by Emily Hechler 
Growing your family can be an exciting and rewarding experience for you and your partner. Many families consider transitioning to a single income during this state of life, whether for childcare, flexibility, or personal priorities. Raising a family in today’s economy can have financial challenges, especially if your family wants to go from two incomes to one. How do you know if your family can afford to live on a single income today? With a little budgeting and sacrifice, you can find out if that works for your family.
Make a Budget with Your Current Income
The first step to determining if your family can get by on a single income is to understand your current income and spending habits. The best way to monitor your financial behavior is to create a budget with your current income. This will help you see where your money is going.
A zero-based budget is especially helpful because it creates clear guidelines for every dollar you earn. If you’ve never created a zero-based budget before, here’s a guide how to make one for your family.
Create a Budget with Your Reduced Income
Next, create a new budget with your estimated reduced income. You’ll quickly realize that you’ll need to rework several categories in your budget to accommodate for a lower monthly income. This means you’ll have to make sacrifices in certain areas.
Your priorities will determine where you can afford to cut back. Some categories may be easier to adjust such as dining out, spa days, or vacations. Other areas may be more difficult to reduce, such as personal care items, debt payments, and long-term savings.
Continue adjusting your budget until you reach a balance that allows you to meet your essential needs while still making progress toward your priorities. If both aren’t possible, start by covering your needs first. Then evaluate how much you can realistically contribute to your goals and how long it will take you to reach them.
What are Your Reasons?
After numerous adjustments, you may determine that you aren’t able to meet enough of your priorities with one income. If you think this is the case, it’s time to address why you want to reduce to a single income. Is the job physically difficult to complete postpartum? Do your and your partner’s work hours not align with caring for your little one? Would you rather stay home instead of finding childcare?
As a parent, your feelings about your family are valid and important. Sometimes, the sacrifices your family would have to adjust to for a single income to work might not be what’s best for your family. While reducing to a single income may be your goal, you have to ensure your family can get by financially. Long term, it’s not wise to rely on multiple credit cards, personal loans, or payday loans to make ends meet. Interest rates will quickly become your enemy and keep you farther from meeting your financial goals.
Will a Single Income Work?
Let’s review Allie and Tim’s situation to determine if they can afford to live on a single income. The couple lives in Maryland Heights in a home they own with a mortgage. Their combined gross income is $81,000, or $6,750 monthly, which is just below the county’s average. Currently, they spend $1,750 on housing expenses, which is around 26% of their gross monthly income. They have a $400 per month car loan and a $300 per month credit card payment. They also pay $700 per month in childcare for their two-year-old. This currently leaves $3,600 of their gross income for their other needs, wants, and goals.
If Allie were to quit her job, their annual gross income would total $46,000, or $3,833 a month. Their housing expenses would now make up over 45% of their monthly income, which isn’t maintainable long-term. Even though they would no longer need to pay $700 a month in childcare, they still have $700 in minimum loan payments, leaving only $1,383 for their other needs, wants, and goals.
Your Reality Fits In
While Allie and Tim can’t comfortably live on a single income, your situation may be different. The key to making a wise financial decision is budgeting alongside your priorities. If going down to one income is your goal, figure out how you can increase one income, reduce your expenses, or both. If you need help determining your next steps, make an appointment with a Certified Credit Union Financial Counselor.
