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I think you will all agree with me when I say:
Going from two-income to a single-income household can be difficult and sometimes even impossible.
Or is it?
Well, it turns out there is a simple system you can put in place before you make the switch from two incomes to one to ensure that the transition is not stressful.
One of the most important things you can do as a couple is to set yourself up for financial success from the very beginning. If you are not on the same page financially from day one, then that should be your number one priority.
It’s not necessary that both of you have the exact same philosophy about money. If one of you is a spender and the other a saver, you can definitely make it work. The important thing is that you both agree on your financial priorities and goals. If you still have work to do on that front, I’d strongly suggest that you work that out before moving forward.
Once you are on the same page, come up with some bigger financial goals. Having something to strive for is a great way to stay consistent and continue the financial course when the going gets rough (and it will).
When we were first married, we started our marriage out with exactly $2,000 in our bank account. We had spent the majority of our money and savings on our wedding and honeymoon (before we knew about travel hacking!) so we were starting from the bottom.
To add to that, I had graduated college and started work at the height of the economy. Getting a job out of college was more of a challenge than I expected but after two great internships, I got my foot in the door and started climbing the corporate ladder.
Then the recession hit.
And I experiences the first of three layoffs in short order. Since I had only been in the workforce for a short amount of time, I was still at the beginning of my career. Fortunately, my husband’s industry did not experience the same level of slow down and layoffs so we still had his income while I was unemployed.
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Unemployment and financial (in)security
Losing your job is scary.
At the time, it was quite depressing finding myself out of a job so quickly after starting my career. It really made me question the industry I had selected and if this would be a viable trajectory long-term. Fortunately, I was able to find a job quickly so I did not need to rely on unemployment for too long.
Then six months later, I was laid off again. Let me tell you, that was quite devastating. It was actually right before Christmas and it was completely unexpected. I had just started to make friends at my new agency and was learning the ropes and starting to enjoy everything I was doing and learning. And then the bottom dropped again.
I won’t bore you with the details but let’s just say that after finding another job I had yet another layoff to go through before things finally stabilized. I was fortunate at the time that I did not need to support a family and that my husband continued to have his job so we were never really in danger of not being able to pay the bills.
But I learned this:
Relying on two incomes to finance our lifestyle was a recipe for disaster. If we relied on two incomes, the moment one of us lost our jobs, we would be scrambling to pay the bills.
That is way too stressful and unnecessary.
Getting smart about money
We decided that living on one income and saving the other would be the smart, responsible thing to do.
1. Gather everything
Are you ready to live on one income? Then you need a plan for how you are going to make that happen. If you have been living on two incomes for a while, this may require making some tough decisions. If you are just starting your journey as a two-income couple, this process may be easier since you have not expanded your lifestyle to fit within than two-income range yet.
First things first – make a list of all of your expenses from largest to smallest. This will take some time as you go through all of your bank accounts, credit card, and debit card statements. But it will be worth it, in the end, to know where you stand. Do not forget to include any debt – both so-called “good” debt and “bad” debt. I like to lump it all into one category for the sake of clarity. I’d also recommend adding the interest rate besides each debt number. Now go and get all of the info on your investments and savings.
If you don’t already have all of your money in one central dashboard, it may be a good idea to put them all together in an easy-to use-aggregator such as Personal Capital. That way you will know where your money goes each month and how much you have in each account. And the information is updated automatically so you don’t have to worry about importing data and updating the numbers every time you like to get a birds-eye view of your finances.
2. Make a plan
Now that you have everything together in one place, you can make a plan as to what you want to do with your money. If you have any debt, you will have to decide what is the best way to pay it off – whatever way you chose to tackle your debt, the important part is the tackling. Threat debt as if your hair is on fire – it needs to go now!
There are two schools of thought when it comes to debt repayment:
One recommends paying off the debt with the highest interest rate first so you can pay the least amount of interest overall. That’s a great approach but can be un-motivating if your highest interest debt is tens or even hundreds of thousands of dollars.
