Even though we’re entering year three of the pandemic, not everyone has bounced back. While some families were able to make it through the worst of it, others are still struggling with finding a new job. Managing money, even with two incomes, can be a slippery slope. But when your household income is cut in half, trying to cover your monthly expenses without going into the negative might seem impossible. The thing is, some people are now choosing to live on only one income and bank the second one, just in case things take a turn for the worst. If you’ve been considering living on one income, here’s what you need to know.
Assess The Risks and Benefits
Before you decide to downsize your income, you need to understand the benefits, in addition to the possible risks. Being to save one income while living on the other offers a slew of benefits. You can build up your savings, pay off debt, and give you financial freedom we all crave. However, there are potential risks associated with living on only one income. If you’re accustomed to a certain lifestyle, you might have to change how you live your day life. Reducing your disposable income usually means cutting out the extras, like eating out or unplanned purchases.
You might also find you don’t have enough to cover your monthly expenses. If your paycheck is used to pay down student loans, not having that extra cash can cause a negative effect. You might also realize that your monthly payment and interest rates are too high to afford comfortably. If this is the case, you either need to dip into the second income or find another solution. One option would be refinancing your student loans. In most cases, you can roll over your balance into a new one with better repayment options and lower interest as well.
Make Small Changes
It’s also a good idea to start off slow. For the first few months, only save 50 percent of your income. In this way, you’ll be able to gauge whether it’s even possible to live without your pay. Once you get a feel for living on less, then you can slowly increase how you save. Also think about joint vs separate accounts and how that will factor into your overall one income strategy.
Get Excited About Saving
You also need to be excited about saving. If you’re only doing it because you think it’s a good idea, it might not work. Think about why you want to save and how your life will be once you reach your goals.
Live Under Your Means
If you decide to give this saving method a try, you need to live beneath your means as a general practice. This may include cutting out a lot of extras, like unplanned purchases, spontaneous trips and coffee runs. If you rent or mortgage is high, you may need to move if you can’t work it into your budget. Alternatively, you can work housing into your new saving plan and just save the remaining amount.