You can live on one income if both you and your spouse take home pay. Single parents and stay home parents find ways to live on one income. Families where both parents or couples work outside of home, could live on one income as well if they have their finances in order and live below their means.
Get your finances in order
You can not live on one income if you don’t know how much you spend in a month.
To start, you should pull your bank statements and write your utility payments down for the past 3 months including gas, electricity, and water.
Write down the amount you pay for internet, cable, and phone. These should be relatively fixed. Therefore, the current month bill would suffice.
Open your credit cards account online and pull the statements if you don’t have the paper statements. Write down their balances, the minimum payments, and the amount you pay every month for the past 3 months.
How much do you spend on groceries? If you can’t estimate it, look through your bank statements and credit cards’ statements.
You can use a spreadsheet, a paper and a pen, or Google drive. In one column you would have your expenses list:
Expenses list Cost/ month: Month 1 Month 2 Month 3
Monthly Living Expenses
Rent / Mortgage
Gas
Electricity
Water
Internet
Cable
Phone
Groceries
Eating Out
Travel
Car Gas
Day Care
Donation
Allowance—The amount you spend on yourself including eating at work
Total Monthly living Expenses
Debts or Past expenses
Credit Cards payment
Car Payment
Tuition Payment
Total Debts Payment
Total Monthly Expenses (Total monthly living expenses + total debts payment)
You need to sit with your spouse to go through your finances. You could split the work and gather the numbers at the end.
Now compare your monthly living expenses to each one of your incomes. Is your expense over or under the lowest income or the highest income? What if the mortgage is out of the way, would your living expenses fit within your lowest income?
Now compare your total monthly expenses (living expenses and debts) to each one of your income. Is the total expenses lower that your lowest income or your highest income? Or do your need both incomes to cover all these expenses a month? If so, it is not the right place to be. You cannot build wealth by living paycheck to paycheck or spending all your take home pay. You cannot build wealth by paying interest on your debts instead of the bank paying you interest and dividend on your investments.
It is time to take control of your finances, cut down on expenses, stop increasing your debts and focusing on paying them off. Your goal should be to fit your family living expenses within your lowest income if possible without compromising the quality of your life. In order to accomplish that goal, you need a budget.
Have a budget
Not everyone is number enthusiastic. However, if you earn money you are already dealing with numbers and should know how to manage your money. Reading, writing, and doing simple math are the basic life skills we all learned growing up and use in our daily life. Using our basic math skills to track and better manage our money is no different. It is a must.
With the list of expenses created above, discuss with your spouse every single one of your household expense.
Is the expense justified?
Is there a room to trim it down? Can you call your cable company and negotiate another rate as well as for internet?
Can you be more conscious on how you use water and electricity around the house to lower your utility bills?
After reviewing how much you spent for the past 3 months in groceries, did you feel comfortable spending that much? Can you set an estimate for the following month? Break down your grocery budget in different categories not on your master budget. Have a separate budget for groceries different categories. I broke down my grocery budget into categories including food, fruit, meat, non- food (cleaning supplies for instance), kids clothing. I even have a category for garden.
You can use the same strategy with credit card as food. You list credit card on your master budget. Then you create a separate sheet where you list all your cards and how much you pay every month.
List all your expenses in one column of your master budget. The following column is the budget.
Set amount you and your spouse think spending on every expense in the list.
The next column would be the current month expenses.
The next column would be expenses of the following month.
Make sure you write your income on top of the budge each time you get paid. And at the bottom including saving, your balance should be zero. You need to estimate other expenses you pay during the year but not necessary every month, total them all and divide by 12 to see how much of your income every month you should put in your saving for these expenses including home insurance, car insurance, car repair and title fee, home maintenance if you own a house, copay, and travel…
Your budget shouldn’t dictate how much you spend in a month. Record your expenses in the category they belong every month to track your spending. Food is very variable therefore, take cash out for your groceries is recommended. Any money left over from the grocery budget should be put aside to spend on sales to increase your food staples at home. Once you build up your food staples, you won’t pay full price for a lot of your staples. In my case, my shelf staples don’t go on sale much. They are already low price. However, vegetables and meat go on sale in summer and fall and I stock up on them to fill my freezer. That saves me a lot. Look through your local grocery store ads to see the sales price for vegetables and meat. Study the price and overtime you would know at what price you should stock up.
At the end of the month even before you are paid, you and your spouse should sit down and discuss you budget and allocate your next pay.
