I know a lot of people who were asking if it’s possible to live on a single income before the proverbial excrement hit the rotary device, economically speaking. I imagine there are a great many people who are worried about losing their job and are now asking themselves if their household can live on one income if that day should ever come. Well, it can be done, but it takes planning as well as the right lifestyle and temperament to pull it off.
The key to living on a single income is living below your means. Frugality and a debt free lifestyle will make the single income family a reality. I happen to know this first hand. Five years ago, my wife left the work force and gave birth to our first daughter. We had discussed this decision long before having children, and we felt very strongly that having one of us home in the formative years of our child’s life was something we really wanted. The only problem was we hadn’t really planned for a sudden drop in income, much less another mouth to feed.
I thought I made a good salary and I thought it would be no problem. I soon learned that a good salary alone doesn’t make life easy. We found ourselves living on a single income, in a new home with old debts. Car loans, student loans and a $7,000 credit card balance. In fact, we had over $12,000 in “bad” debt (not counting student loans or mortgage). While we were able to live on a single income and get out of debt, but I would strongly recommend eliminating debt before eliminating an income. In the end we’ve had to do a lot of simplifying and sacrificing to pull this off.
“Kill your television” I see these bumper stickers every so often, and it makes me giggle. Of course, the people with the bumper sticker aren’t advocating pulling the plug on the idiot box to save money, but the fact remains that it is a costly distraction. Electricity use aside, most people I know have cable or satellite, high speed Internet and VOIP. We never actually cut the cable out of our lives, but if we had we certainly could have saved over $1,000 a year. We chose not to mostly because having high speed Internet allows me to work from home. Even if you don’t pull the plug entirely, there are other options. Many cable companies now offer some “light” form of high speed Internet access that is cheaper and slower than it’s costly counterpart, but still light years ahead of dial up. Shopping around is a good compromise to going cold turkey.
Cut the cord on wireless: When I first got my present job, I signed up for cell phone service with one of the big carriers. This was stupid. I only needed it for emergencies, and I was locked into a 3-year contract at $85 a month for something I rarely used. After that contract expired (it was too costly to cancel), I switched to a pay as you go service. For about $6 a month I have service that suits my needs.
Forget about designer – skip “new” altogether: Buying second-hand clothes can save a bundle. Let’s face it, most of the cost of clothing is the brand name anyway. I’m not saying you have to go about looking like Jed Clampett from The Beverly Hillbillies, but being thrifty (especially in your casual wear) can certainly go along way in keeping your costs down. If you can’t do without new clothing, consider asking for gift cards and treat yourself to a splurge once in a while.
Clip it, Clip it good: Sorry for the Devo-like heading, but I needed your attention: Clip Coupons. It never ceases to amaze me how many people don’t bother with coupons when grocery shopping. It’s not easy and certainly not most people’s idea of a good time, but my wife routinely saves over $30 per week on our grocery bill, sometimes twice as much. The key is planning meals for the week around what’s on sale and what coupons are available. It takes about an hour on a Sunday morning, but we think it’s worth every penny.
Housing: Don’t buy more house than you can afford. That was pretty obvious, wasn’t it? But many people don’t factor in the cost of living that goes along with a house. Taxes and heating are two of the biggest costs associated with a house that many people overlook. I have a 50 minute commute to work. Many of the people I work with think that’s crazy, but I don’t mind. I get time to myself, and time to unwind after a crazy day at work. I also get a lot more house for my money, since I live out in the “country” and housing prices never got as inflated as they did closer to the urban centers. It also helps that the average income of my town is much less than mine. If I lived closer to work, where the average income is much higher, my salary wouldn’t go nearly as far.
Health costs: Health costs, like education costs, are becoming a bigger problem with every passing year. One thing you can do to limit some of the bite is make use of your employers Flexible Spending Account (FSA). FSAs allow you to have a set amount deducted from your paycheck each pay period before taxes, just like a 401(k). Instead of investing the money though, it goes into an account. When you have a co pay for a Dr’s visit, or just about any other out of pocket health related cost, you can use that tax-free money to pay for it. If your employer doesn’t offer it, pester them until they do.
Income tax: This is one of those areas where a single income by itself actually helps. The more dependents you have, the less you pay. Plus, if those dependents are children , you get a tax credit as well. But one of the biggest moves you can make to lower your income tax bill is to enroll in a 401(k), 403(b), IRA or SEP IRA plan. The contributions you make today are tax free and are removed from your paycheck before state and federal taxes are applied, thus lessening your taxable income. It’s the only way to truly pay yourself first. But the result is twofold: 1) Save for retirement, 2) lowers your tax bill today.
Living on a single income takes determination and planning. It means setting priorities. You need to eliminate as much debt as you can to free up as much of your monthly cash flow as possible. You need to have a clear plan for when and how you can afford to buy the things you consider necessary. In the end though, these are just smart financial moves regardless of your income.