Going from Two Incomes to One
by Lucynda Koesters
My Story: Route to One Income
Adjusting to One Income
Changing to One Income
A decision to transition from two incomes to one begins with a detailed examination of household finances. It can be an intimidating process, but one that is necessary in order to send one working spouse home. As you go through your numbers, keep an open mind and don't quit until you are completely through the entire process. If it seems like your family can't exist without two incomes, look again. And again. There will be ways to cut expenses, live on less, or live differently. Keep in mind that it is not how much money you earn, it's how much you spend, and how much you manage to keep, that will determine how successful you will be.
The starting point for this analysis is to know where your money goes. The best way to do this is to track all household spending for at least three months. You can keep a small notebook with you during the day to write down the amounts of money you spend or payments made, and what they are for. You'll need to organize your expenses into categories. If you have the computer software to do so, transfer your expenditures each night to a financial tracking software program (such as Mint.com). This will help you easily organize and total your categories. If you don't want to wait three months to begin, you can estimate your monthly expenses using your checkbook register or bank statements. Make a list of all spending categories with your current amounts. Categories may include things like mortgage, insurance, utilities, child care, payments (auto, loans, credit cards, etc.), gas, parking, groceries, eating out, clothing, medical, vacations, home and car maintenance, entertainment, charity, savings and miscellaneous. You may wish to add more categories or break larger categories into smaller ones.
The next step is to create an expense-cutting worksheet. This will be your "bible" as you work through this process. First, list your column headings: Category, Current Amount, Need or Like, New Amount. Next, list all of your categories under "Category." Under the last category, write "Total Expense," then under that write "Dual Income Per Month," and under this write "One Income Per Month." Fill in the current amounts spent in each category and total them at the bottom of the page. Next, list your net dual income per month. Compare what you are currently spending each month to your current dual income per month. How much cushion do you have?
The next step is to estimate what your new, lowered monthly income will be once you send a parent home. List this amount on your worksheet. Now we are ready to begin trimming expenses. We will do this in three ways: cutting work-related expenses, trimming "likes," and finally, trimming "needs."
To begin, determine whether each expense is a need or a like and write this determination down the page in the appropriate column. Now, examine which expenses are work related and trim them first. Eliminate the most obvious ones such as day care and commuting costs. Look for savings in things like lunches out, office gifts, work clothing, hair styling, etc. Insert "new" amounts of zero on your worksheet. Look for "hidden" expenses that may be cut such as convenience and fast food dinners for the family and lowered medical costs for stress-and-daycare-induced illnesses.
Next, go through your "likes" and examine each carefully. It may be difficult for you and your family to give these up entirely, but try to trim as much as possible without causing a family mutiny. Some "likes" that could be eliminated are health club memberships, extra cable channels, trendy store shopping, frequent eating out, lattes and fancy vacations. Think of ways to have fun and exercise at home, watch less TV, shop the clearance racks at discount stores, eat at home more often, share vacations with relatives or friends and brew your Starbucks at home. Enter new, lowered amounts on your worksheet.
The toughest area to tackle, but also the area with the largest potential savings is in your "needs" area. The largest categories here will be your mortgage and your automobiles. Would you be willing to trade in an expensive car to eliminate payments? What about refinancing your mortgage or even moving to a less expensive housing option? Another area of great savings for most families is in the grocery and food category. A parent at home who is willing to shop the sales, clip coupons and cook from scratch can easily save 50% in the monthly food budget. Look for savings in your insurance premiums by raising deductibles, and shopping for better rates. Medical bills can be reduced with fewer doctor visits and prescriptions, which may come down once your family is under less stress. Also consider using your local health clinic for routine check ups and immunizations. Health insurance premiums are of a concern for all families; look for high deductible policies coupled with a health savings account as an option. Cut your utilities by reducing cell phone services, hanging clothes to dry, and adjusting thermostat levels.
A word about debt: if you have large, unsecured debt payments, you will want to get these under control prior to sending a parent home. A plan to pay down this debt as much as possible prior to coming home will be imperative. Gear up now to divert extra funds to paying this off. Pay off your smaller debts first and step up to paying off the larger ones. Eliminate as many as possible before going to one income. You simply do not want debt payment pressure once you are home.
Continue the process of examining each category of spending, and estimating new, lowered amounts for each. List these new amounts on your worksheet. When you are confident you have cut as much as possible, total up your "new" amounts and compare this total to your "one income" amount. How close are you? You may need to keep reviewing and trimming until you are as close as possible to your new income. If you are very close, but feel you need a bit more cushion, an option is to think of ways to earn this small extra amount at home. There is babysitting, crafts, eBay sales, yard sales, tutoring and many, many more options for earning that extra cushion. Keep your mind working on options and solutions for trimming expenses until you are confident your family could survive and even thrive on one income.
Is having a home-based parent worth the financial trade-offs? A parent at home can create a cohesive family lifestyle in the midst of today's rushed and media-distracted lifestyles. The at-home parent can hold down the fort during the day, provide loving care to the children, create home cooked and healthy meals for everyone and create a calm, peaceful sanctuary for the whole family. The home-based parent can be an anchor in the storm of daily modern life and a strong and living "heart" at the center of the family. If this is your dream, work hard on your budget worksheet to make it happen. It will be worth it.
Lucynda Koesters is the author of Finding Your Way Home, How to Become a Successful Stay-at-Home Parent
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