5 Things You Need to Do to Live on One Income Successfully
By Scott Hannah
Q: We are having trouble finding affordable daycare for our two little ones, so we’ve decided that my wife will become a stay at home parent. While it will be great for our kids to have their Mom around full time, I’m afraid our finances will suffer beyond the point that we can afford to pay all our bills. What suggestions do you have for living on a single income? ~Cliff
A: Many families with young children really struggle to find the affordable child care arrangements they need. Add to this the steadily increasing cost of living, and more and more parents are re-evaluating how they can find a better work-life-family-lifestyle balance. It’s no surprise that just like you, they’re deciding that the benefits of living on one income outweigh the drawbacks.
Transitioning from having two household incomes to one will definitely affect your lifestyle. However, by making some conscious decisions about how you manage the changes, you will feel better about the decision you’ve made for the benefit of your family.
Here are the top 5 things you need to work towards to be a successful one income family:
1. Make Your Budget Your Best Friend
It is so crucially important to create a realistic household budget. If you’ve never had a budget before, start by setting any fears, frustrations or excuses aside. You and wife will need to be on the same page with how much money you bring home and where it’s going.
Set up a system to track all of your spending. If you don’t have a budget, tracking your expenses will help you base your new budget on realistic numbers rather than guestimates. If you already have a spending plan, tracking your expenses will help ensure that you’re sticking to your new, lower income budget.
Here’s a link to everything you need to know about how to create a budget that works, including a free, interactive budget spreadsheet with suggestions about how to budget better and budgeting guidelines for the cost of living by category.
2. Spend Less that You Need To on Everything
Some people love lists; others loathe them, but they help you to plan and stay organized. The great thing about jotting everything you want to buy down before you head out to the store is that you start thinking about what you really need and want.
If you’re not sure how much less you need to spend, calculate what percentage of income you no longer have. For instance, if your household income decreased by 40%, decrease your spending by a minimum of 40% on everything except debt payments.
This will probably be a tough adjustment, but it doesn’t have to happen all at once. The sooner you can bring your spending and expenses down to below your new level of income, the less debt you’ll accumulate on credit cards.
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3. Avoid Getting into Debt – Have an Emergency Savings Account
Two incomes offer more stability should an emergency or economic downturn occur, so it’s important to build up your own emergency fund of no less than 6 months of your expenses. This might seem like a daunting amount of money to just set aside in a savings account, so look for ways to make saving a priority and don’t lose sight of this goal.
One way to stay focused is to pay yourself first. Set up automatic transfers on payday so that money goes into a hard to access savings account before you get a chance to spend it. Knowing that you can afford to pay for an emergency without going into debt takes away so much stress.
4. Decide How to Scale Back Your Lifestyle
Along with creating a budget for your new lower household income, you will also need to decide how to bring your lifestyle in line with your budget. This will require conscious planning so that your credit limits don’t replace your wife’s income.
In order to spend less overall, you need to spend less on everything and find different ways to satisfy what you need and want. For example, if you’re used to hiring a babysitter so that the two of you can head out for dinner with friends, look for less expensive ways to still spend time with friends.
This might mean swapping babysitting with other parents, going out when grandparents are available to spend time with your kids, or spending time with friends while you’re doing an activity that satisfies your children. Your circle of friends will likely shift, but that doesn’t mean that you have to lose touch with everyone forever. Your kids will be older before you know it!
5. Look for Ways to Top Up Your One Income
Just because your wife is giving up her paycheques, doesn’t mean that she can’t earn any income to supplement what you bring home. She might be able to offer another family some help with child care or work a few shifts when you’re home with the kids. Some work outside of the home can be a much needed sanity break as she adjusts to being out of the workforce full time.
Another way to generate additional income is by looking at your home. Determine if you can make room to take in a student or tenant. Maybe you can rent out the garage or outside storage space. Be creative and look for ways to make it work, rather than excuses to avoid trying it out.
The Bottom Line on Becoming a One Income Family
As you become a one income family, whatever you decide to do, make sure that you don’t overwhelm yourselves with too many changes all at once. Try to avoid drastic all or nothing spending cuts and give yourselves time to get used to living a less expensive lifestyle. Commit to working through the ups and down together and you’ll survive the emotional changes that accompany the financial ones successfully.
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