Tips for How to Live on One Income
Adjusting
to living on one income from two can initially be quite difficult.
However, in many ways families living on one income can actually
be more secure than families with two incomes. In the book
The Two Income Trap, the authors make the case that
families who are maxed out living a two income lifestyle often
get into financial trouble when one spouse loses his or her
job. This happens when two income families have a lifestyle
that absolutely requires two pay checks to cover all of their
basic expenses such as their mortgage, credit card debt and
car loans.
For families
living on one income, if the main bread winner loses his or
her job, then both the spouse who had been working and the
stay at home spouse can
look for jobs, thus thus doubling their chances of replacing
one income.
Based
on our personal experience, this is sage advice. Our
family did go from two incomes to one and my husband did lose
his job during this time. However, I was able to start working
full time at my home business, which had been little more
than a hobby up to that point in time. Working extra at my
home business, while it didn't fully replace my husband's
former salary, did make enough to pay most of our basic expenses
until my husband found another comparable position.
If
you are considering trying to live on one income, before one
spouse actually quits his or her job, listed below are some
financial questions to consider.
1.
Can you realistically cut back enough on your lifestyle to
live on one income? Find out by making both a one income and
two income budget and see if the one income budget is even
realistic. See our page on tips
for making a home budget for budgeting help.
For tips on ways to cut back on spending for the one income
budget, see our section on cutting
expenses. In this section we have tips for saving money
on groceries, travel, entertainment and more. One income families
have less income but usually more free more time, so they
can save money by having the stay at home spouse make meals
from scratch, prepare brown bag lunches, shop the sales and
do tasks that may have been hired out previously, like yard
work, laundry services and house cleaning.
2.
Do you have an emergency savings fund? If you don't have one
now on two incomes, then it may not be realistic to expect
to build up an emergency fund on one income.
3.
Do you have life insurance on both spouses? Does the spouse
who intends to stay working have disability insurance?
4.
How easy would it be for the stay at home spouse to return
to work? When I stayed home when our children were little
I always stayed enrolled in an assortment of online, evening
and weekend classes in web design and development. That way
I knew I'd at least have some current skills job just in case
I did need to return to the work force.
5.
What benefits (health, 401k, dental insurance, company car,
etc.) would you lose by one spouse quitting? Can you either
replace or do without these benefits on one income? At minimum
it is a good idea to make sure you have health insurance for
the family and the working spouse should have disability insurance.
A 2004 study
conducted by researchers at Harvard University found that
nearly half of all bankruptcies filed in the U.S. were due
to medical expenses.
6.
Other than your mortgage, are you in debt now? Do you carry
balances on your charge cards? Do you have expensive car loans?
If so, then it may not be realistic to expect to reduce your
income and try to get out of debt as well.
7.
Where else can you cut back? A big expense we cut back on
for me to stay at home was eliminating most of our travel
budget. We also had to cut back on our savings rate.
Think
about your budget, review your biggest expense items and consider
what you would be willing to cut back on or do without in
order to stay home full time.
8.
If financially you can't live on one income, can the spouse
who would like to stay home instead of working full time work
reduced hours, job share or get a part time job? Another option
to consider is to have the spouse who would like to stay at
home start a home business. Home businesses have many great
tax advantages that may also be able to shelter some of the
income of the working spouse. For more on home businesses,
see our section on making money
when you don't have a regular job.
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