How to determine if your family can survive on one income

Maybe you've been laid off, maybe you want to stay at home to raise your children, or maybe you want to tighten the family budget to save money for a rainy day or retirement. Can you survive on just one income? Here are some questions you need to ask to make the best decision for your family.

How to determine if your family can survive on one income

How much of that second salary are you keeping?

If one of you is earning $30,000 or less and have to pay for child care, it may not pay to work.

  • After taxes, daycare, commuting, wardrobe, meals and other expenses, often the bulk of that smaller second salary disappears.

Determine your needs vs wants

Put together a detailed cash flow chart, tracking all money coming in and going out.

  • Divide your expenses (what's going out) into "needs" (like rent or mortgage, utilities, transportation, etc.), and "wants" (vacation expenses, the occasional movie or dinner out, etc.).

What can you do without?

Start by trying to eliminate or reduce items from the "wants" category.

  • Could your family dispense with a tropical vacation and just go to the cottage, saving yourself some $5,000 a year?
  • Could you do without a second car?

Reorganize your needs

Then take a look at your "needs."

  • Could you cut back on mortgage payments by amortizing your house over a longer period of time?
  • Or perhaps downsize to a smaller dwelling?
  • Can you reduce utility payments by turning lights off and hanging clothes out on the line?

Fill in the gaps

Still can't make ends meet? Calculate how much extra you need to bring in and look at ways to raise a little money at home — by babysitting other children, perhaps, or by working nights or weekends when your spouse can be home with the kids.

Test out the plan

Once you've come up with a plan you think you can live with, test the waters.

  • A leave of absence offers the opportunity to try living on one salary, without giving up your job completely.
  • If that option isn't available, at least try living on one salary for three months to a year, while you're working.
  • Not only will it be good practice, but you'll be able to bank your savings as an emergency fund.

Living on one salary might be the right choice for your family but you don't want to make a decision you'll end up regretting. Make sure you're asking the right questions so you know exactly what one income means for your family.

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