Many couples dream of living as a single-income family. The idyllic setting of one person running the household whilst the other provides the financial stability is one that appeals to many families across the country. There are also those that have no choice on the matter – accident, illness or a temporary change to the state of affairs (for example, following redundancy) may mean that a family is forced into the single-income way of life. Regardless of the reasons, there is no doubt that the financial moves that are taken by a single-income family differ greatly from those made by a dual-income household.
Plan for the future
Whether you’ve made the conscious decision to live as a single-income family or you’ve been forced into it due to external causes it is important to plan your financial moves for the future. One aspect that many people overlook when they become single-income families is the importance of contributions to a pension fund for both parties. What you need to remember is that the bread winner is now solely responsible for making retirement contributions for two people. To arrange this financial move first look at what amount the stay-at-home partner used to contribute to their pension fund (i.e. the amount put aside in their 401(k)). The working partner will now have to attempt to match that figure, or as near as possible. It may not seem easy, but it’s important so that both parties are prepared for the future. If you haven’t considered your pension plans in great depth then there’s no time like the present. The IRS can assist you to plan your 401(k) and help you to stay away from common pitfalls.
Another thing to consider as a single-income family is insurance for unexpected issues in the future. Namely, life insurance and long-term disability insurance. It’s important to make sure that all policies for both parties in the household are up-to-date. You may think it unnecessary to make such financial moves i.e., to take out such insurances for the stay-at-home party, but it makes perfect sense – if this person were to pass away or become unable to look after the household then that responsibility would automatically fall to the person who’s currently earning the money for the house. Whether they would then have to stay at home or outsource the responsibilities to a third party, it is a costly and stressful time to go through. Best to be prepared now!
How to make the transition
If you are planning to become a single-income family but haven’t yet made the financial move it is best to take your time instead of rushing in to the seemingly ideal lifestyle. After all, you will have to build your lifestyle with a much stricter budget once one person stops working, and this doesn’t always come easy. Try living on one person’s wage while you’re both working for a few months. This way, you can see what sort of life you’ll be living once that second wage disappears. If you do this you’ve got the added benefit of saving money from the second person’s income – useful for those first few months. The additional savings can also be used to eradicate or reduce some current debts as well as stockpile some money for future savings. Consider paying off the things that are most important to you, such as:
- Car loans
- Credit card loans
- Student loans
- Additional payments to retirement plans
- Adding to children’s college savings accounts
- That dream vacation you’ve always talked about
There are several things you can do to prepare yourself for living on a single income. For example, why not declare a one-month ban on eating out? Or swap items on your grocery list to other brands to reduce the cost? Could you get by with a smaller, more economic car? Do you have space in your house to rent out a spare room? There are plenty on little financial moves that you can make to ease the stress of losing one person’s income. Also, just because one person is at home all the time doesn’t mean they can’t be earning a little bit of money to contribute. There are plenty of online jobs that you can do in your spare time – ideal if you’re working around your children’s naptimes or the school run. If you’re artistic you could consider selling homemade crafts online or teach a musical instrument to our neighbours. You don’t have to have the mind set of an entrepreneur; just be willing to put in a few hours here and there to contribute to the coffers.
If the single-income life is something that you and your family strive for, all it takes is a little planning, a little cost-cutting and the willingness to make the necessary financial moves to ensure that everything that you need is covered.