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"Getting money is like digging with a needle;
spending it is like water soaking into sand."

Japanese Proverb





 


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 job skills 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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  If possible, it is a good idea to pay off your charge bills while you still have two incomes.

 

Articles In This Section:

Trimming Expenses

Living on one income


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