Are you thinking of switching over to become a single income family? Learn the strategies and tactics families can use to make the transition easier on your finances!
Switching to a One Income Family
There are many great reasons why a family may decide to transition to a single income.
For some they're anticipating kids and one of them will be staying at home to care for them.
Others may be thinking of a career switch and so they're going to go back to school either for a certification or degree.
Or you've decided to start a business and so it's more practical to budget for one income while that business gets off the ground.
For us personally, it was a bit of a necessity. At the time we were married, I was wrapping up my senior year in college and was working as an intern.
The pay was good, but there was no guarantee it would continue beyond the semester. We decided to play it safe and base our budget on one income. Looking back, that decision has been a game changer for us.
We actually decided to use that as the basis for our family finances. We kept that mentality of basing our essentials on one income and then use the second to speed things up, like paying off debt. Savings and yes, having some fun.
Any of these cases may be true for you. So, how do you make this transition work, especially when it comes to your finances?
Joe Mecca from Coastal Credit Union is back on the podcast to share his take as his family recently made the transition to prepare for their daughter’s arrival.
In this episode, we get into:
- Setting up your finances and budget
- What you need to change and update with insurance and other finances
- Doing a test run of the new budget
Even though our conversation is coming from a family, having a stay at home parent. There are a lot of principles that can be used in your family for your particular situation.
We have a lot to cover, so let’s get started!
Resources to Shift to Living on One Income
Here are some resources to make managing your money much easier!
- Best Budget and Money Apps: Personal Capital, Tiller, Mint
- Grab Your Copy: Jumpstart Your Marriage and Your Money
- Our Financial System That Help Us Hit CoastFI
- Open Up Your Brokerage Account: Vanguard, M1 Finance, Fidelity
- Why We Started Living Off of One Income
- The Completely Achievable Path to Becoming a One-Income Family
- Stacked Book Tour <- See when Joe's coming to your town
- Raleigh Stacked Book Tour Stop: Grab your free ticket!
Thank You to Our Sponsor Coastal!
Support for this podcast comes from Coastal Credit Union! If you’re living in the Raleigh Durham area and looking to bank better, come check out Coastal today.
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Switching to Become a Single Income Family
Elle Martinez: I'm thrilled we're going to be talking about switching to becoming a one income family. That's a big shift.
Joe Mecca: It's quite a big shift. I think always easier to talk about something when you're going through it or have gone through it.
This one's kind of live as it's happening. So I'm learning on the fly just as, just as much as you know, sharing and teaching.
Elle Martinez: Yeah. You became a father in the past year. Congratulations.
Joe Mecca: Thank you. Thank you. Yeah, we have a little one, four months old.
Elle Martinez: Wow. Yeah, that's a fun time. It's always going to be shifts in changes. When you're a parent, you're always adjusting, but I wanted to talk about finances specifically about switching to one income. Not every time, but a lot of families have these conversations when they're thinking of having kids.
First of all, when did you decide to make this shift?
Joe Mecca: We had our discussion pretty early. I know our discussion today is right now about, having a baby, but. I think this decision could really flow into other life scenarios as well.
I think a listener could be able to apply that to some different scenarios and, and make the decision to go from a two to a one income household.
We started having our conversation pretty early in the pregnancy because we had a timeline and we knew when we were going to be expecting and be able to know when we were expecting to change. But we really got deep into formulate probably about like seven months in.
Creating a Transition Plan to One Income
Elle Martinez: Okay. Gotcha. So, it's not as simple as, okay. We're going to switch the one income. There's usually the transition period. What was that big picture plan?
What was going through your mind as you're planning this transition and your wife's mind as well? What did it look like with savings? I know you're a saver. I think we've coined you the super saver.
Joe Mecca: First and foremost, we wanted to make sure we were doing what was best for our daughter. We considered one having my wife stay at home and be able to be her primary caretaker, but also we consider what would it be like if she continued to work either full-time or part-time and then maybe have in-home care?
We both were opposed to, sending her away and having daycare and a scenario like that. We knew we kind of wanted something in home. We kind of weighed our options from there and really focused on what's best for her what's best for her care.
Ultimately, we said, We're just going to go through and do the math and kind of figure out we figuring out how we can make it work and see what we'd be looking at to see what we would be entertaining.
We really had two parts to our plan though. The first was to create a budget that would reflect making the switch from two incomes to one.
Then we looked at a bunch of different factors cause it wasn't just reworking how we were spending money. We had to look at changes in income.
So it wasn't just looking at eliminating my wife's income coming into the household, but also what mine would look like after adding family members to my benefits plan?
I knew my deductions would increase so that means my take home would decrease a little bit and I would start contributing more to my health savings account because the one that would change for me. So all of that.
You mean a smaller take home for me as well, a little bit less to work. Then I looked at the changes to the limits in our tax advantage savings.
You mentioned that, I'm the super saver. In every scenario we looked at, I was not willing to sacrifice doing things like maxing out 401k and maxing out HSA contributions and IRA contributions like that, that had to be part of the plan.
What we did is we created a couple of different household bills, scenarios to see what those look like which I can get into that a little bit later. It would show what the new amount that we would need to pay all of our monthly bills. All of all the necessities. I would have to then change what I was putting into that account.
