It was just one generation ago that couples and families lived comfortably on one income. And while the cost of living has increased, so too have wages. The reliance families have on two incomes can be wound back to allow you to not just survive, but live well on one salary.
It is a good financial habit to get into – living on one wage and saving the other. However, in some cases you don’t have the luxury of adhering to this habit when it suits you, and splurging when it doesn’ t. Instead you may have to live on one salary because one parent is staying at home with the baby, one income earner has lost their job or become sick or injured.
Whether you’ re choosing to stop work, have been forced into it or are simply trying to be more financially responsible and live within your means, you can live on one salary in your household with just five simple changes.
1 – Prepare if you can
Knowing and being prepared for the drop back to one salary can make the transition a lot easier to deal with mentally and can give you a chance to prepare financially. If you can prepare you should start by:
- Clearing your debts. One of the biggest drains on your finances can be your credit card and personal loan debt – it may even be the reason you are forced to keep two incomes coming in. Therefore, to make it possible to cover your costs with one salary, focus your attention on paying off debt and reducing your expenses.
- Start saving. Once your debt is under control, create a dedicated high interest savings account and put all of the money you were spending into that account, or if you can – start putting one whole wage away in savings.
- Curb your spending. In order to successfully live on one salary you will need to change your spending habits. You will have to cut out a number of luxuries and change the way you look at your essentials – for example you may be able to keep your car, but you can only budget to drive it on the weekends, and you will have to start catching public transport to and from work.
- Knowing how your expenses will change. While you can’ t prepare for the unexpected, you can prepare for what you know. For example, if you’ re going to become a one income family because of a baby, budget for all of the initial and ongoing costs you can expect. If you’ve lost your job you know you’ ll be saving on fuel driving to and from work until you find another job. Alternatively if you’ve been injured or are ill, you could need to budget for new expenses.
2 – Budget for essentials
To see if it is truly possible for your family to live on one salary, create a budget for all of your essential expenses. This is where you need to be able to identify the difference between what you need and what you want – differentiating the essentials from the luxuries. For example, tissues are an essential, but the scented, moisturizing, three ply tissues are a luxury.
Start your essentials budget by entering all of your bills such as your mortgage, insurance, power and water. You’ ll also need to know what your essential costs are for things like your groceries and fuel.
When you know how much you need to survive, chances are you’ ll see that there is room to do more than just survive.
3 – Change your habits
Now it’ s time to put your plans into action and see just how well you can stick to your new one income budget. When you look you will see hundreds of little adjustments you can make to save money, and everyone has their own ways to cut back. You could start with:
- Catching the bus to work instead of driving.
- Cutting back to become a one car family.
- Pack a lunch instead of buying one.
- Have friends over to your house instead of going out for dinner.
- Shop at recycled clothing stores and op shops, or swap clothes with friends and family
- Holiday closer to home, or enjoy a camping holiday rather than a luxury hotel suite.
This is where you will need to break down your life and rebuild it, because we have all gotten into the habit of spending everything we earn – and sometimes more. Instead, you’ ll need to find ways to live within your means, and spend less than you earn.
4 – Have an emergency fund
As a one income family there is much less margin for error when emergencies arise so you need to make sure you have a strong emergency fund – and that doesn’t mean falling back on your credit card. Instead, budget to put away money in a savings account until you have enough to cover six months worth of expenses. For your emergency fund to really be successful, you need to be able to differentiate a real emergency from an urgent impulse.
When you live on one salary a savings plan is important so that you can also save up for purchases, holidays or special treats for the family. It means you’ re not living life on credit and you’ re not going to be drawn back down that path.
5 – Have fun
When you first look at your budget you may be focused on everything you’ re missing out on with less disposable income. However, you can still enjoy your life and in fact, enjoy it more because it is real, safe and secure – you’ re not living on borrowed money.
Instead, you can plan to have fun, and save up for fun, which makes your experiences even better because the saving and budgeting have been worthwhile. You can enjoy the fruits of your hard work and you’ve learnt that surviving – and thriving – on one salary is possible.
Alban is a personal finance writer at Home Loan Finder, which offer information on reverse mortgages.