This is day 2 of How to Live on One Income Guide. To read all the post in order start on Day 1 here.
First and foremost if everyone is now on board with one source of income, then make a budget to see if this really is something you can make happen. Sticking to a budget is difficult if you have never done it before. It can easily be done if both parties are open and honest with each other.
Talking about finances can be difficult. Setting the ground work and expectations at the beginning makes staying on course easy. I have provided an easy budget worksheet to see where money is coming in and where spending is happening. After day care and cutting a few other expenses you may be surprised how much the extra pay check was paying for.
How Much Do You Make
Take a look at both incomes after all taxes and all deductions. Look at the amount you actually get to take home. This is your starting budget to run your household. Make two columns at the top should be each person’s income with the income that is disappearing on the right. The goal is to make this number go away.
What Are Your Expenses
This is where breaking it down into two sections. Under one column what are the expenses your family will still have after having only one income. Items like mortgage, car payment and utilities should fall here. Under the second column list items you will no longer be paying for after have only one income. Items like childcare, driving tolls and eating out for lunch. Take a look at your bank statements and credit card bills for the last three months to see exactly where you both are spending your money. Make sure the extra lattes and eating out is accounted for in your budget.
What Do You Owe
Do you have any outstanding debt? Can this be paid off before someone quits their job? We decided to pay off our truck to have a little more room in the monthly budget. The less monthly payments, the easier it is to stay on track. Start working now towards this goal.
Do You Have Enough Saved
This is a very critical piece I think most people miss. Do you have enough saved for am emergency or if the one and only income is gone? Unexpected things occur all the time. Have enough in savings for these unexpected issues. Depending on the job, have at least six months salary saved just in case your only income is gone. Some professions suggest eight months to a year. A little research will let you know how much you should have saved in case this unfortunate situation occurs.
I am sure I have not included every single expense you may have, but this should give you a better idea what needs to be included in your budget. Take a look at your bank statements and make any adjustments you may need. Tolls for example. Many people don’t have them, but in order for us to go anywhere we have to drive on a toll road. Therefore, I made sure we accounted for this expense when making our budget. But you can just cross that off and add your own if needed. Make this sheet work for your family’s needs.
After this process is finished, you may find there is a little extra money to cut somewhere else. We will be going over how to trim your budget to make it work for only one income during this next week. You will be amazed how much the little things start to add up. Also how many things you want verses how many things you need. We like to take the money we save and invest in making memories with our children.
[Go to Day 3 of How to Live on One Income]