The second recommends ordering your debt from smallest to largest amount and starting with the smallest one first, regardless of the interest rate then rolling over the payments into the next one as you pay it off. This gives you more momentum since it makes you feel like you are getting somewhere so it could be the nudge you need to keep going when the times get tough.
3. Cut out the unnecessary
The next step is to look at your expenses and figure out where you are spending large amounts of money unnecessarily. Is your food spending more than your mortgage payment and it’s just you and your partner? Do you spend a lot of money on eating out? The goal here is not to cut out all joy from spending. The goal is to reduce those areas where you spend too much and receive too little value.
This will vary from person to person and is highly individual. Some people will tell you that you should never eat out and that eating out is wasting money. Others will tell you that you should not waste money on organic food if you have debt. I personally think you should do what works best for you within reason. If you would like to go out to eat once a week with family or friends, make room in the budget for it – maybe you just don’t shop for new clothes and just buy used. Whatever makes sense for you and your family.
This section is all about making choices. These are the choices that you are comfortable with and will not make you miserable. The best way to get out of debt would be to cut absolutely everything unnecessary and throw every last cent at your debt – while that is effective, it often causes people to burn out and also to get back into debt once the restrictions are lifted. All things in moderation will let you still have some fun but focus on paying off your debt.
Your goal is to find a good balance between saving as much as you can so you can throw it at your debt while still enjoying and living the life you want to live. If you’ve already paid off your debt, cutting out the unnecessary expenses will let you focus your spending on what does matter to you. Anything extra can be put toward your long-term goals such as an emergency fund, house down payment, etc.
Related: 6 Painless Ways To Save Money
Here are some easy ways to get started saving money:
- Start going through Ebates.com for all of your online purchases. In a nutshell, Ebates is a website that pays you for shopping through their website. You can also use coupons when shopping through them (they even have a list of some you can use) so it’s a win-win. Check out my review of Ebates here. If you want to go ahead and give them a try, you can get $10 FREE CASH after spending $25 by going through my affiliate link.
- Get a programmable thermostat and make sure you keep your house at a reasonable temperature, which will save you a surprising amount of money. We live in the south where the temperature regularly goes over 100 F all summer and our AC bill is never more than $170. Here is the programmable thermostat that we use and love (especially the feature that lets us control it using an app on our phones).
- Use Ibotta when doing your grocery shopping. All you do is browse the rebate offers for the store you shop at, add them to your account and then scan your receipt when you get home. The rebates add up quickly and you don’t have to keep track of coupons. Click here to sign up for Ibotta through my link and get a $10 as a FREE welcome bonus!
- Cut your cell phone bill in half by going with a pre-paid phone provider. You can either bring your old phone if it’s out of contract or you can buy a used one online for a fraction of the price of a new one. Depending on what network you would like to use, there are many different options for pre-paid providers. We use Cricket Wireless, which is on the AT&T network, and we love it (AT&T works well in our area). If you prefer Sprint, I’ve heard great things about Republic Wireless. Republic Wireless has plans as low as $15/month for text, talk and data – amazing!
- One of the easiest ways we’ve saved money is by cutting cable. We bought a Roku Premiere and love all the features and apps so far. There are so many great alternatives to cable and none of them require a contract. We use our Amazon Prime account to stream shows for the kids and absolutely love it! Sling TV is a great alternative to cable at only $20/month and it includes DVR service, which is a great deal. If you go through my link, you can get a free 7-day trial to give them a try.
4. Create an emergency fund
I hinted about this above but let’s talk about what is an emergency fun, why it is so important, how much you should have in there, etc. The emergency fund is a buffer between you and life. And trust me, life happens. You lose your job, your hours at work get cut, you receive a large health bill, you get in a car accident, the refrigerator breaks – all of life’s little emergencies turn into annoyances when you have an emergency fund.
