home. Since I’m a positive person, I’ll start with the pros:

The project is financially viable

This was the very first reason why I reconsider having a daycare at home. Without enough revenue, there was no reason to make all those changes. Since we don’t need the daycare to generate $1,500 a month anymore, we can easily use this income to maintain our lifestyle.

My wife could stay at home

This was definitely an important point. It is not the perfect situation (you’ll see with my second post!), but at least, she will be spending more times with our two children. They won’t have to wake up a 5:30 in the morning and rush to work. Our life would be a lot smoother.

It gives us the opportunity of renovating our basement

In order to be able to offer a quality environment to the other children, we would have to renovate our basement. At the same time, I will put a third bathroom and finish my home theater. Which guy would spit on a brand new room for his home theater? After all, Hockey just started and my Canadiens will surely go far in the playoff this year!

We could use the tax system to help us out

Remember my post on how to use taxes with a company? By shifting my wife income to company income, we will be able to deduct several things and therefore reduce her declared income significantly. She will pay fewer taxes and we will benefit from more government allocations since they are based on our family income.

Even though it is very tempting to put all expenses on the company’s back, it is important that you deal with an accountant for this part. The last thing we want is to do something illegal and have to pay thousand in taxes and charges in a few years! Anyway, you don’t need to go this route to save money on taxes. The government is allowing several type of expenses which are more than enough.

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What was done

I tried a lot of things to save money first. A dollar saved, is 2 dollars made. Since I am calculating the $1,500 in net income, saving money was quite productive.

I first look at my financial situation. By restructuring our debts, I was able to save a couple hundred bucks. We basically consolidate what was left of our car loan into our mortgage. While decreasing the payments, it was surely increasing the amount of interest to be paid overtime. Still, having my wife with my children at home is priceless so it’s not a thousand dollar in interest that scared me.

Then, I looked at my insurance. I was able to save by consolidating my insurance (car and home) at the same place. I got a 2 year contract and increase the amount I have to pay in case of a declaration.

I also resisted to buying another car. By having one car, we can save a lot of money. We also made a few changes in the house so we can drop our energy bill by about $15.

On the income side, I changed job back in February. While this was giving me a very small raise for now, the bonus perspective over a few years is great. Therefore, this switch should bring more money on the table over the long run.

I also created an alternative source of income throughout a web site company. I will start receiving about $400 in dividend every month pretty soon.

What didn’t help

All my effort to increase my income over the past years also got a bad side effect. In fact, my government children allocations were decreased by about $200 a month. While having two children were increasing my overall budget, the government was giving less since “I am making enough” on my own.

The grocery bill keeps increasing since the price of oil is kicking us in the teeth day after day. We had to increase our monthly budget by about another $100. There is not much I can do on grocery since we are buying healthy stuff most of the time. I can’t cut on good food.

The Final Result

After all my calculation an effort, I was able to generate a net income of $700 a month. It is quite a deception and it was quite hard to admit to my wife. It is never fun to fail. While this is definitely not enough to achieve my goal (I’m only at 50%), it is still more money in our pocket in the meantime.

I will continue to work on my side projects and look for other ways to save money. Therefore, I have no other choice but to give myself another year to get to my ultimate goal: generating $1,500 a month.

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I was quite happy to put a few extra bucks in my monthly budget and look at my $1,500 project. For those who just joined, I am trying to create extra cash flow in the amount of $1,500 in order to cover my wife’s income so she can stay home and take care of the kids. By the way, this is a decision we both made knowing all the sacrifices it occurs.

Since my last update in January, I was missing roughly $1,200 to get to my goal of $1,500. While not being impressive, that $300 was created in only three months. The problem is that I was running out of ideas after that. This is where I made the choice of changing job by keeping the same based salary but with higher expectation in term of bonus. I obviously can’t take into consideration future bonuses since I am new in this industry and the amount could really fluctuate from years to years.

We have been making progress in term of children clothes and other expenses related to our children (my son does not wear diapers anymore and the little one started drinking regular milk). I didn’t count everything so I was quite happy to see the end result.

Unfortunately, at the same time, we received our children allocation update for the upcoming year. Since we made more money last year than the previous years, the government is cutting down on my allocations based on the fact that I am making too much. We are never making too much money

On top of that, I had to review my gasoline expense since the oil barrel keeps going up! I used to put $50 a week and we are now at $60.

So basically, my raise and my new frugal habits only helped us to maintain our budget after the cuts from the government and the increase of the price of gas.

But there is still hope!

The web company I recently created is already making money online with a few website and we should be able to withdraw $300 per month each (me and my partner) shortly. That would be a great step in creating passive income. I would be happy if we could get $500 a month each at the end of this year. I would be half way to my main goal of $1,500. A good bonus and I could be set ;-D

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Even though we might be running out of time, I am still confident that we will be able to change our financial situation over the current year.

I recently restructured my debts through my property. I knew that my house increased in value and I wanted to benefit from the equity sleeping in it. With the recent increase of my HELOC, I was able to pay off my personal loan and a small computer loan.

