By Helen Baker
Are you part of a two-income couple? How would you feel if you suddenly were challenged to live off just one income? For some, the hand may be forced; for example, suddenly losing or quitting a job. I actually encourage the option to live off one income in some planned circumstances, and here’s why: when you take the initiative and do this on your terms you buy choices in your future.
How does that work? You both live off one income and the other wage is used to build a home loan deposit, pay down a mortgage, extinguish those bad debts, put into investments or bolster your superannuation (whatever your priority is). The strategy is quite similar to one I offer clients who have just enjoyed a big promotion: live as though your income is unchanged, and sock away the rest for future financial freedom. Once you start living to the new income, it’s incredibly difficult to take chunks out. But if you make the change before you get used to the extra you will be able to see your investments grow and see something more for your money that buy yourself choices later.
‘SURVIVE’ AND ‘LIVE’ MONEY
If that sounds a bit harsh, perhaps consider starting with the attitude that you ‘survive’ on one wage and the other gives you ‘a life’ – a big holiday for example – while building savings and paying down the mortgage too.
Either as a single or as a couple, such a strategy does take commitment. It’s not uncommon for clients initially to look aghast and howl that they have not enough to live on with both incomes. If everything is stretched and you really need those two wages just to survive, that’s a lot of financial pressure to be under. I suggest, then, a close look at lifestyle leakage: where is their combined income going?
Often, lots of little things like those cups of coffee, takeaway dinners, drinks after work, the club membership that’s unused, those shoes that just begged you to wear them out of the store even though you have four similar pairs in the wardrobe…they all add up. I’m not Scrooge (my shoe collection rivals Imelda Marcos’s and I do enjoy nights out and having fun), but I am keenly aware of how money can just vaporise. Curiously, it happens less when you use cash—which to my mind is all the more reason to buck the trend of relying on digital transactions and electronic payments wherever possible.
Two looming life circumstances may encourage you to investigate the ‘live on one, pay down the other’ approach to earnings.
PLANNING A FAMILY EXTENSION
The ‘live off one income, invest the other’ strategy works particularly well if you, as a couple, expect to have a family someday.
When parenthood hits, the reduced income isn’t as big a shock to the system. Be realistic, expect things to change and know that this is for a season. By planning ahead financially, you may be able to hit the pause button with some measure of ease. Too many parents are forced to go back to work. Would you prefer the choice?
CHANGING THE JOB FRONT
The second scenario is not so obvious. Few jobs are for life nowadays. We see many organisations restructuring and positions and roles being made redundant. If one of you hears as much as a whisper about potential redundancies in your place of employment, I suggest looking at this “live off one wage” strategy. If a redundancy package is offered, consider it a bonus. There may well be another role out there for you – but it may also take time (or you may want to reinvent your working life). Either way you both benefit from having paid down debts and built up savings.
On similar lines, changing workplaces can create low morale and high stress. Perhaps, you are so over your workplace you want to quit. What if you hang in there for a while, live off the one income, save the other, look around at opportunities? Maybe you could even access your income protection insurance on the basis of your mental health while still in the job? (Income protection is ordinarily not payable if you quit).
Alternatively, one of you may want to start your own business. There can be quite an outlay in the set-up and running of a business with not much, if any, return early on. Having an emergency fund tucked away, or your big commitments paid in advance can buy the time needed to get your business on its own two feet.
There’s a lot to be said for living life to the fullest: that doesn’t have to mean maxing your joint household income.
Helen Baker is a qualified Australian financial adviser and author of On Your Own Two Feet: Steady Steps to Women’s Financial Independence. Her latest book is On Your Own Two Feet Divorce: Your Survive and Thrive Financial Guide. Proceeds from the books’ sales are donated to charities supporting disadvantaged women.