A Personal Finance Guide

How to Transition to Single Income Living

Is life getting too hectic? Do you long for a simpler, more family oriented lifestyle? Are you victim to these scenarios?

Either coming or going; you and your spouse are “ships passing in the night”

Haunted by a growing “to-do” list with no time to accomplish it all

Constantly taking time off work to pick up a sick kid(s) from daycare

Others are raising your children instead of you

Drained at the end of each week from trying to do too much in not enough time

My family was experiencing this and more. Shortly after the birth of our first child, my wife went back to work, not knowing the hardships we would face. As the stressful, unbalanced months carried on, the thought my wife staying at home started moving more and more to the forefront of our conversations. Those conversations soon transformed into brainstorming and analysis meetings. Within weeks, we had a plan. This site talks about that plan and provides detailed information on how we were able to successfully transition to, and sustain a single income household. It has been and continues to be, an extremely rewarding experience. We are so much happier now and have never looked back!

The once commonplace single income household is becoming increasingly rare across our socio-economic landscape. It has no doubt become a “two-income world”. Unfortunately, in the face of increasing inflation and looming recession, most families immediately dismiss the idea of shifting to a single income setup as simply impossible. However, of all the people I’ve asked the question, if a stay-at-home parent yields more benefits to the family than two working parents, the answer was a resounding “yes”!. But, having dealt with the daunting task of transitioning to a single income, I am here to tell you that it is possible in today’s economy, and it isn’t as difficult as one would think- if you plan it correctly.

When my first child was born, we placed him in daycare full-time, so my wife and I could continue on with our careers. As the weeks went on, we began to see that daycare wasn’t the answer. The most obvious of our concerns was that someone else was raising our child for us. I would drop him off at 6:30 a.m., and my wife would get him at 5:00 p.m. I would get home from work at close to 6:00 p.m., eat dinner and help with putting him to bed which was at 8:00 p.m., only 2 hours after picking him up! Sound familiar?

Our son didn’t have the worst immune system, but it wasn’t the greatest, either. He frequently got sick from the other kids at the daycare center. When he was sick he would have to be picked up; this was 1-2 times a month. It really adds up when you have to take time off work to pick up and care for a sick child. The compounding effect of this juggling, sick or not, just added extra stress to our family. Still sounding familiar?

By the eighteenth month of what I called the “daycare circus act” my wife and I sat down and made the commitment to take a hard look at making a stay-at-home situation work. And, since we had plans to have a second child eventually, it made sense that the longer we waited, the harder it would be to do. So this marked the beginning of our exciting transition to single income.

Ever notice how daycares are starting to spring up in every other strip mall? This is a market reaction to the increasing number of children requiring care while mom and dad are at work. For those of you that currently have kids in day care now, you know that it is a big business. Depending on the area, costs for a commercial daycare centers run from $170-$245 per child, per week! That can add up to be a substantial portion of your combined monthly income. On top of that, there are the added costs of transportation to and from the center, late fees and added healthcare costs when (not if) they get sick.

To truly know the financial impact of daycare expenses on your overall budget, you will need to do a detailed evaluation of your budget. Your approach should be an organized and documented. There are plenty of very useful budgeting software packages out there to choose from. Select one that is simple to use. Another option is to create a budget tracking spreadsheet on excel. Be sure it tracks each category of spending (monthly bills, gas, groceries, entertainment, medical, etc.). Be as detailed as possible so it is clear where your money is going each month. Chances are you will be surprised at what you find.

With your current budget documented, estimate what your net income will be after the transition to a one income household. This should be as real a number as you can make it; be conservative on bonus amounts, investment dividends, etc. The difference between your estimated single income and your current budget is, obviously, the amount you must reduce your monthly budget to make a single income setup work. Don’t panic. It looks worse than it really is, trust me.

You are now ready to construct your single income spending model. The purpose of the model is to give you an accurate picture of what your new budget goals are as a single income household.

Constructing your Single income Spending Model

Eventually you will be applying the model to your actual budget to see if it works, and adjust it as needed. Keep in mind, the bottom line will not change, only how you spend it. Here are some tips to consider as you carve out your new budget:

Identify wants vs. needs. When you’re not on a tight budget, the words ‘want’ and ‘need’ tend to blend together. Now that you are embarking on the exciting and worthwhile journey of single income living, these two words will take on very distinct meanings. As you go down the list of expenditures, discuss each one and determine if it is a ‘need’ or a ‘want’. Opinions will undoubtedly vary, so be sensitive, listen and come to an agreement before moving on. Every single piece of the new budget must be agreed to by all parties for the plan to be effective.

Identify areas in the predictable expenditures such as water, gas, electricity, cable or cleaning services and develop ways of eliminating or reducing those costs.

Savings and Retirement goals: Since you’ve lowered your income, contributions to savings and retirement accounts may need to be modified to increase take-home funds. If this isn’t necessary, then great. But for most of us, a decrease will likely be necessary. The point here is to find a compromise and to understand that as your salary increases (promotions, annual raises, etc.), so will your contributions to these accounts. If you intend to return to a two income household in later years, let that also comfort you, as this is only temporary.

Establish a safety Net: Emergencies can and do happen. For these events it is prudent to give yourself a safety net of liquid funds. Each family’s situation is different, so take a look at yours and think of any worst case scenarios that might realistically come to be. Be sure that you have enough saved and available to draw from should anything happen. If you don’t have enough saved, I would strongly suggest saving up to at least a minimum point before transitioning to single income.

