New Business Creates One Income Family
by Lynne Tarter
I would like to tell you our story. Our story is both a success story and a word of caution for those considering this life-style change.
First of all, my husband (Jerry) and I never intended to be living on one income. It happened as a fluke. We were stationed overseas for 7 years, then moved back to the U.S. after quitting our jobs and giving up our combined $100K/year income, desiring a fresh start in the U.S.. After 4 months, I took the first job offered with a start-up company (very big mistake) and after one more month, Jerry received a great offer from a large company we both admired. Needless to say, a few months down the road, I was again on the "questioning the career" path and Jerry was quite happy and very challenged with his job. With one income, we have been living on $44K/year for the past 5 months.
At this point, I decided to start my own company. The only problem was that the idea to do this was not my own, nor was it in a field I was educated in and I had minimal experience in it. I sincerely thought I could overcome these shortcomings with dedicated study and diligence. I was wrong. After 5 months of building the company, I have a wonderfully complete business plan, am registered, licensed and built a Web site. The problem is, after all my studying and self teaching, I still am not quite sure how to conduct the business, as the field is very technical and analytical.
As you can imagine, in the meantime no money has come into the family coffers from this business. This has been going on for 5 months. Psychologically, this is quite a blow to me. I have always been the breadwinner of the family, earning more than my husband in each job I've held. That in itself is not important, but contributing to the family's income and the accomplishment of a career has always been incredibly important to me.
After month two of my new company, reality set in that money would not be flowing in as budgeted, so I started doing some different homework. I started studying the concept of cost cutting and living within one's means. Many books have been tremendously helpful, but as usual, you can read and read all you want; the challenge comes when you try to implement those changes into your life. After a great deal of discussion with my husband, we implemented some drastic changes. I've included the top five changes below, including some of the success we realized following these changes:
- Track Your Spending: This seemed to be the most significant life-style change when it was implemented. Receipts were requested and stuck into wallets, little notes were kept when a receipt wasn't available, and weekly collection was made of these notes from both myself and Jerry. Keep in mind, this is not a "checking up on what your spending your money on" drill. This is a legitimate money management technique that can provide invaluable insight to your spending habits, and will help you answer that pesky little question, "Where did that $50 go that I just pulled from the ATM yesterday?" Truly, both of us were surprised and a bit chagrined over what we found.
- Personal Financial Management Software is Key: There are a variety of software programs out there that can track your spending and provide insight into your money management techniques. Be careful, the machine is only as smart as you make it. If you don't provide the necessary information or track your spending carefully, the software will only tell you what your checkbook is telling you: how much you have to spend. Look for a program that allows you to create your own categories of income and expenses, create budgets, analyze spending in both graphs and reports, track special internal savings programs (for that annual vacation) and provides very detailed reports on every aspect of your financial portfolio, including electronic downloading of your investments. In essence, the program puts you in charge of your money, allows proactive management of your funds, and tracks where your money is, not just how much you have left to spend.
Concentrate on Reducing Large, Unnecessary Expenses: If you find yourself withdrawing over $200 each month from the ATM and categorizing it as unbudgeted "cash", you have not tracked your spending well. You will be surprised how much money trickles out of your bank account under this evil little category. Those harmless cups of coffee, business lunches that are not billable, trips to the local convenience store or fast food chain for "just a little something", gifts for co-workers, etc. really do add up - and quickly!! One year ago April, we were spending over $1,400 in this budget line. This April, we spent $13.60. Another budget line that is easily overspent is dining. You know how it works. Your friends call, they are in the area, and would like to meet you at the expensive, posh restaurant down the road. We were always caught in this situation. Because we both worked, neither of us had the time or energy to invite our friends to our home for a homemade dinner.
Now, while I'm not working, this is the norm. We have converted our friends to this idea as well, rotating the entertainment responsibility among us and sharing our homes with each other instead of dumping $100 at the local eatery. One year ago we averaged over $300 each month in dining out. Now, we stick with our budget of $75/month (including lunch for Jerry at work).
