Some households operate off one income by choice, while for others that is merely their circumstance. Regardless of how you found yourself in this position, a one-income household is not uncommon, and it’s certainly not unmanageable. Think about how you need that money to function and come up with a budget, and plan to execute it.
Without a budget, even a multi-income household might become financially unstable. Below are some tips to consider if you’re working with one income, and how to make it work for you.
1. Have an Emergency Fund
This is not just a tip for a one-income situation, but it’s arguably more important, in this case. Without a second stream of income to fall back on, you should make it a top priority to create, and contribute to, an emergency fund. Even if you’re fortunate to be able to predict much of what happens in your life, you’ll never be able to predict everything. And knowing that you have some sort of financial safety net in place can eliminate undue stress when the unexpected comes along.
In terms of size, the common rule of thumb is anywhere from three to six months’ worth of expenses. You must be sure that if the household earner loses that income, you don’t face things like home and car loss on top of it. A budget is the best tool to help you understand how much to save, and work out all these numbers, because you can see in black and white how much it costs you to afford the must-haves in your life. If income is lost, you can possibly cut out streaming services and/or dining out, but you can’t cut out your mortgage, for example.
2. Re-Evaluate Your Debt
Debt gets a bad name. Many people hear the word debt and cringe or think to themselves that all debt is bad, but that’s certainly not true. There are certain things that can put someone into debt that are not just positive but can also improve financial standing over time. Some examples are startups, mortgages, and student loans. When you’re thinking of ways to make one income work for your household, go over your monthly, recurring debts, and do what you can to try and shrink those payments.
Student loans are a great place to start. This is (typically) a significant amount of money, owed back to the lender over a long period of time, more than perhaps a car loan, but less than a mortgage. So, it’s a manageable place to shrink down your payments.
Refinancing can change your relationship with student loans and create extra money each month that you can now allocate to other areas of need. Shop this option around, too, because these lenders are in competition with one another, and it’s in their best interests to give you the best terms and rates. A lower interest rate, even by just a small percentage, can make a significant change in the total amount you’ll repay.
Investing can be very intimidating, especially because it seems that there’s a totally different language to understand before you can understand the process. But not every form of investing is super intricate, and there are guides you can follow to get yourself started. Another myth that deserves to be debunked is that you need a ton of money to get started. You can often start this journey for less than a dollar, such as penny stocks, if you want to and still see results.
A general rule of thumb that is especially true for one-income households, is that investing should really only be done with ‘extra’ funds. That means don’t take dollars away from the money you need to pay your bills, to invest, because investing is not a sure thing. And sometimes, those funds cannot be recouped. However, when done responsibly, investing can help you earn money for your household that can elevate your financial standing in a semi-passive way.
4. Be Honest about How You Spend Your Money
The adage, that honesty is the best policy, is not commonplace for nothing. It applies in so many areas of life, and personal finance is certainly no exception. If you only have one income and want to take control of your finances, the first step you need to take is to get honest about how you spend your money. This is not meant to shame you about where your money is going, in fact, quite the opposite.
If you love going to concerts, for example, don’t stop going, just because you’re working off of one income. Instead, be realistic about the entertainment category of your budget. So, when you do things, like attend concerts, the money is there, and you’re not either skipping because you think you cannot afford it, or busting your budget to find the funds.
5. Take Advantage of the Gig Economy
The Gig Economy is a somewhat new, innovative way to earn an income. For some people, they’re leaving traditional roles in favor of this lifestyle, while others are simply using its benefits in true side hustle fashion. For people that are operating their household off of one income, picking up a side hustle from time to time can help with financial obligations, one piece at a time. And don’t worry, if you think this means you’re going to have to take on, and consistently maintain, a second job, that’s far from the truth.
A company like Uber Eats is a great happy medium, and some of these employees have reported crazy high profit margins of up to $1000/week in some cases. With a meal delivery service like this, you can work, when and where you want, and as frequently as you want.
For some people in single-income situations, this is a great way to dedicate a specific amount of time each day, week, month, whatever they want, to this gig. Then, they allocate the earnings towards a specific goal like saving for a down payment, paying off a credit card, or taking a dream vacation. The best part is, there’s little to no commitment, if you do it once and hate it, then don’t do it anymore, but if you do it once and love it, you can keep it up for as long as you choose!
6. Consider Life Insurance
When households operate off a single earner, it’s truly critical to be set up to still financially survive if that earner passes away. This is a topic that nobody likes to think about, and even fewer people like to talk about, but avoiding it is a huge risk. Getting life insurance is one of the best moves to make as a one-income household. It might feel unaffordable, but again, with proper budgeting, anything is possible.
More Articles from Wealth of Geeks
This article was produced by Credit.com and syndicated by Wealth of Geeks.
Featured Image Credit: Unsplash.
Credit.com is the only company of its kind to be founded and run by leading credit experts including journalists, authors, and consumer advocates. We’re committed to helping consumers understand and master the confusing world of credit and improve their financial standing by recommending products and actions that are in their best interest.