Going from two incomes to one – it’s not all bad news
Welcoming a new baby is such an exciting and wonderful time for any family, but so often there is also the financial uncertainty of going from two incomes to one.
Whether by choice or unintended, for some of us, the period over which we must survive on just one income can stretch well beyond the timeframe for which we had originally planned.
The good news is that couples have been making this financial transition for a long time.
The better news is that once you have adjusted your lifestyle accordingly, staying there (or at least part of the way there), even once a second income returns, could mean you may fare better financially in the long run.
Let me explain.
You see it is often preached in personal finance circles that one tried and tested way to get ahead financially is for a couple to live off one income (usually the higher) and either save or invest the other.
This is obviously a tall order in the modern day with real estate prices and the general cost of living in Australia being amongst the highest in the world. So whist this may not be a viable long term strategy for most couples, as a temporary measure to get ahead financially, it is worth exploring.
As with most things however, whilst the theory sounds interesting, and the possibility of getting ahead of the pack financially sounds appealing, building in that restriction to our lifestyle without the necessity is probably going to mean we won’t do it. I think we can all agree on that.
However, the test to live off one income (at least temporarily) becomes a reality for most couples following a new baby. Herein lies the silver lining; the opportunity in going from two incomes to one.
Rather than view this as a time of financial uncertainty and temporary restriction, perhaps we should view this as the perfect opportunity to review our personal finances and lifestyle for the benefit of our financial future.
With a new baby on the way, I found myself asking things like how will we manage and what will we do? How will I be able to afford new clothes, dinners out with friends or to get my hair done once I’m no longer working?
This was of course my pre-baby self talking here anyway. The disappearance of these little ‘luxuries’ post baby had nothing to do with finances anyway. Sigh. They dropped off my budget as a direct result of what I like to call the ‘new baby formula.’ I think the maths is: 40% sleep deprivation, 30% complete lack of time alone, 30% if I do get time to myself, it’s to sleep or be alone – period. Sounds familiar?
Sarcasm aside, there is a marked financial shift to be made in adjusting to living off of one income that goes beyond my initial concerns with hair styling. Where do we start?
We start to look at what items of expenditure are fixed costs, what items can be wound back or renegotiated and what we can do without altogether for now.
The little luxuries we’d normally allow ourselves we can easily identify and put on hold. It’s our fixed expenses which concern us most; our mortgage, rent, rates, utilities, insurances, and all other living costs like our phone, car and personal expenses. We need to be comfortable that we can meet these expenses on just one income.
Once you know what your expenses are, and what your income is, your mind-set shifts to how you can get more for your money. Are you on the best deal possible with your phone? Can you negotiate a discount or better discount on your electricity account? When was the last time you reviewed your home and contents or car insurance – are you paying more than you should, do you have the right amount of cover? More often than not you will be able to find some savings through this process and arrive at a new (lower) base for your total fixed expenditure each month.
Some of the lifestyle changes you make whilst surviving on one income can carry over once your second income returns. Perhaps you cancelled your gym membership and meanwhile have found other ways to exercise that you enjoy without the cost. Perhaps you started shopping at farmers markets which saves you money off your weekly grocery bills. You may have cancelled your Foxtel subscription and found you never missed it or you simply watch and pay for only the shows you want, when you want through Netflix. You may have decided that some things are perfectly OK to buy second hand (like toys, children’s books, household items) and that you’ll never pay full price for these things again where possible.
Of course, when we do return to work there will be additional expenses like childcare for example. So the reality of being able to save or invest 100% of our second income is unlikely while we have children.
However, if we can strive to maintain the lifestyle to a large extent that we adjusted to when surviving on one income, then we will have an enormous opportunity to get ahead financially with the surplus income we’ve created in the process.