Finally, what did all those changes mean on what's left for discretionary spending and our other savings? You know, the stuff that's maybe a little bit short term and that's where really the biggest impact was, is what's left to spend.
Then the second part of the plan, and then here's what I'm really advocating for, for anyone who's even considering making the switch. We tested it.
Unfortunately, you know, I said, this was based around having a baby so we had a timeline and we knew when things were going to happen for us. We decided to start following our new while my wife was still working.
Then through her parental leave, so we were able to implement our plan before we actually implemented our plan.
That meant our household and our spending accounts would then reflect what we were anticipating my take home to be. And what would be anticipated to be available for the. And then, so the neat thing there was during that time, then we now had a little bit excess savings that we were able to kind of be a little bit strategic about you know, we still had her income coming in and then we had a little bit extra from mine that was reflecting the part that I hadn't yet seen a decrease on.
So we put all that aside and we kind of used it and get ourselves prepared for, you know, ultimately making the decision that she was going to stay home.
She came into the marriage with a little bit of credit card debt so we still had that to contend with. We paid all of that off during that time. We weren't sure we were going to be able to, but once we put the plan in place, we actually found we had a little bit extra than we had anticipated.
So we paid off all of her credit card debt. We made some plan furniture purchases. Now we're not worried about, things that we were going to talk about for the next few years, from a furniture standpoint. We were able to go ahead and get those taken care of. And of course, I'll be saying that we needed to get ready for the baby.
Getting the baby's room ready, and a lot of the supplies and things that we knew we were going to need at least in the first six months. We got planned for that. From that we actually still have a little bit left. So we're sitting on that and saying, okay, let's hold that aside in a separate savings account.
We didn't really budget to have that. But we're able to sit and sit back and think about, where we're able to use that later on. What that did is that built us into going into a two week cycle of budgeting around what we thought our new spending limits would be and what we thought our new household budget would be and we got used to that.
We got used to that through probably four and a half, five months almost. So when we did make the decision after her maternity leave ended that she was gonna stay home. We knew what it would be. We had been living it.
What was gone was the extra, but the week to week spending limits and household budget, that was set and we were able to then easily make that transition.
Do a Test Run with Living on One Income
Elle Martinez: Yeah. Wow. There's a lot of things I love about that. First of all, I also agree, test it out before you make that transition see if you can sustainably live on that new budget.
We did that as well. And as you pointed. Moving to a single income becoming a single income family doesn't necessarily have to be with kids.
Usually that's one of the pivot points where a family makes that decision. For us, I was starting my freelance business years ago. So knowing that that can fluctuate, especially when you're starting a business for the first few years that gave us that buffer because we had a budget that was relying on one income.
And then as you say, like, if you have that extra income, you can put it towards your goals, paying down debt, saving for short and long-term goals and then, hopefully putting some aside for investing.
I love that, especially in the pandemic, there's so many things changing, so it's nice to relieve some of that stress by having a financial cushion set aside. But I mean, I wasn't surprised with their level of detail. It's you, Joe, you heard the super saver.
Joe Mecca: You know, there were spreadsheets involved.
Elle Martinez: I love that. So you guys seem like you were really. Pretty much in sync with what you wanted, but I was curious, besides the budget, you mentioned health insurance had changed.
Has the issues like life insurance come up or what other changes have you noticed with your finances that you're doing to prepare for this next season of life?
Joe Mecca: Well, we did have to make the health insurance change. I think that was a big impact. She had her own employer plan previously, and it actually had a pretty generous reimbursment component to it that really helps cover her deductibles. So she stayed on her plan through having the baby and really through the end of her employment.
That was nice that we were able to have that handled a lot of the birth and delivery and even some of the early medical expenses.
But we have switched her to my plan, but it went from being an individual plan to family plans. Now that was an added expense. Yeah. We haven't really touched life insurance yet kept that pretty pretty consistent happy with really the level of coverage that we have.
One of the conversations that we've been having is I've got a term policy that isn't, isn't ending soon, but Isn't going to go out as far as now, I would anticipate needing to. I'm 45 now looking at maybe in the next two years, getting another term plan to, to overlap and then take me through to 67.
So we've talked about that, but that's a couple of years off right now. Yeah. Most of the other stuff that, that we've had to tweak is just really adapting on the fly to kind of the new situation and what we're learning as we go.
Shifting Budgets with Single Income
Elle Martinez: Yeah. it's always a work in progress with your finances and it's going to reflect whatever stage you're going through in life. You mentioned you were spending less in certain areas and spending more, do you mind kind of going over a few of those in the budget that you've adjusted, maybe overestimated on some or under underestimated on the others.
Joe Mecca: Sure. We definitely underestimated on a few of them. Some of our expenses have increased one that really had thought about. Too much in advance, but, but have adapted to is our utility bills are, are a bit higher. Not, not a ton, but enough that I've noticed our water, our electric, our gas, they've all increased slightly. It turns out the baby likes the house a little bit warmer than I do.
Yeah, we've we've adapted to that. Also we're doing a lot more dishes and a lot more laundry, so, so we've seen a higher water bill. We've seen a higher gas bill. