Many of us are starting 2011 with every intention of reaching big financial milestones such as getting out of debt, saving up for a house, or getting serious about retirement. For many couples, however, it might be hard to reach your goals if you’re depending on two incomes to support your lifestyle.
It is possible to reach your goals, but it will take some sacrifice. If you’re really intent on meeting your goals, you may want to change your family’s financial habits and learn to live on one income instead of two. This post is geared towards two-income families who are looking to simplify their finances and give themselves some breathing room so they put their second income toward achieving their financial goals.
Creating a timeline
While it would be wonderful to just start living off one income in a day, it generally takes some time and planning to make it happen. If your expenses are greater than the larger of the two incomes, you’ll need to start trimming your expenses. Depending on the size of the gap, it might take awhile to get your spending in check. In general, you should shoot for six months and adjust accordingly.
Your first step should be to look closely at EVERY expense and ask yourself if it’s really necessary. If an expense isn’t required and doesn’t add appreciably to your enjoyment of life, then reduce or eliminate it. Don’t get rid of all your kids’ extracurricular activities, but do look for areas to cut back.
Dining out is another big expense that can often be reduced or eliminated. Sure, it might provide you with some family bonding time but, in most cases, it’s little more than an expensive habit.
You should also examine recurring expenses like your cell phone plan. Believe it or not, you may be able to stay with the same provider and get a better deal by doing nothing more than checking for discounts related to your employer. For example, my mom checked last month and ended up getting 20% off her plan.
Wisely use your second income
Here’s the best part of the one-income living plan: once you free it up, you can use the entire second income to accelerate progress on your financial goals and put your family in a much better position. Don’t waste the opportunity by spending your newfound savings on frivolous stuff. Make the sacrifice now and your discipline will pay off in dividends.
Eliminate your debts
My recommendation is using the debt snowball plan to get started and stay focused on debt repayment. Simply tackle your debts from smallest to largest. Even if your second income stream is from part-time income, it can make a HUGE difference on how quickly your debt is paid off.
Avoid new debts with a savings plan
Automated savings is your best friend when it comes to avoiding new debt. An emergency fund isn’t exciting, but every family needs one. Keep it in a high yield savings account so you’ll have easy access in times of need.
Vacation funds
When planning an upcoming trip, be sure to consider all the major and typical expenses for budgeting. Here’s a general list we use to budget for vacations.
- Lodging
- Transportation
- Food (you might want to overestimate this expense)
- Local activities
- Souvenirs/gifts
- Miscellaneous (emergencies/buffer)
With the right amount of planning and an automated savings plan, you can have a debt free vacation. Simply transfer a small amount to a dedicated savings account each and every month. You won’t even notice that it’s gone.
Car replacement fund
Buying new cars can really set you back if you’re doing it to keep up with your neighbors. That being said, it’s definitely possible to have a safe and reliable car at all times without breaking the bank as long as you’re serious about building a car replacement fund.
Simply commit yourself to a set monthly payment (to yourself!) based on your expected timeframe for replacing your car. This is an important goal, but should probably be secondary to things like debt reduction. If your car suddenly breaks down while you’re paying down debt, you can quickly redirect cash from your second income and emergency fund to get a cheap replacement in the mean time.
How long should you live on one income?
The answer to this question really depends on your goals. According to Dave Ramsey’s “Total Money Makeover, ” if a family is fully committed to the process, they can get their finances on track within an average of 18-24 months.
In the long run, of course, your goal might be to drop down to one income so one of you can stay home with the kids. In that case, this exercise lets you get your ducks in a row while also preparing your for the eventual loss of that second income.
Your thought on living on a single income
Do you have one or two incomes in your household? If you have two, are you spending them both? If you only have one, was this a conscious choice? Do you have any tips or tricks for making it work?
Luke–As a public school teacher, my advice would be to get out of the $2300 per term for school. Also, before committing to home-schooling, I would check into various school districts that are nearby. Visit the schools, talk with the principal, get a feel for the overall environment. There are wonderful, dedicated teachers out there who can offer so much to your kids. They can’t all be “harsh and crazy”. It could allow your wife some time to explore a part-time job or some other avenue to get out of debt.
Thanks a lot my wife and I are in our 8th year of marriage and we are facing debt out of this world.We see the need to live simply and teach our children to do the same willingly.We are looking at the most effective ways of turning things around.Tithing is high on the list as some times we try to take matters into our own hands.Also cutting school fees which are twenty three hundred per term for two kids.Right now we;re at ground zero and need all the good advice we can get.looking for at home business ideas for supplemental income my wife will home school as we have found our city to crazy and harsh for our children.Putting the tips given is a little hard since many of the things are not available but there’s still hope for anyone who has the will to get out.Thanks for all the help.
