Does your family want to start living on one income?

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Whether by choice or necessity, living on one income can be challenging, especially with high living costs. However, it can also bring a sense of reward and fulfillment, which is why this decision is increasingly on the minds of families seeking to make more intentional choices about their lifestyles.

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From deciding on the size of their home to the overhead it takes to manage the home, the number of vehicles, choosing child caregivers or family recreation, and even organizing holiday celebrations and special occasions, thoughtful preparation and smart strategies are essential. It’s entirely possible to lead a rich and fulfilling life on a single household income without getting into debt. If you’re considering this lifestyle change, here’s what I advise my clients to reflect on before taking the plunge.

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Decide what to do about your debt

Debt has become such a normal part of our daily lives that it’s hard for many to envision life without it. Yet, it’s crucial to consider this when planning to transition to a one-income household because debt significantly limits financial flexibility. A large portion of our income typically goes towards debt repayment, reducing what’s available for essential expenses, savings, and unforeseen costs. This financial strain can lead to stress and anxiety, particularly since debt payments usually take priority over savings, leaving you vulnerable in cases of emergencies.

Funds directed toward debt cannot be invested in other important areas, such as retirement savings, education funds, or home improvements, which can hinder achieving long-term financial goals. Moreover, if the sole income earner experiences job loss or income reduction, managing debt on a single income can lead to serious financial instability. Therefore, reducing or eliminating debt before making the transition can provide better financial security and peace of mind. It allows you to allocate resources more efficiently and focus on creating a stable and fulfilling life on a single income.

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Befriend your budget

No matter how many incomes your household has, a budget is an essential tool that helps you avoid spending more than you earn. It assists in saving and planning for future goals, and when shifting to a reduced income household, it ensures you can live comfortably on the more frugal income. A budget gives a clear picture of your spending habits, highlighting areas where you can cut back or reallocate funds to essential needs. With a single income, every dollar counts, and a budget ensures your money is spent wisely and intentionally.

A budget also helps prevent overspending and accumulating debt when adjusting to a lower household income by fostering better financial communication within your family. When everyone understands the financial plan and their role in sticking to it, it strengthens collaboration and ensures that everyone is aligned on spending and saving priorities.

It’s important not to shortchange your financial future in favour of the present, and a budget can help safeguard against this by incorporating plans for both short and long-term goals. Whether it’s saving for emergencies, paying off debt, planning for retirement, or setting aside money for irregular expenses, a budget allows you to prioritize what’s important and work towards it systematically. Additionally, by planning and saving ahead, you create a financial cushion that protects you from financial instability if unexpected costs arise.

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Create your transition plan

Transitioning to a one-income household doesn’t have to be a hasty, all-or-nothing change; there are various options to consider when planning your transition. For instance, instead of abruptly giving up one income, you could try living on a reduced income by banking the income you plan to give up. Live on just one income for at least six months to see if it’s sustainable for your family long-term. During this trial period, ensure you meet all of your financial obligations, including debt payments, save for future goals, and have enough funds for daily expenses. The worst-case scenario is that you end up with a healthier savings account and valuable insights into your spending habits.

If your trial period reveals that living on one income isn’t feasible or places too much pressure on the sole income earner, you might consider becoming an almost one-income household. If both earners enjoy their jobs and have the flexibility to work reduced hours, you could collectively earn the equivalent of the necessary single income.

This arrangement allows both individuals to keep their employment skills active and up to date while enjoying the benefits of a more balanced lifestyle. It’s both personally rewarding and provides an easier path to returning to full-time work if the need arises. And, importantly, it offers a built-in backup plan in case one income is lost entirely.

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When transitioning to a single income, it’s important to take a balanced approach and allow yourselves time to adjust to a more frugal life. By supporting each other through the emotional and financial challenges, you can successfully navigate this shift in your lifestyle.

Sandra Fry is a Winnipeg-based credit counsellor at Credit Counselling Society, a non-profit organization that has helped Canadians manage debt for more than 28 years.

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