The emergency fund is simply a separate account where you save at least 3-6 months of expenses. Note, this is expenses, not salary. So, if you only spend 50 percent from each paycheck, you only need to save the equivalent of three paychecks to have six months of living expenses.
If you still have debt you are trying to tackle, set aside at least $1,000 in an emergency fund to help you cover any unexpected expense that could potentially derail your progress toward debt repayment. Nothing sucks more than paying off a credit card and then having a tire blow out on your car, forcing you to put money again on a credit card to pay for a new tire.
An emergency fund becomes even more important if you are trying to live on a single income. In those cases, if you can get it up to a full year’s worth of living expenses, that would be best. That way, a job loss for the primary breadwinner will not mean immediate panic and will give you some breathing room.
And remember, only use the money from your emergency fund for true emergencies – finding a designer bag at 50 percent off is not an emergency. If you do end up having to use money from your emergency fund, make it a priority to replenish it as soon as possible.
5. Draft a rough financial plan
As the saying goes, “If you don’t know where you are going, you are never going to get there.” The same thing is true of your money. If you don’t have clear set goals for what you would like your life to look from a financial perspective, you will never get there. It’s important to take the time and brainstorm 3 to 5 financial goals for the next five years and break down the steps of how you are going to get there.
Now that you have some goals, you will know where you would like for your money to go. An example of a goal would be to save money for a down payment. Or, maybe you would like to take a year off from work and travel. Figure out how much money you would need to make that happen so you can figure out how long it will take you to save up for it. Having a financial plan for your future will also ensure that you and your partner are on the same page financially.
6. Give the money a purpose
This point is very important. Saving money for saving’s sake is really not very motivating. Saving money for a big goal such as for your first house or being able to afford to adopt a child can give you a reason to keep going when temptations cross your path.
Your first priority should be to save that emergency fund. If you have debt, focus on paying that off first after you have a small initial emergency fund saved. Then, once you have that paid off, you can focus on bigger goals. Whether it’s creating an emergency fund, paying off debt or working toward a bigger goal, you should always give your money a purpose. Money without purpose gets spent on random stuff without you even noticing.
If the savings goal you have is large and it will take you a long time to get there, create mini-goals within and celebrate. For example, say you are saving money to take a year off from work – celebrate when you have enough money to cover one month, then two months, then three months of expenses, etc. This gives you milestones to strive for and keeps your goal front and center.
Saving one income really boils down to making it a priority. If you don’t even see the second income and just pretend it’s not there, then you can focus on optimizing the money you do have to spend. Just remind yourself that many people only live on that amount of money.
Look at the median income for your area for some eye-opening results. Often, a family of four or five will be able to live on what just one of you makes. It’s important to realize that your lifestyle will expand to fit any income level. In many cases, it’s not about the cost of living but the cost of the lifestyle you think you need to live to be happy.
A final word
Happiness cannot be found in materials things beyond satisfying the basic food, clothing and shelter requirements. You don’t need a Mercedes or a new purse to be happy. You need human connection, good conversation and spending time with those you love. Those are the things that make a difference in the long run.
Resources that I love:
If you’re looking to save money on your shopping, then I highly recommend checking out these ideas!
Amazon Prime – With free unlimited two-day shipping and no minimum purchase required, Amazon Prime is the perfect solution for your holiday shopping. You get a FREE 30-day trial membership for signing up through my link. I absolutely love my Amazon Prime membership!
Ebates – Get cash back for any purchases that you are already making online. Just go through the Ebates cash back portal and you will get a percentage back of your total order price. You can also use coupons on top of going through Ebates for even more savings. Read my review of Ebates here. You get $10 FREE cash back after you make a $25 purchase for signing up through my link.
Ibotta – Get cash back for purchases, including groceries, clothing and more! Download the app on your phone, check it before heading to the store so you can add any rebates that interest you, then shop as usual. When you get home, just scan your receipt and enjoy the cash back. It’s such an easy way to get some extra cash!