On last week’s post, Steps to Living on One Income Steps 4 to 6, you learned how to get yourself down to the bare bones of your family budget and have started practicing living on one income. Before I get into the final steps you should consider, I thought I would go over what I think are bare bone necessities for my own family as an example. This is only an example.
- Mortgage We bought our home using only one income to qualify.
- Yearly Homeowners Dues
- Gas, Electric, Water, Trash
- Cell Phone For Adults Only (does not include unlimited texting or picture texting) or Land Line Phone
- Basic Cable (no movie channels, no extended packages)
- Internet (I use it for work.)
- Gas, Electric, Water
- Food/Eating Out (We have an overall budget for the eat at home groceries. If we eat out we pull from that budget.)
- Retirement Savings
- Emergency Savings Fund: For home repairs, unemployment, medical emergencies, etc.
- College Funds for Each of the Kids
- Car Insurance
- Health Insurance
- Medical Bills Not Covered by Insurance
- Life Insurance
- Car Payment to Ourselves: When we have enough for a car that is when we buy a car. Also, it should be said that I live in a place that has almost no public transportation options.
- School Supplies for Kids
- Clothing Allowance for my Kids
- Clothing Allowance for my Husband
- Clothing Allowance for Me
Does yours look familiar?
Before you start step 7 you should have been practicing for a while living on one income. Let’s say you’ve gotten to the point where you feel fairly comfortable and believe that you can successfully live on one income. There are some final steps to complete first.
Step 7: If someone is giving up their job or income, get them established as the primary holder of a credit card.
Did you know that because of the Credit Card Accountability, Responsibility, and Disclosure Act of 2009 (CARD) you can no longer receive credit using your family’s household income to qualify? You have to have an individual income. However, credit that already have received cannot be taken away because of loss of or change in employment. So before you quit that job make sure that you are the primary holder on one of your credit cards to protect yourself if some emergency should happen such as illness, death, or divorce.
**Too late and you’ve already quit or lost your job without establishing your credit? There are ways around this problem. Check out No Income? For Good or Bad, You Can Still Get a Credit Card.
Step 8: Consider setting up a Spousal IRA for the non-income earner.
Just because you are planning on dropping to one income, it doesn’t mean that there wouldn’t be advantages in considering saving for two retirements. A Spousal IRA, a term used to describe how a person can contribute to their spouse’s IRA, allows a non-income earning spouse to make a tax deductible IRA contribution providing the income earning spouse can cover the expense. Along with the deduction another advantage is that all earnings and principle deductions are tax free (though you will be penalized if you withdraw before 59 ½). There are some rules however you must follow such as you must file a joint federal income tax return for the tax year. For more information about Spousal IRAs check out Spousal IRAs by Smart Money.
Step 9: Constantly evaluate and track your budget to trim down the financial fat.
After practicing, practicing some more, and getting all of your financial duck in a row you are probably okay to actually drop yourself down to one income if you so desire. However, keep in mind while you live on one income it is more critical than ever to keep tabs on where your income is going. After all having only one viable income puts you at greater risk for financial disaster if something happens to that one income. So do the following things to keep yourself safe.
- Watch your budget.
- Avoid at all costs adding new debt.
- Think carefully about adding perks and whether or not they could be easily trimmed if an emergency occurs.
- If your one income suddenly gets a boost, could you take that money and use it to create a greater cushion in case of emergency? Do so.
- And for the non-wage earner in your family do what you have to do to keep your skills up to date in case you suddenly are required to go back to work.
Living on one Income can be done in today’s world despite the naysayers. It simply takes a change in your mindset, some tough decisions, and a lot of discipline in the beginning. However, I have been personally living the one income lifestyle for over 17 years now. I can honestly say living this way does eventually become second nature. And there does come a point in which you can relax some of the strict rules that you’ve set up for yourself and add back in a few and eventually a ton of perks you gave up in the beginning. You just have to start now.
Need to start at the beginning? Look for parts 1 and 2 at Steps to Living on One Income: Steps 1 to 3.
In this three part series, Steps to Living on One Income, we are exploring what it takes to get your family on track to successfully live on one income. Do you have any questions that have not been covered in this three part series? Feel free to leave me a comment.