Tips For Living On One Income
Making enough money to support a family while simultaneously making time to care for said family is quite a balancing act.
Ideally, you would have multiple sources of income so if you lose an income source, your finances don’t take a huge hit.
Unfortunately, that just isn’t realistic for a vast majority of the population.
It’s true that supporting a family on one income is stressful and difficult. If you lose that income source, you’re out of luck. Plus, if that income source isn’t large, your dollars are going to be stretched to their absolute limits.
But when there’s a will, there’s a way. If you follow some basic guidelines and remain vigilant about your finances, you can survive and even thrive on one income for as long as it takes for you to create more income streams and increase your financial security.
Implement the following tips, and your single income stream will be able to support your entire family for longer than you could imagine.
1. Live Within Your Means
If you could only follow one personal finance rule, it would have to be living within your means.
Living within your means requires you to be brutally honest with yourself. Yes, that new Mercedes looks nice and is packed with luxury features.
But can you afford the car payment, insurance, and maintenance?
Well, maybe if you’re making six figures. But even then, you should opt for something more affordable in case your income stream dries up.
Wants Vs. Needs
Part of living within your means consists of distinguishing your needs from your wants.
To illustrate, let’s go back to the car example.
Let’s say your office is 20 miles away and not in an urban area. It’s most likely unreachable by anything but car. In this case, a car is a need because without it, you’ll quickly find yourself out of a job.
But if you live and work in downtown Chicago or New York, almost anything you could possibly need is a short walk, bus, or metro ride away. A car becomes a want because it would make your life more convenient, but you could get around without it.
Now in the first situation, the type of car could change the car’s status from want to need and vice-versa. Since a cheap, reliable, used $10,000 Toyota or Honda could fulfill your need for a car just as well (if not better) than a brand new $60,000 Mercedes, the Mercedes becomes a want. Yes, the Mercedes will get you from point A to point B; the Toyota will do it for $50,000 less!
2. Save For Emergencies (Have an Emergency Fund)
“Hope for the best but expect the worst” is a good mantra to follow when making financial decisions.
Nobody wants to deal with the harsh realities of the world, but that doesn’t mean tragedy won’t strike. You never know when a loved one will fall severely ill or if you’re going to get in an accident during your morning commute.
That’s where an emergency fund comes in.
At a minimum, you want to have 6 months of living expenses saved up. Ideally, however, you want up to a year for good measure.
But how do you save for emergencies when your budget is already stretched to the max?
How To Save For Emergencies
To start saving up for emergencies, set up your direct deposit so a small portion of your income is automatically deposited into an emergency savings account. This will serve you in 2 ways.
Put Savings On Autopilot
When you automatically allocate part of your income to your emergency fund, you don’t even have to think about making a transfer each payday. Plus, you’ll be less tempted to cut back on savings in favor of unnecessary spending.
We recommend putting your emergency fund in a high yield savings account. This way, even when the money is sitting idle, it is still making you money each and every month on autopilot!
Learn To Live With Less
Automatically putting some of your pay into an “untouchable” account every month will naturally decrease the income available to you. This will teach you how to live with less, a valuable lesson for two reasons:
- Your financial willpower increases
- You’ll be able to survive on a barebones budget should an emergency strike
Stretching each dollar to its limit is tough, but you can see the valuable experience you gain from learning to do so.
3. Budget, Budget, Budget!
No matter how many income streams you have, you want to know where it’s all going.
However, when you have only one source of income, you want to make sure you know exactly what you’re spending your money on.
Budgeting will allow you to plan out how you’ll spend your income and analyze areas where you could cut back.
Honesty is once again important here; your budget has to be realistic. You might be disappointed if you don’t make enough money to afford everything you want, but that’s just how the world works.
Plans is worthless if you can’t stick to it; budgets are no different. Once you make your budget, you have to exercise a little bit of financial discipline. In other words, don’t stray from your budget. Otherwise, you’ll be out of both the time you spent making a budget as well as your income.