Ran across this blog and thought I would take a moment and chime in. Full discolsure I am a pastor and a huge Dave Ramsey fan. I have been in fulltime ministry for almost 16 years. My wife and I from the very beginning made a decision to live on one income. We made a dedication to the Lord that one of us would be home with the kid(s) until they started school. A couple years into the marriage and she became pregnant with our first child. For 10 of our nearly 16 years of marriage we lived on one income. Within the last 3 years when both of our children began school my wife decided to find a job that was relatively low stress with kid friendly hours. It took some time but it was a huge blessing and she loves her job. Due to our current situation (living in a church parsonage) we actually live off of about 2/3 of my income and save 1/3 of mine and all of my wife’s. We must balance paying ourselves a mortgage payment for a future home payment and contributing to retirement plans but I will attest to the joys of debt free living. We have not had a car payment since 1997 and have paid cash for our “road tested” cars ever since. When we have had credit cards they are paid in full each month (now we strictly only use a debit card). We vacation cheaply and lived for 12 out of 16 years with no cable or internet in our home. Our son who is now 12 began his own pet sitting business when he was 8 and has literally made thousands of dollars and pays for all of his own wants and needs including his cell phone and he recently lost his retainer for this teeth so I made him purchase his new one on his on. We have also made it a point to tithe. We noticed when we were younger that when we did not fully tithe (10 percent) we always seemed to just barely get by. However as we have grown in our commitment to the Lord and tithe and bring offerings God has supplied us beyond what we could have asked or imagine. I am not a “health and wealth” preacher. . . .I just believe that I held back and tried to find control and peace in this world and not in the Lord. When I finally relenquished control God opened up the gates of blessings in ways we never thought possible. We are by no means rich in the standards of American culture (though very rich compared to most of the world) most of all we enjoy to live simply. We still have tube television sets, have never bought new bedroom furniture, and my wife is great at shopping sales and planning ahead. I encourage everyone to know that you can live this way. Don’t try to keep up with the Jone’s. . .they are broke and unhappy. My wife’s mother grew up on a rural farm in Alabma. She remembers when TVA came and they first got electricity in their home. Both of my great grandfathers were sharecroppers. I was the first in my family to finish college. I am at this point in my life due to the blessing of the Lord and the perseverence of those that came before. You may be finding yourself in debt and struggeling. Get mad at the debt and attack it like the cancer that it is and then stay in financial shape and never go back and teach your children the freedom and joy of a debt free life! Blessings to all!
Courtney: Thanks for asking… We’ve been having trouble with: (1) spam, and (2) our spam filter being oversensitive. To combat this, we have added a CAPTCHA plugin that allows you to self-moderate if the filter flags your comment as spam.
The filtering software that we use (Akismet) does a pretty good job of filtering out spam, but it is a bit overzealous and we were losing a lot of comments into the spam folder where they were hard to find and fish out.
The CAPTCHA plugin does a good job of differentiating between human and spambot, but does not distinguish between legit human commenter and human spammer. Thus, the default setting it to pass messages that pass the CAPTCHA test into moderation rather than approving them. I then get a message saying that there is a comment in moderation, and I try to process it as quickly as possible.
All of this being said… I’ve switched the default behavior to approve comments when the author correctly answers the CAPTCHA. This is better for everyone (me included), and I will leave it set like that as long as we don’t start seeing a lot of human spam.
Since I am home recooping from an injury, it has been the best “blessing.” I am able to read your blog, organize my expenses, and begin my journey to becoming debt free. My debt is out of control. I have cut my cell minutes in half, cancelled my gym and cable. Gratefully, family members have allowed me to move in. (no sick time, vacation, or disability insurance with my job)
Deos anyone have a recommendation to disability insurance if this happens again? Sorry I am off topic, this is all new to me.
I’ve been living on one income for the past few years, since I bought a house. Cheapest DSL pkg and a not-so-cheap cell phone pkg is essentially all I have. Bit of a splurge on the cell phone ($55/month), but the DSL and power go out often enough to justify the data package on my phone (yeah, power problems in the Metro DC area.. it’s ridic).
Antenna tv, inside house temperatures that are marginally better than the temp outside. Since it’s just me, I don’t mind. I bump it up/down when I have company and just layer up or strip down when I’m alone. 🙂
I’m a little worried that my roomie-to-be will not agree with my “live off one income” mentality… But I guess a cranky roomie would be worse?
We’re living on 1.5 incomes right now, but we knew we could do it before it happened.
Unfortunately, with our mortgage as it is — even after refinancing — we wouldn’t be able to live very nicely on one income. We could do it in an emergency situation, but it would be tight and we would be cranky….
We went down to my income when my wife gave birth to our daughter. She’s a teacher so she was paid through the rest of the fiscal year but we typically had most of her income at the end of the month unused (saved). It’s a bit harder now that we’re on 1 income but we are doing well with automatic savings transfers and having additional left over at the end of the month to save for projects we want to accomplish.
Off-topic, FCN: Do you know why I keep getting the “please prove that you’re human” screen? And when I do, I’m positive I’m entering the characters correctly, but my comments still wind up in moderation? This just started happening about a week ago.
(And ironically, this comment shows up fine but my previous one on this post got flagged…)
I’m not sure this “counts” in terms of your article, but I guess technically it was a choice. We basically live on one income and save the other now, but only because I went from finishing grad school at the end of 2008 to my current salaried position and we haven’t yet increased our expenses to match our new income (we are saving for a house, have no cc debt, and we always take debt-free vacations). But that was a pretty drastic scenario that I don’t think applies to a lot of people (I went from a grad school stipend to making 3x as much in the space of 14 months).
Though I don’t currently do that, I think it’s a fantastic idea. It’s actually very wise, as you never know what can happen to one’s income. Smart to live that way whether one wants to stay home with kids or not. It protects the downside of job loss, and allows you to save for retirement and other financial needs. One more step on the way to financial freedom.
My wife literally saves almost her entire income. She works for a government agency and has access to 403(b), 457, 401(a) pension, and flexible spending accounts. Her take home pay is less than 10% of her gross pay. I also contribute to my 401(k).
We’ve never felt like we had to sacrifice. We have relatively modest desires and relatively high income.
We live on one income and have since we got married. My husband always wanted to budget based on his salary in case I wanted to stay home when we had kids. We’ve never had kids, but we still just live on one income.
I guess the big secret is seeing, understanding and accepting our limitations. We don’t take major overseas trips every year or eat out every night or go to the movies much. We just accept that our money isn’t limitless. We live well below our means, which means the slowest cable internet connection, the smallest cable t.v. package and pay-as-you-go cell phone plans. We shop for as much as possible at Goodwill, use sales fliers, and save up the money before buying anything – clothes, cars, tvs, and bathroom remodels. It really just feels like common sense.