Have you dreamed of living as a one-income family so one parent can stay at home? Have you accidentally become a one-income family due to a layoff or an illness? Regardless of your situation, the simple truth is one-income families have a different set of financial needs than dual-income families.
What do you need to know as a single-income family? Here are 4 things single-income families should never forget.
1. Increase Your Retirement Contributions
I know, this probably wasn’t the first tip you were expecting to read, but it might be the most important. Remember that the bread winner is now making retirement contributions for two people. This means the bread winner needs to compensate for the loss of the other spouse no longer making contributions.
Whatever amount the stay-at-home spouse used to contribute to their retirement account should now be matched, at a minimum, by the bread winner. For example, if the stay-at-home spouse used to contribute $5,000 per year into their 401(k), then the working spouse needs to increase their contributions by $5,000 per year. I know this is easier said than done, but your future self will thank you.
2.Take Out Life Insurance and Long-Term Disability Insurance on the Non-Working Spouse
Many families make the mistake of thinking that the non-working spouse isn’t financially contributing to the household as they’re not earning an income.
If the non-working spouse passes away or suffers from serious illness or injury that renders him unable to look after the children, then the working spouse would need to outsource those tasks. The cost of that outsourcing is tremendous. It’s crucial to take out both disability and life insurance on both spouses, including the one who isn’t drawing a salary.
3. Make the Transition Slowly
If you haven’t yet transferred to a one-income lifestyle, start doing it in stages. First, adjust your lifestyle in such a way that you can live solely on one person’s income while saving 100% of the other person’s income. I know this might sound drastic, but that’s essentially what you’ll be doing when you transition to a one-income household. You’ll be living on one income while not bringing in the other.
By pretending as though you’re a one-income couple for several months (ideally, several years) before you make the transition, you’ll enjoy the benefits that come from saving the entirety of one person’s income. Those savings can be used to obliterate your debt, build a substantial cash cushion, make massive retirement contributions, and max out your children’s college savings accounts.
4. Target Your Major Expenses
For many families, big expenses include a mortgage that is too expensive, car payments, dining out, clothing, and credit card debt. If you can tackle these expenses, you can solve a lot of your financial stresses.
Declare a one month ban on dining out. Commit to eating every meal at home for 30 days and see what a difference it makes to both your budget and your waistline.
If you have to eat a meal outside of the home, brown bag your lunch. If you have an expensive mortgage, consider renting out a room to a housemate. If that’s not something that appeals to you, downsize to a smaller home.