Budgeting is quite an enlightening activity. Many are stunned to discover how much money is wasted on unnecessary purchases, unused subscription services, and even essential items like utilities. Making a budget will not only guide your financial decision making, but it could also save you a lot of cash in the long run.
With apps like Personal Capital, you can easily create a budget for every spending category you have. Here you can set up your income “budget” and see whether you’re saving money every month or if you’re in the red.
4. Slash Your Spending
On one source of income, you’ll want to look for every possible way to cut costs.
This doesn’t mean you have to live like a miser, pinching pennies over every little thing. A few extra dollars isn’t worth freezing and starving all the time.
What it DOES mean is that you might have to make some decisions about what you value. Have a membership at the fanciest gym in town? Consider a cheaper gym, or even working out at home. You might even consider making a few dollars to cover your gym membership by checking out HealthyWage.
You can even recover bits of money from large, relatively fixed expenses like your heat bill. In the winter, you don’t need the heat to be blasting all the time. Consider turning it down a touch and throwing on another layer (again, you don’t have to freeze to death. Just layer up a bit).
In order to cut your expenses, you’ll have to accurately track them. Check out this post if you’re not sure how to track expenses.
5. Eliminate Debt
Debt is important to eliminate as early as possible because most forms of debt suck away your money and give you nothing in return!
When I say “suck away your money”, I’m talking about interest. High-interest debt such as credit card debt essentially serves as a money furnace, without the added benefit of heat.
As part of your plan to budget, I’d highly recommend reallocating most of the “slashing expenses” money towards debt. The quicker you can eliminate your debt, the sooner you’ll free up your money for more productive activities.
Focus on the debt with the highest interest rate first. This is usually credit card debt. Make the minimum payment on all your other debts and focus on this high-interest debt until it’s gone. Then, move on to the next highest-interest debt. Rinse and repeat until you’re debt free.
Lastly, if your income increases from a raise (or you receive some sort of windfall), don’t be tempted to blow it on something you don’t need. Get rid of the debt first. You’ll thank yourself later.
Think of any debt that you are paying off as a guaranteed return of X. For example, if your credit card debt has an interest rate of 25%, then by paying off that debt first, you are essentially making a 25% return on your money by simply paying it off!
6. Prioritize Experiences
Living on one income isn’t all about hard numbers and cutting costs. You can still enjoy time with friends and family while choosing less expensive or free activities such as hiking or playing sports.
Just enjoying eachother’s company is the most valuable and rewarding experience of all!
There’s lots of fun to be had for little money if you get creative!
7. Invest In Appreciating Assets
When you’ve only got one source of income to rely on, you want to make the best use of said income.
This advice only increases in importance when you’re considering large purchases.
Let’s take our discussion back to cars. New cars are one of the WORST large purchase you can make from a depreciation standpoint. As soon as you drive your new car off the lot, that thing loses a ton of value. Used cars are a little better, but most of the time continue to lose value.
Instead of eyeing a cooler car, invest your money into assets that are more likely to appreciate. Now this doesn’t mean you have to drop tens or even hundreds of thousands on real estate (unless you have the money and know what you’re doing), but consider putting money into stocks, bonds, or other securities instead.
With the spread of investing apps, it’s easy to store away some extra dollars in assets like stocks. It almost feels like you’re putting money in a savings account. The only difference is you can make more gains on these assets over time than you can with savings accounts and even get paid dividends!
Of course, we aren’t giving any sort of investment advice. All we’re saying is to try to avoid spending money on assets with little chance of appreciation. If you have to spend money on assets, make sure there’s a good chance that you’ll at least get your money back!
Not Ideal, But Very Possible to Live on A Single Income
Relying on one income stream is risky. If it dries up, it’s gone.
By no means should you rely on a single source of income forever. Eventually, you’ll want to create more income streams for both security and to accumulate more wealth.
Until then, however, it is very possible to live a comfortable life with only one person bringing home the bacon.
In fact, I think that implementing these tips while relying on one income source will instill the discipline required to build more income streams and work towards true financial security.
Yes, it may be stressful at first; but in the end, you’ll be amazed at what you can do with a bit of grit and creativity.
