Can you live on one income? It may not seem like if you have always had a two income household. But its totally doable.
A year ago, I might have felt differently, but this year we’ve moved to one income in our household. With the birth of our twin boys we made the decision that my wife would stay home to take care of them. It has been totally worth it for her to be able to say home, but the reality is it has had a significant impact on our finances.
How to Live On One Income – The Assumptions
The median annual household income in 2010 was $49,445. (2010 is the most recent data available.) Now remember, that’s total household income – not the average per individual. The actual average income for the average American is around $32,000 per year.
For the sake of discussion, let’s assume that you are right around the median. How do you live on $32k per year when you’re used to living on $50k?
Can You Survive on One Income?
Let’s forget about luxuries for the moment. To be frank, if you have to live on $32k per year – you can’t afford many luxuries.
Survival has to be addressed first.
Can you provide shelter, food and clothes for your family on that income level? Yes you can! Will it be easy? Nope.
Doing The Math: Sample Budget
$32k per year breaks down to $2,667 per month. If you apply my recommended budget percentages to that figure you’ll come up with the following:
- Tithe – $267
- Savings – $267
- Housing – $933
- Auto – $347
- Food – $320
- Healthcare – $267
- Entertainment – $187
- Miscellaneous – $80
With an income this low, we’re going to have to make some modifications to these numbers.
First, savings is out. Survival comes before savings. Put together a small emergency fund in a secure online savings account and then cut the savings. You can come back once your income level rises. (Update: See the note on housing below.)
Housing is okay. Depending on where you live, that may not get you much. But you should be able to find something in the $700 range and still have enough left over for utilities. You might also qualify for Section 8 assistance. If that is the case, then I highly recommend putting the difference in savings.
The amount budgeted for auto probably can’t come down much assuming you need a car to get to work. Gas, insurance and maintenance will eat up $350 per month. Also, when you’re living on $32k per year you should be driving a beater. You can’t afford a car payment.
Some of the savings pulled from other categories will likely need to go towards food. The average cost of food per month for a family of 4 is around $500/month. However, you would likely quality for food stamps. If that’s the case, then the budget above could probably be reduced.
Now healthcare – hopefully your employer pays a portion of your health insurance costs. If not, $267 won’t even come close to buying a plan on your own. Your best bet would be to see if you quality for a state run program where eligibility is based on need.
Finally, as little as possible should be spent in the last two categories. You need to find forms of entertainment that are free or very low cost.
There – that gives you a workable budget. It’s tight, but you can survive on $32k per year.
Another Note On Reducing Expenses
Reading the above may be discouraging. Cutting $18k of expenses may seem daunting. But, don’t forget about expenses that you will no longer have with one spouse is staying home.
You won’t have to pay for childcare. The amount you spend on clothing and gas should go down. You will most likely eat out less as well.
In fact, you may find that your standard of living doesn’t have to change much.
It is Worth It?
When we made the decision to make the transition to a one-income family, it was a no-brainer.
Whitney and I both agreed that her being able to stay home with the boys was far more valuable than her paycheck. It’s all about priorities. Our priority is family over finances.
Would you be willing to give up one income to say at home with your kids?