Before the 1960s, families almost always lived on one income. The idea of a two-income household is a fairly new personal finance concept. So instead of fretting about what you’re missing out on, it’s helpful to sit down and develop a plan.
5 Tips for Making One Income Work
Whether you’re a single mom or in a married situation where one spouse stays home with the kids, operating on one income certainly has its challenges. But it’s not something that’s out of the ordinary.
In almost every single mom situation, one income is all there is. But even for married couples, it’s still fairly common. In 31 percent of married households, only the father is employed. And in 6 percent of married households, only the mother is employed. That means more than one in three married households still have a single source of income.
So while it may seem attractive to have a dual-income stream, it’s not a necessity by any stretch of the imagination. You can make it work – and even thrive – on one income. Here are some tips to help you succeed:
- Give Every Dollar a Purpose
Every single dollar of income you bring in needs to have a purpose. (Money that’s unaccounted for tends to disappear.) You can do this by developing a specific budget that accounts for each expense you face over the course of a month.
- Separate Wants From Needs
Most Americans have a distorted view of what a need is. The biggest key to budgeting success is to learn the difference between wants and needs. In most scenarios, there are only a few select needs. Everything else should be budgeted for according to how much surplus income you have in a given month.
“Transportation and clothing are essential needs but keeping a high-end vehicle in the garage and wearing last year’s designer sweaters probably fall into the want category – especially if you’re still paying for them,” DebtConsolidation.com explains.
Be diligent about categorizing your expenses and paring your lifestyle down to a reasonable level. (If you have to go into debt to buy it, you probably shouldn’t be making the purchase.)
- Find Free Hobbies and Activities
A significant portion of household expenditures arises out of boredom. When you’re bored, you’re more likely to eat out, pay for entertainment, or shop until you drop. To keep your costs down, find free hobbies and activities that fill up your time without bleeding your checking account dry.
- Consider a Cost of Living Move
If you’re living in an area with an extremely high cost of living, you may consider making a move to a lower cost of living area. Assuming you can reel in a similar salary, a move like this is essentially equal to a sizeable raise.
- Automate Your Investing
Don’t let the fact that you have limited income prevent you from investing in a retirement account. Over time, small amounts add up. By automating your contributions, you give yourself the opportunity to benefit from compounding interest.
To illustrate just how powerful regular contributions can be, consider a fictional scenario in which a 35-year-old single mom has a Roth IRA with just $5,000 in it. By contributing just $250 per month until the age of 65, a standard rate of return would yield an estimated $341,280. If she were able to max out her IRA ($500 per month), she’d have close to $700,000 at retirement.
You don’t need to invest thousands of dollars a month to have a sizeable nest egg. Consistency is the most important factor.
Adopt a Long-Term Perspective
When you’re trudging along in your career and trying to pay bills, keep your kids happy, and save few dollars here and there, life can seem like a long uphill trek. The key is to adopt a long-term perspective. Stop focusing on what you don’t have at the moment and begin thinking about how smart, proactive decisions in the present will pave the way for a bright future. Even on a single income, retirement is a possibility. Set a goal, establish steps to reach the goal, and then practice discipline. You’ll eventually make it!