Trial Runs

This is the most critical part of the planning phase. Here you will take your spending model and apply it to your budget. How long it takes to get it to work depends on how aggressively your change spending habits and modify your budget. Don’t forget to make it a team effort; the transition will not be successful unless are involved agree to the plan and expectations are managed. When modifications are made, the revised model must be re-tested and proved. The first month my wife and I implemented the spending model, we blew it completely out of the water. We learned very quickly that this was going to take more discipline. It also presented a challenge and together we eventually worked through it.

Please note that every month seems to bring unforeseen expenses that you can’t really plan for. Events like the car breaking, the air conditioner/heater needing repair, or medical bills are good examples. In my experience I’ve found these types of “pop-up” expenses occur nearly every month. The easiest way to compensate and prevent surprises was to just plan for them. A good way to handle it is to average your pop-up expenses over time and include that as a contingency fund for each month. If it doesn’t get used at the end of the month it won’t be hard to find a place to use it.

Once your family has proved that the spending model is possible by living within it for a full month, it is time to move on to the next phase. This phase includes monitoring, communicating regularly, continuous improvement and dealing with variances. Your new budget is like a machine. To keep the machine running smoothly and efficiently, it will require maintenance.

Monitoring Progress

Continue to use the software/spreadsheet discussed in phase I. By now you should know the ins and outs of the program, as well as anyone else in the household that will be using it. Make notes in the program, if possible, to remember issues for discussion during budget meetings. I’ve found it to be helpful when I printed out the sheet from the month prior and made notes in the margins. I would then post the marked up budget on the refrigerator so we all could be reminded of our opportunities for improvement during the current month. It also helps to be able to see the numbers rather than just knowing that a particular budget category had an overage.

Communication

Schedule periodic budgeting meetings or “family meetings” where the state of the budget can be communicated and comments fielded. We held ours twice a month, one mid month and one at the start of the next month. The purpose of these meetings is to get everyone in alignment with the budget goals for the month, and not to be a dictator’s statement of law. By listening and reacting to the input of your spouse or kids, you can better understand how to make your one income budget better. As an example, I was having a discussion with my wife about reducing our cellular phone plan to add money to our monthly budget. She was against this because she did not want to limit her conversations and text messages with her friends. As an at-home mom constantly on the move, it was the only way she was able to maintain contact with friends and family. Off that feedback, I then asked if it would be more acceptable if I reduced the TV cable service to a less extravagant plan, freeing up the same amount of money as a cellular plan downgrade. It was an easy sell to my wife, because she was out of the house a lot of the day and we weren’t big watchers to begin with. Because we discussed everything through, we were able to come to an equitable solution.

The meetings are also a great way to address budget issues. By letting everyone know, family members are less likely to feel singled out. What is important to remember about these meetings is that they are not a vehicle to assign blame. Everyone should be working toward the budget, not against each other.

Continuous Improvement

What would any program be without continuous improvement? Any system can stand to be better in some way. As the months go by, look for opportunities to try new strategies. If it should happen that it doesn’t work, then revert back to the original more efficient way things were done. Improving support for your budgeting system is also a good idea. For example, you might have your spouse read an article or book containing motivational content or a story showcasing a poignant comparison. By changing perspective or enhancing the one you currently have, the drive to press on can be strengthened.

The Occasional Bust

We are all human, and humans are not without fault. Understand that depending on circumstance and unforeseen events, there is a very real possibility that you may go outside of your budget. The reason why, or with whom the fault lies should not be the main concern. The primary focus should be on analysis of the situation and prevention of like situations, going forward. Believe me, I have had my share of budget busts. The hardest part was getting past whose fault it was. Eventually, my wife and learned that the fastest and most efficient way to get past blowing the budget was to work together and develop a strategy to prevent future busts.

As an example, one month we were over our budget by about $150. After we analyzed the numbers, it turned out that it was due to a few visits by me to Starbucks and a trip to the carwash. Admittedly, Starbucks is my vice. I do allot a few dollars a month to indulge in a Caramel Machiato from time to time, don’t get me wrong, but in this instance, I had clearly over indulged over the course of a month. With regard to the carwash, that was plain and simply irresponsible spending. I went in for a car wash and walked out with an upgraded detail and an oil change, among other things. Check out my section on the carwash where I breakdown the traps of those establishments and offer tips on how to avoid unnecessary spending when you are on a planned budget.

A simple game plan for correcting busts is:

* Establish the cause. Emphasize teamwork and improving the system, not who is to blame. Offer each other gentle suggestions on how one might remind the other to stay within the budget.

* Map out your plan to pay the money back. If it is a small amount, it may be possible to recuperate it from the next month’s budget. If this is not possible, draw from your safety net to replenish the funds. Overages can and will happen, and that is what the safety net savings account is for.

* Emphasize teamwork. When everyone is on the same page, the likelihood of success is greatly enhanced.

Enjoy and Have FUN!!!

Congratulations again, on your decision to transition to single income living. It was a wise choice and will bring great rewards to the most important element or your life- your family. My hope is that most, if not all of your doubts about successfully becoming a one income household have been dispelled. As you start or continue your journey into this gratifying new lifestyle, please refer back to this website or others like it, to help keep you on course. Most of all, have fun! Enjoy the fruits of your efforts by celebrating milestones. My wife and I have never looked back since making the switch to a single income living. We have become closer as a family and are much wiser with the way we use money. I wish the same success and happiness to you and your family. Good luck and God Bless…

For more information and tips on transitioning to single income, please visit http://www.single-income-success.com, an informative site dedicated to the transition and maintenance of the single income family lifestyle.