Some tips to live on one income include budgeting, creating an emergency fund, coming up with a personalized plan for debt, finding ways to save, and periodically re-evaluating whether a single income is right for you.
Many households switch to one income for various reasons; to take care of family obligations, cut childcare costs by having a stay-at-home parent, or for personal growth.
Pursuing living on one income can change things with your budget, lifestyle, and potential goals. The good news is switching to one income can go smoothly when done right! Below you will find 5 tips on living on one income.
1) The Importance of Budgeting When Living on One Income
Budgeting is going to be one of the most helpful tools when transitioning to a one-income family. When working with an existing budget, it may be easier to get started.
For those that aren’t sure how to build a budget, it may take a little more time. You can start with a pen and paper, an excel sheet, or one of several budgeting apps that are out there.
To create a budget, you will have to come up with a plan to allocate funds to all your different monthly expenses, such as:
- Living expenses — this can include things like rent or mortgage payments, basic utilities.
- Essentials — food, insurance, health care, pet care, transportation costs, etc.
- Debt — debt payments, credit card bills, payment for student loans, car payments, etc.
- Recreational expenses— anything that your household does for fun, shopping, dining at restaurants, travel, experiences, etc.
- Savings — a portion of your budget should be set to go into your savings. To help with emergencies such as medical issues, layoffs, unexpected bills, etc.
One of the basic budgeting strategies is the 50/30/20 rule. With this plan, you roughly spend 50 percent of your after-tax income on essentials, 30 percent on recreational expenses, and 20 percent on savings. This strategy can help you get a realistic look at what living on one income will look like for your household.
Sticking to a budget is going to be the difference between a successful and unsuccessful run with the switch to less money.
2) Creating an Emergency Fund
Saving money after scaling down to a single income can be a huge help. Having an emergency savings fund can prevent a household from going into debt when an unexpected expense or emergency comes up. While many people turn to quick cash loans, bad credit loans, or cash advance loans, some already have savings they can draw from.
In general, a rule of thumb is that you should save three to six months of living expenses put away for emergencies. If you don’t have this, you should know you are not alone, at least 53% of Americans admit they don’t have an emergency fund.1 You should also know it’s never too late to start!
Building an emergency fund may look different for your family, compared to another single-income household. A simple savings account could be the most practical option for an emergency fund, as the money is usually very easily accessible.
Once that initial savings amount is looking good, you may want to look into other savings options. These options can help build equity long term.
Here are some saving options to consider which can help save money for the future:
- High Yield Savings Accounts
- Money Market Accounts
- IRA Options
- 401K Retirement savings account
- Treasury Bills and Savings Bonds
- Mutual Funds
Saving money is often the biggest obstacle that people face, even with dual income. Turning on automatic savings can make saving easier, without even having to think about it.
Most major banks and financial institutions offer this automation for free! Having proper savings can provide security for your finances, cushioning for financial emergencies, and can prevent debt.
3) Tackling Debt Differently When Living on One Income
With this new decrease in income/less take-home pay, your household will have to figure out the best strategy to take on debt.
Several strategies can work well for those living on one income. They can help you save money while being smart about paying off debt.
The option that is right for you will depend on the amount of debt, and the kind of debt that your household is carrying. Below are some of the commonly used strategies to eliminate debt:
Tackling the Biggest Loan or the High-interest Debt First (Snowballing)
After a while, this creates a snowball or debt avalanche and can make the debt more manageable.
Use Your Credit Cards as ‘Debit’
This is a good way to maintain management over debt. After using your credit card, use your debit card to pay off the balance. That way you can get those credit card rewards without incurring more debt.
Making Extra Payments Each Month
This can be an easy part of managing debt. Because of the high-interest rates and finance charges that debt can come with, paying just the minimum doesn’t do much in eliminating debt. Paying extra can make a huge difference in the time it takes to pay off the debt. Even if it’s a couple of extra dollars each month.
Using Debt Consolidation/ Refinancing
Debt consolidation or refinancing is the process of combining all of your debts into one account. When done right, this strategy would allow a one-income household to save money and make monthly payments more manageable. Balance transfer cards and loan options can be used for consolidating or refinancing.
4) Managing Your Finances and Spend Money Differently With One Income
Switching to living on one income in a two-income world can be challenging. And you may find that there is an adjustment period for those who may not be used to frugal living.
Switching to a one-income household will mean figuring out ways to save money and learn better spending habits.
There are tons of things that can be cut down on, or done smarter in your everyday lives. All of these small changes can help you save money every day!