By doing so, I was aware that I was now amortizing my debts over 25 years instead of the 48 months remaining on my previous financial obligations. Therefore, the smart thing to do was to increase my monthly payment on my HELOC in order to pay off my entire debt before the prescribed 25 years that we usually do for a mortgage. So I increased my payment in order to pay off my property in 18 years. Technically, my Smith Manoeuvre investments should compensate for the total amount owing on my property way before that.

We actually hired a housecleaning lady that comes once a month for $50. While this does not help us at all to achieve our $1,500 project, it helps giving us more time an energy to spend in family or even to work on different projects (like blogging ).

In the end, we were able to create $209 since we started this project in September. I am pretty happy about the results as I had to include the extra expense related to the house cleaning lady ($50). We are now down to find another $1,291 in order to achieve our goal. While this is still a big chunk of money, we have other ideas in mind. I am fairly confident that we should be able to go over $500 in cash flow by the end of April. I just need to get some stuff done before I can write about the good news J. Let’s just say for now that my internet project seems to pick-up.

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While I failed to reduce my dinning out budget and to go to the gym three times a week for the month of December, I will certainly go back to my good habits in 2008!

A new project that I am starting

I do not have a completely new project for 2008. However, I am confirming one that has been building up for the past 12 months. Since November 2006, I am taking care of TheFinancialBlogger.com and in 2008 I will start up other internet project with one of my friend. It’s been a year that my friend and I looking at several internet opportunities and it is now the time to get serious. After all, I have about 9 months left to achieve my $1,500 project. Therefore, we will include TFB within this bigger project and hopefully make something nice out of it.

Projects that are already in the move

My most important project is definitely to offer my wife to stay at home at the end of 2008. She is technically going back to work in September 2008 so it leaves me with only 9 months to accomplish this task. I am trying to reduce my financial obligations and my regular expenses while increasing my income through different ways.

I hope that my second project, my MBA will help to contribute in term of income. Unfortunately, I think it will not really affect my situation until I have completed the program which will be in 2009. Nonetheless, it will surely help me out at one point or another.

TheFinancialBlogger.com should become a bigger blog in 2008 as I plan to put more effort into it. I am very proud of what I did in the last 6 months but I also know that sky is the limit when you are talking about blogging. Since finance remains one of my main passions, I do believe that I will be able to transmit it through this blog. When I look at other blogs in the blogosphere, I realize that there is more than enough space for another one

I also have another goal for 2008 that is completely aside finance and it is being better at golfing. I really love this game but it is hard to play consistently. Since my brother-in-law is an amazing golfer, I will surely spend more time with him!

Now I have to leave, I have to go to the gym and get back to my normal schedule! I hope that 2008 will be a great year for all of you. Be happy and prosper!

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It is now the third day in a row that I am stripping my financial situation to my readers. By now, I feel that you probably know more about how I manage my personal finance than my own banker and accountant put together But I really think that there is no such things but real examples to help others managing their personal finance. While I do not pretend that I know the very secret of financial freedom, I am definitely after it! And if I ever succeed, you will be the first ones to know about it!

The very first thing I was happy with was the fact that my property increased in value and was now at 275K. That is bringing my net worth a little bit over 39K. With a little help of my bonus, I will finish the year 2007 slightly over 40K. If you recall from my first post about restructuring my debts, I had monthly obligations of $1,915. With the new HELOC, I will have a minimum payment of $780 a months if I was to decide to pay interest only (I pay only 4,25% on my HELOC). However, I decided to make a monthly payment of $1,500. Therefore, I would decrease my monthly payment by $415, not bad huh?

Unfortunately, the whole $415 will not be applicable on my $1,500 project. As I previously mentioned, I quit my second job in July but I never replaced this income. Therefore, I will have to come back with additional calculation in regards to my project. The good news is that I know that it will still decrease my overall payment and definitely enable me to increase my saving capacity.

Starting in January, I will be able to put back my original monthly investment with my Smith Manoeuvre, About two months ago, I had to decrease my investment in order to increase my available cash flow. I dropped it down to $400 even thought I did not like the idea of getting late in my parents loan repayment schedule. By investing $600 on a monthly basis, I am assured to be able to pay at least the 25K in capital back in three years. In regards to the interest, I would just have to continue paying them back for another year in the very worst case scenario.

In the best scenario ever, The Bank of Canada will decrease their rate (I heard rumours that it might happen shortly!) and prime rate would drop to 6%. This mean that I will pay only $733 in interest and that I will be able to increase my Smith Manoeuvre payment up to $700. This would definitely facilitate my loan repayment and I would only have a mortgage and a very cheap line of credit left at the age of 30 (Hum… this will be time for a BMW then ;-D). I told you, I am not very frugal

I am well aware that I will be paying more interest over time with this technique. However, I give more importance to my present lifestyle than my future interest payment. I see personal finance more on a cash flow management perception than an absolute way to create wealth. If I can manage to have my wife stay at home next year, I will surely be more happy than if I save a couple of thousand dollars in interest charges!

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