Adjust your budget in a way that your living expenses fit within one income. Use the other income to pay credit card debts, car loan, and tuition loan. List your debts, their balance, interest rates and minimum payments on the debts spreadsheet. List each credit card. You can list every single debt from the lowest balance to the highest balance. All the credit cards should be listed one after the other with the lowest balance first. After the credit cards, list the car loans from the lowest balance to the highest.
Follow that with tuition loans. Discuss with your partner whether you should pay car loans after credit cards or tuition loans after credit cards. The reason you pay credit cards first is because their rates are higher than the last two.
Pay the minimum on all the debts except the one you want to pay off first and apply the rest of one income toward it. Once the first debt on the list is paid off, pay the minimum on all the other debts and the rest on the income to the second debt down the list. Repeat the process until everything is paid off.
Live below your means
It is important you live within one income. It would take multiple adjustments to your budget to get it right. Learn to live below your means. Do not charge credit card of an expense you didn’t save for.
If you don’t train yourself to live on one income, incase of temporary income lost, it would be hard to adjust to the change. If you live below your means, overtime, you would pay off your debts, your mortgage, and save one income to create multiple sources of income. You need to evaluate your debts. and discuss options to pay them off. If you and your spouse can use one car, you don’t need two cars. Many people including extended family advised my husband to purchase a bigger car when I was expecting our third child. I told him no we didn’t need a bigger car. I would take the bus if one of the kids if necessary. We read ”Department of Transportation” regulations on child car seat and booster seat in our state and followed it. We moved one child to the front and have a booster and a car seat at the back. I sat between them at the back. When the youngest one met the regulation to use the booster seat, his car seat expired. At the same time, my oldest one met the regulation to seat without a booster seat. The middle and the youngest one use booster seats and seat in the back seat. My oldest one seat between them and all are belted. I moved to seat at the front after seating in the back seat for almost 4 years. It is doable. We only have one car as we don’t have a need for a second car or a bigger car at the moment.
Cancel your daycare cost if you can. You and your spouse should carefully evaluate your options first. Does the lowest income cover the day care fee with a lot left? If not, it might be better for the lower incomer to change job and work shift after the highest income earner is back especially if the kids are young and need constant supervision. The lowest incomer could work at least 20 hours a week or more. However, you need to see if that would improve your overall income or decrease it compare to the impact the cut on day care cost might have on your expenses. We don’t have day care cost in our budget. My husband and I work different hours to bring income in. One of us stay with the kids while the other one is at work. See what work for your family and improve it.
Set goals
Once you stop using your credit cards and set goals to pay all your debts off, you would see how fast you would start to eliminate debts. You and your spouse should set goals on what would be your next step after the debts are paid off. Your way of reaching your financial goals might be unique to you. You just have to see what you are comfortable to do. Paying off debts doesn’t means you should stop investing in your employer 401K to the extent your employer matches. That is free interest on your money usually 50 to 100% of 6% of your income. It is more than the interest you pay on your credit cards. However, trying to invest beyond that or investing in IRAs might delay you from paying off your debts. By focusing one income to debts is one quick way to pay debts off quickly and start investing. Once your consumer debts are paid off, you and your spouse should set a goal to pay off your mortgage. If your mortgage is not too high, it is a good idea to pay it off early. Paying it off in early years saves you on interest. Your house is a shelter for your family. Therefore, you should pay it off. Banks sell mortgages not houses. Your mortgage might be sold to investors. Your house is an asset but doesn’t generate cash flow for you as you live in it. Don’t spend more than necessary remodeling it if you have not paid it off. One of your goals would be to be an investor yourself. Therefore, invest in assets producing income:
Plan to invest in stocks
Plan to invest in rental properties
Plan to create your own business
Find a way to turn your hobby into income producing business
Link your talents ‘ what you are good at” to your passion “what you like to do best” and find a way to generate a revenue out of it.
Don’t leave your day regular job for your ventures until they are generating at least your annual income. Until then consider them as part time jobs.
Instead of getting a part time job to increase your income and your purchasing power, spend that time to grow your side business.
Many people think about what job they would do when they retire. Instead of thinking about who to work for in your retirement, your business should be up and running for you to retire to, if you don’t retire early from your employer by then.
If you are not working in your dad’s company or your own, as much as your skills are valuable to your employer, you are not irreplaceable. You and your employer have different objectives. Your employer worries about keeping his cost low and views your payroll as a cost. You worry about keeping your job aka your income. Therefore, live well below your means but well within your needs; pay off fast your past consumer debts; pay off fast your mortgage and downsize if it necessary; Start multiple sources of income in the comfit of your home.
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