Here are some strategies for saving money, when living on one income:
- Meal Planning at Home
- Multiple Cars to One Car
- Cutting Down on Subscriptions / Monthly Bills for Recreation
- Downsizing your Living Space
- Doing Chores/ Repairs Yourself Rather Than Paying Someone
Look Into Professional Financial Help When Switching to a Single Income
Planning a financial future or present when switching to a single income, may seem overwhelming. The good news is that there are financial experts that can give you professional advice. Financial advisors can help with a savings plan, future goals, and do all the careful planning it takes to prepare ahead.
For a fee, they will do the work of analyzing, organizing, and optimizing their client’s income. And when going from dual incomes to one income, they can be a great asset in helping you get started with your new chapter in life.
5) Reevaluate Your Situation Often When Living on One Income
To be successful with a single income, communication will be key. Communication will keep you on the same page with the other members of your household. It will be crucial to continuously evaluate whether a single-income household is a right option for your life. Spend time talking to your family about living on one income, and how that is impacting them. Address concerns about expenses, spending, and savings head-on.
Breakdown: Living on One Income
|Effective allocation of the single income for household needs.
|Prioritize expenses, automate bill payments.
|Limited cash flow.
|Side gigs or passive income sources.
|Monitoring and managing daily expenses.
|Use budgeting apps, regularly review bank statements.
|Overlooking small expenses.
|Set weekly expense review routines.
|Handling existing debts on a reduced income.
|Focus on high-interest debts, consider debt consolidation.
|Balancing debt repayment and living expenses.
|Seek debt counseling or negotiate payment plans.
|Building and maintaining savings.
|Set specific savings goals, use automatic transfers to savings accounts.
|Reduced ability to save.
|Cut non-essential expenses, explore high-interest savings options.
|Adapting to changes in living standards.
|Downsize home if necessary, embrace minimalism.
|Resistance to change in lifestyle.
|Gradual adjustments, family discussions about values and priorities.
|Planning for children’s educational expenses.
|Explore scholarships, start education funds early.
|High cost of education.
|Consider community colleges, online courses, or part-time studies.
|Securing financial stability for retirement.
|Regular contributions to retirement accounts, explore IRAs.
|Less disposable income for retirement savings.
|Seek professional financial advice, explore employer-matched programs.
|Managing healthcare expenses on a single income.
|Opt for high-deductible plans, use Health Savings Accounts (HSAs).
|Unexpected medical expenses.
|Maintain an emergency savings fund, explore generic medication options.
|Leisure and Recreation
|Balancing entertainment and relaxation needs.
|Plan staycations, free community events, and home entertainment.
|Reduced budget for leisure activities.
|Discover new hobbies, leverage local resources and nature parks.
|Navigating social expectations and relationships.
|Open communication about financial changes, set boundaries.
|Social pressure to maintain previous lifestyle.
|Focus on low-cost social activities, cultivate understanding within social circles.
FAQ: Spend Money and Live on One Income
A one-income household can cover basic living expenses by prioritizing needs over wants, seeking cost-effective alternatives for utilities and groceries, and possibly downsizing their living space to reduce monthly costs.
Dual-income families should start by gradually reducing their reliance on the second income, increasing their savings rate, and testing the feasibility of living on one income for a few months before making the full transition.
Yes, starting your own business can be a path to financial independence for a one-income household. It allows for flexible income potential and can be tailored to fit the family’s lifestyle and financial goals.
Families can enjoy fun but economical meals by planning weekly menus around sales, using bulk-purchased ingredients creatively, and incorporating home-grown produce if possible.
An accredited financial counselor can provide personalized advice on budgeting, debt management, and savings strategies to ensure the existing one-income approach is sustainable and aligns with long-term financial goals.
Auto-pay subscription services can yield significant benefits by ensuring timely payments, often at a discounted rate, and helping in budgeting by having predictable monthly costs.
A one-income household can save for a mortgage down payment by setting a specific savings goal, cutting non-essential expenses, and possibly allocating any windfalls or tax refunds directly to the down payment fund.
A former two income household transitioning to a single income should consider reducing discretionary spending, re-evaluating luxury expenses like monthly yoga studio subscriptions, and finding cost-effective leisure activities.
Balancing spending and saving involves creating a realistic budget that accounts for both immediate needs and future goals, monitoring expenses regularly, and adjusting spending habits to prioritize savings.
Personal stories from one-income families often highlight the initial financial adjustments, the creative ways they manage to maintain quality of life, and the long-term benefits of closer family bonds and reduced financial stress.
A Word From CreditNinja
For many households/family units, one salary or one income is just not realistic. To live on one income, a family may be giving up too much to make the process worthwhile. A two-income household has become a standard for a reason, and although one income may be what your family needs, others may need more money coming in to get by.
Going from a dual-income family to only one income can be an enormous adjustment, regardless of whether or not it was a voluntary choice. With these five helpful tips, one income can be adapted to your own life. No matter what your financial situation, CreditNinja urges you to do research so you can make an informed decision before making the switch to a single income.