Deciding to have one spouse stay home with the kids while the other spouse works is a big decision. While there are many benefits for your family, it also means living on a single income. For many families, this transition can be challenging from a financial perspective. However, with some planning, lifestyle adjustments, and clever strategies, you can thrive on one income — even with kids!
So let’s explore the dynamics of single-income households, talk about some helpful financial planning tips, and review the key strategies for thriving as a single-income family. Whether you’re a stay-at-home parent or a working parent, understanding the financial implications and planning ahead is crucial for a secure future.
Advantages and Disadvantages of a Single Income
Managing a household on a single income, whether due to choice or circumstance, comes with its own set of advantages and challenges.
Advantages of a Single-Income Family:
- Quality Time with Family: In a single-income household, one parent can devote more time to family activities and child-rearing, strengthening family bonds and creating lasting memories.
- Streamlined Lifestyle: With a single income, families often become more intentional about spending, focusing on needs over wants, which can lead to a simpler, more sustainable lifestyle.
- Flexibility for Pursuing Passions: For the stay-at-home parent, having a single income can open doors to explore personal passions, hobbies, or even side businesses without the constant pressure of a 9-to-5 job.
- Potential Cost Savings: With one parent staying home, the cost savings for childcare can be huge! According to ValuePenguin, the average cost in the United States for full-time childcare for one child is $9,991 per year. Depending on your state, that cost could be even higher.
Disadvantages of a Single-Income Family:
- Financial Strain: The most apparent challenge is the financial strain that can potentially come with relying on a single income. Budgeting becomes crucial to make ends meet and plan for future goals.
- Dependency on One Income Source: Single-income households are more vulnerable to economic downturns, job loss, or unexpected expenses. Diversifying income streams becomes essential for financial security.
- Career Sacrifices: The working parent (particularly in a single-parent situation) may face limitations in career advancement or opportunities for professional growth due to the primary focus on family responsibilities.
Tips for Thriving on a Single Income
Thriving on a single income requires careful financial management and planning. Whether you’re a working parent with a stay-at-home spouse or a single parent living on one income, here are some tips to help you thrive in a single-income household:
Evaluate Your Budget and Expenses
First things first: Take a good, hard look at your family’s budget and expenses. Where is your money going each month? Are there areas you can cut back in order to save? Even minor lifestyle tweaks can make a difference.
For example, can you cut your grocery bill by meal planning, using coupons, or buying generic brands? Evaluating every expense and analyzing if there are wiser financial alternatives is essential.
Use a Budgeting System
Get serious about budgeting, and find a system that works best for your family. Popular options include the 50/30/20 budget, zero-based budget, the reverse budget, and the envelope system. While budgeting takes some time upfront, committing to a plan is crucial.
Stick To Needs vs Wants
When money is not as plentiful, it’s critical to differentiate between needs and wants across all spending categories. Focus household spending on true needs — food, housing, transportation, utilities, insurance, debt payments, healthcare, etc.
Wants like dining out, vacations, new gadgets, and hobbies may need to take a backseat. Create limits for discretionary categories until your income increases. Focus on spending on essential needs to help your one-income household thrive.
Lower Transportation Costs
Getting around is likely your second biggest budget line item behind housing. So, put your transportation costs under the microscope as well. Could your family manage well on one car instead of two? Can you downsize to a more economical used car? Is public transportation a reasonable option for commuting? What about biking places when the weather permits, or carpooling with other families?
Gas prices and car maintenance add up quickly. So, rethinking your transportation strategy can lead to significant monthly savings.
Take Advantage of Tax Deductions
As a single-income family, take advantage of all the tax deductions and credits available to you to reduce your taxable income as much as possible each year. As the sole breadwinner, deductions your working spouse can take might include a portion of your mortgage interest, property taxes, student loan interest, and medical expenses.
Many child-related tax benefits (state and federal) have increased in recent years, providing extra relief for single-income families trying to make ends meet. Make sure to keep good records to claim these deductions and credits. Every little bit helps!
Create New Income Streams
While one spouse may provide the primary income, getting creative about bringing in secondary streams can significantly help ease the financial burden. Exploring opportunities for additional income from a side hustle can provide extra financial support. So explore your skills and interests to see if you can put them to work for your family.
Find Community Support
It can feel isolating and overwhelming at times to live on a single income. Connecting with others who “get it” is tremendously helpful. Join online groups of one-income families to swap money-saving tips and encouragement. Meet up with local stay-at-home parent groups for moral support, too.
Don’t Forget the Future
It’s essential to also plan for the future. Building a robust emergency fund is crucial to weather unexpected financial challenges — plan for three to six months’ worth of expenses in your emergency fund.
Remember to also add to a retirement account. Small, automatic deductions from each paycheck invested over decades can lead to significant gains. Even if only one spouse works, the non-working spouse can usually contribute to an IRA. Check with your financial advisor for special rules that may apply.
Also, consider the potential of passive income streams down the road, such as rental properties or monetizing a hobby. These additional income streams can also help to build your retirement funds.
Let Five Pine Help Your Finances Thrive
Living on one income will require adjustments to your family’s lifestyle and spending patterns. At Five Pine Wealth Management, we’ll work with you to develop a financial plan that will help you thrive and achieve your long-term financial goals on a single-family income. As fiduciary financial advisors, we are dedicated to acting in your best interest, offering guidance specific to your circumstances. To schedule a meeting, send an email or call us at 877.333.1015. Let us help you create a fulfilling life for yourself and your family.