When Jay Leno was an unknown comedian, he used a clever money saving trick to stay afloat: He generated two incomes and made sure to bank the bigger one.
In Leno's case, that meant saving the money he earned working at a car dealership and spending the money he made doing comedy. "When I started to get a bit famous, the money I was making as a comedian was way more than the money I was making at the car dealership," he tells CNBC, "so I would bank that and spend the car dealership money."
The habit stuck, even after landing his gig as the host of NBC's "The Tonight Show" in 1992, which reportedly paid as much as $30 million a year at the height of his career.
"When I got 'The Tonight Show,' I always made sure I did 150 [comedy show] gigs a year so I never had to touch the principal," Leno says. To this day, he's never touched a dime of his "Tonight Show" money.
The same strategy worked for early retiree Joe Udo, who left his engineering job at age 38 to be a full-time dad and focus on his blog, Retire by 40.
Before officially retiring, Udo and his wife did a trial run and lived without his paycheck for two years. "All of the income from my job I just saved and invested," he tells CNBC. "We paid the bills with my wife's income, my blogging income and our passive income."
Of course, Udo's situation is different from Leno's, in that his second income includes his wife's paycheck, but the concept is the same. "If you have two incomes, I think living on one paycheck and saving the other is a fantastic idea," Udo writes. "Every household should work toward that."
It not only frees up more cash that you can save and invest, but it helps prevent lifestyle inflation, which is when you increase your spending as your income increases.
Anyone can employ Leno and Udo's strategy. It all starts with creating at least two streams of income within your household, which could be real estate rentals, side businesses or a part-time job.
Once you have multiple revenue streams, the formula is simple: Save the larger form of income and spend the other.
