Last week in the Steps to Living on One Income series you entered the research phase of your lifestyle change. You got buy in from those involved from the lifestyle change, you provided yourself with a very clear picture of where you and your family are financially, and you set some goals for yourself. This week, however, you enter a more active phase of this lifestyle change. You begin to live the living on one income lifestyle.
But before you enter this stage, you should know that living on one income does not mean that you necessarily have to give up any additional incomes. In fact if possible, I recommend not giving up your secondary forms of income immediately while you begin practicing the living on one income lifestyle. After all when you are starting a new lifestyle you are going to be making some mistakes. Keeping any or all of your secondary incomes while you are making that change can provide you with a sort of insurance to prevent damage to your credit scores while you are learning. With that said, you are ready to jump in. So here are Steps 4 to 6 from Steps to Living on One Income.
4. Determine which of your incomes will be your primary income.
After you have provided yourself with your clear picture of your financial situation, you pretty much have a good idea of how much money you will need to have to keep your family’s financial boat afloat. That will help you pick which income will become your primary income, and if you have a primary income that can cover the expenses of your current lifestyle you’re golden. If like most, however, you do not have an income that will cover your current expenses, can your expenses be altered?
5. Analyze Every Expense
Ask yourself these questions.
1. What are you willing to easily give up to shrink your family’s expenses? Items that might fall into this category I call the frivolous luxury items. These sometimes are obvious to you. They include trips to the salon for manicures and pedicures, fancy coffees, eating out, spending too much money on entertainment, etc. This could also include the not so obvious such as not bargain shopping for groceries, not using coupons, and not eating out on “kids eat for free”night at your local restaurants.
Basically frivolous luxury items include any mindless purchases that you used to be able to make when you were living on more than one income. Get rid of these expenses now either by getting creative or cutting them completely.
After you have completed that step, are your expenses covered by your primary income’s limit? If not move on to question two.
2. What can you give up that takes a little more work and sacrifice? Make a list of these items and figure out what it would take to shrink those expenses. Do you need to downsize, pay off, or refinance a car loan?
Do you need to move or refinance a home? Do you need to pull your kids out of private school and find a cheaper option? Do you need to first get rid of credit debt, college loan debt or anyone other debt? Would the cost of cutting these expenses actually cost you more money than cutting out other expenses?
All of these choices on this secondary list are more difficult to make, and know that you are in an extremely difficult part of learning how to live on one income that could take a very long time.
However, this is where the fact that you made some financial goals plays an important role. Think about your financial goals every time you start to battle with yourself over these expenses. Think about why you made these goals. Think about what you are trying to accomplish. Think about what the sense of pride will feel like if you actually accomplish your goals. Use your goals to help you stay on track and avoid the pitfalls of placing too much importance upon the non-necessary expenses in your world.
6. Practice Living on One Income
So you’ve gotten your living expenses down to the bare bones, and you have reached the place in which your primary income covers your expenses. Congratulations! Your equipment for the race is ready and now it is time to begin training for the big day. Start living as if you only have one income to pay your bills. For the first few months do the following things.
- Sock away any secondary incomes. Put them in a place that is not easily accessible, so that while you are in the training phase of learning to live on one income you are not tempted to slip.
- Track your expenses. Don’t adjust them yet, but monitor where all of the money is going exactly. Yes. Again. (Hint…you will never stop tracking your expenses.) At the end of each month (or pay period) see if your expenses are actually covered by your primary income.
- Make mindful purchases. Before every purchase think about your pool of money and determine the affordability of all of your purchases based on your one primary income.
- Keep your financial goals in the forefront. Keeping your financial goals in the front of your mind will help you adjust your thinking as you are downsizing to one income, and they will help you stay on track during this period which requires great discipline.
Look for part 3 next week, and if you would like to start at the beginning jump on over to 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. When you are cutting expenses, there are some expenses that you should not give up such as the expense of food. What are some expenses that you absolutely refuse to give up that don’t fall under the food and shelter category?