Strange things can happen to couples over time and these aren’t always very predictable. You may start off down the road together in separate, stable jobs, working nine to five and enjoying a comfortable double income. But this could change at any time. Perhaps you get pregnant and one partner decides that actually all they’ve ever wanted is to be a stay at home mum/dad. Or you might suddenly uncover a burning desire to study again or to write a book or attempt to launch a start-up. It may seem like an enormous challenge to go from being a two income household to surviving on one – but it is possible if you “mind the income gap”.
Making the switch to being a one income household
Halving your monthly income might seem like a recipe for anxiety attacks. However, it’s also a good opportunity to reassess your spending and your financial situation – you could even end up in a better position as a result. So, how do you successfully switch from two incomes to one?
Pay off all your debts as soon as you can. If possible, get rid of debts before your income reduces because you might find it difficult to do so afterwards. Servicing debts is fine when you have enough money coming in every month but it can become very difficult if you’re struggling. Plus, when it comes to something like an overdraft or credit card, it’s far better to have that credit available to you should you need it than to already be right up to the limits. And don’t be tempted to take out new loans to cover unnecessary items – it will only put extra financial pressure on you.
Eliminate all unnecessary expenditure. This means stripping back your spending so that your money really is going on only the essentials. The daily take out coffee is the often-used example of an unnecessary expense where cutting it out could save you a lot of cash. However, this isn’t the only one – everything from riding a bike instead of taking the bus, to stopping your Netflix account or downgrading to own brands at the supermarket could make a difference to what’s left in the pot.
Start seriously prioritising your spending. When your income drops by half you need to make sure that your basic costs are covered first. This is especially so in the first few months when you’re still adjusting to the transition. First, allocate your cash to your essentials, such as food, energy and a roof over your head. After that you might need to look into transport, childcare and tax payments. Any other spending that comes next is unlikely to be as essential, from new clothes, to socialising and saving – these are the items that you can funnel your money towards if you have any left at the end of the month.
Sell everything that you don’t need. Many of us have a lot of objects that have some inherent value just sitting around the house. Selling these could create a buffer zone for you financially that could make this transition to a one income household much more comfortable. Do you have a huge collection of old smart phones just sitting around after you’ve upgraded to a new model each year? You could get £100 or more for these if you sell them to a company like Mazuma Mobile that recycles and refurbishes digital products. Have a yard sale, put old furniture on eBay, sell all your old work outfits if you’re not planning to go to an office anymore. The more you have in the bank to support the drop in income, the easier managing it is likely to be.
Be a budgeting whizz. If you’ve never really mastered the art of budgeting, now is the time to start nailing it. Set your budget for the day/week/month and stick to it, no arguments. Regularly review the budget to see if it’s working and to assess what you have left and make adjustments.
Learn to find the best deals. If your budget just isn’t stretching on this new, reduced income then one way to help create more wiggle room is to cut down what you spend on the things that you need to buy. So, become the person who knows where to find the best deal on dog food or where to buy bulk toilet rolls at the cheapest price. Use apps such as Latestdeals to see where your weekly shop would be the cheapest and make use of vouchers and cash back cards to keep costs down and generate cash back to replenish your accounts every time you spend.
Amanda Gillam is Solution Loans's General Manager and has been since 2009. She is also a prolific writer on personal finance issues, and has been quoted numerous times in articles published on 3rd party websites and in press releases. Her...Read more about Amanda Gillam