- Pay Off Those High Interest Credit Cards: Don't even think about those "home consolidation loans". I'm sure you have heard the horror stories about people defaulting on these loans and losing their homes because of it. From your trusted, local neighborhood bank they are reasonable and the terms are acceptable. However, stay away from those flyers in the mail and T.V. ads. Maximize your payments to your highest credit card. Even if it takes 2 years, when that one is paid off, pile the payment you were making to them onto your next highest credit card or bill. That way you won't be spending any more than you are accustomed to, but you are paying off the bill twice as fast! Most financial management software packages have a "debt reduction" planner. Use this function! It will make a significant difference. One year ago our net worth was a pitiful ($12,000), keep in mind how much we were making - almost $100K/year! This month we have improved our net worth to ($2,400) and it is getting better every month on an income of $44K/year!
- Research Your Credit History: Did you have problems at one point or another with creditors? Don't give up! Work at it! Write to the credit agency questioning those items that you disagree with. If the original creditor cannot provide evidence of the outstanding debt or negative credit rating, by law the information must be taken off of your report. Even if the negative information on your credit report is accurate, write directly to the original creditor, asking them to resolve the issue with you and even take the negative information off your credit report. You will be surprised at the outcome if you take the time to do this. Prior to our marriage, my husband had a difficult year and is still haunted by the effects through credit denials. Well, as you can imagine, with my husband's income as our only source (creditors will not consider a new business until 2 years worth of income can be shown), it was necessary to take steps to getting his credit cleaned up. Systematically, we have been able to get the report down from 6 negative creditors to 2, and those come off at the end of this year. Result: we were able to get credit just a short time ago on his credit rating!
After implementing these 5 most important steps, we have further managed our expenditures much more effectively by bargain shopping, rummaging on Saturdays and simply choosing to save for things instead of buying them on impulse. These changes are difficult, and sometimes painful. They take a style of discipline most people are not comfortable with - restraint. Be careful to avoid the "sacrifice" mentality (always feeling deprived, thinking that you work so hard and can't spend any money the way you want, etc.). Just remember, the practices you put into place right now will allow you to put that extra $50 into your investment portfolio, and you will increase rather than decrease your net worth!!
For those of you considering changing to a single income household - think hard. Consider living within your means for 2-4 months, practicing the first 5 steps outlined above. After you have a thorough understanding of your spending habits, adjust them and make changes that will allow you to live on one income. Can you do it? Those first few months will give you an indicator. Can you both adjust to doing without the extra night out on the town, that CD you've been wanting, that new outfit you've been eyeing in the catalogue? Are you willing to put in the time and restraint this life-style demands? There is very little room for mistakes, and no one will come in with job offer quickly if you find yourself losing the uphill battle. While you are practising, set aside that second income in an interest-bearing savings account that is not readily accessible (i.e., $250 minimum check-writing privileges). You may need it in the months ahead.
Case in point, we have just discovered we are expecting our first baby in December. Although this cannot properly be termed a "mistake", and while this is a wonderful time in our lives and we couldn't be happier, the timing is not ideal. We will now require $500 - $800 more income per month than we presently have. My choices are the following: telecommuting from home (ideal, but highly unlikely to be offered a position with a good company), independent contract work (good option, favorable due to the flexible schedule, difficult to break into this world), part-time work (fair option, poor career choice but income would meet requirements), full-time work (last option, good career & income choice, poor family choice). Tough choices and even tougher trade-offs, but necessary at this time.
The life change from living on two incomes to living on one income is a change that will either make you or break you! Think carefully about it, and go into the change as a team. You cannot do this alone, both of you must commit to it!! It is well worth the change in life-style to spend quality time with your children, to watch them grow up, learn from them and allow them to learn from your every-day actions. Just make sure you can do it by testing yourselves for a few months, and don't forget that savings account!!
Debt from my past is preventing me from saving for my future! Tell us: Yes, debt is hindering my ability to save! or No, debt is not a problem but I am trying to get ahead financially!