The great debate – can we afford to live on a single income?

One incomeAJ: I personally LOVE the idea of us being a single income household if that means Kirby works, and I stay home and let my free spirit roam, but I’ve been told that’s an unreasonable lifestyle. 🙂 In all seriousness, many families face this discussion regularly. This is primarily a discussion that occurs in households with children but also occurs in households wherein an elderly family member requires care or other extenuating circumstances call into question the abilities of a multiple income scenario where both individuals are away from home.

AJ & KJ: On the surface the answer to the question “can we afford one less income” may resoundingly seem like “absolutely not!” However, realistically, we can all almost definitely live on a little less. A few things to consider as you approach this topic in your household:

Insurance Benefits
Are benefits tied to the job you are considering leaving? If so, is there a substitute through the other person’s job that would suffice? If not, how much will the alternate benefit selection cost you? With the Affordable Care Act exchanges, maybe you have new possibilities that you didn’t have before, but understanding the coverage and cost differences can make a big diffference.

Is this a permanent or temporary change?
Discuss with your significant other if this is going to be the “new normal.” Thinking about this in advance can help frame how you discuss your goals looking forward and help you prioritize them. If it’s a short-term arrangement, then maybe you can make a few less sacrifices knowing you’ll be back on track in no time. Life can sometimes get in the way and change your course unwittingly anyways, so be aware that certain familiarities in your short-term may become long-term adjustments to your plan. If it’s permanent, how long will the savings you have in place carry you if something happens to the remaining income?

How will your savings change?
Discuss how your savings and goals may change. Maybe you’ll just have to make a few minor adjustments or maybe they will be permanent adjustments to your plan. Will you need to delay your retirement, adjust your expectations for children’s education, or modify your travel plans? You may be able to still save for your goals albeit at a permanently lower amount.

Change your retirement goals
Think about how your goals for retirement or “financial independence” may change. Cutting one income out of the picture doesn’t mean your whole plan is thrown off track, though! If you cut one income but your expenses decrease significantly, it’s still possible to maintain your retirement goals. See our post on living beneath your means for more information on how you can simultaneously reduce your expenses and increase your saving to more easily accomplish your goals.

What’s the contingency plan?
If you go down this path only to realize you can’t live on quite as little as you had hoped, what’s the contingency plan? Think about any part-time opportunities that could serve as supplemental income. Maybe one of your careers is conducive to hourly “as needed” advice that could allow you to pick up some extra money as available. Some at-home options could be leveraged in advance of the tightening budget.

Who is taking the plunge?
Especially in today’s world, there’s very little expectation of who will stay home by “default.” There may not be a clear breadwinner, but think about future career opportunities for both individuals (as well as desire for getting there!), taking into consideration who may be best suited for the full-time home job. Consider who manages your money and who maintains the home currently as you set out on your planning. You’ll need to reduce your expenses across the board in order to make this new scenario work and every financial decision will be important, so it is especially valuable to have shared ownership over how your funds are spent.

Have you forgotten anything?
Whenever you make a plan, isn’t there always something that you forget about and realize you should have planned for? Take some time to plan for the unexpected and give yourself time to think of different scenarios. Are you about to need a new car? Are you about to have to replace your air conditioning? Is some major life event going to occur and derail your ability to enjoy life without that second income?…

What is your goal in reducing one income?
Finally, and most importantly, what do you hope to gain by eliminating one income? This might seem like a ridiculous question, but if you’re talking about limiting the earning potential of a household, it’s one that needs to be considered. It’s essentially the same as asking what the ROI (return on investment) on an expense is, and it’s really the biggest question of all. Carefully considering the alternatives can help you understand what it is you are trying to accomplish. Is it extra time with your family, is it flexibility for you and a loved one to nurture a relationship, or is it the peace-of-mind that your personal lives can stay in order that are motivating you?

Why wait?
Just because you’re not in a situation currently where you will need to live on a single income, why not reduce the risk of job loss or economic crisis by learning to live within one person’s income? Whether one of you has a highly variable income or not, try it out and see how it works for you and your family. You may be surprised how you could live on less simply by being aware!

    Have you and a loved one discussed living off of a single income?
    How did you make the decision?
    Tell us what swayed you.

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