Have you thought about shifting from a dual-income to a one-income lifestyle? Some common reasons for making the switch include:
- Allowing a parent to stay home and care for children.
- Caring for aging parents or managing other family responsibilities.
- Dedicating time to a fledgling business.
- Pursuing artistic hobbies or do-it-yourself home projects.
- Volunteering your time where it is needed.
- Entering retirement or being laid off.
Perhaps it is time for one spouse to retire or health problems are making it increasingly difficult to work. Many families have experienced layoffs, and if you're among them, living on one income may be a reality rather than a choice.
Run the Numbers
Whether living on one income is your dream come true or a circumstance you hope to avoid, it helps to be prepared and think through your options. Here are six things to consider:
1. Do the math. Track your income and expenses on a monthly basis to determine if one income is enough to support your family.
2. Review your health insurance options. Calculate the costs of health insurance if you or your spouse and children had to switch to a different health plan.
3. Don't forget life and disability insurance. The work of an at-home spouse (e.g., cooking, cleaning and caring for children) should be considered part of the household income.
4. Downsize your debt. Try to pay off existing debts, especially high-interest credit card debt, before moving to one income.
5. Size up savings. Try to save six months' worth of living expenses in an emergency fund.
6. Ramp up retirement savings. Avoid dipping into retirement savings to make it on one income. Develop a plan to continue saving so both partners are on track for retirement.
Practice Makes Perfect
Not sure if you can make it on one income? Make a decision with your partner to "practice" living on one income. Transfer one partner's paycheck into an emergency savings account and see how you do living on the other paycheck alone. If you overspend or emergency expenses pop up, consider ways to spend less in other areas to make it work.
Need help running the numbers? Schedule an appointment with us today.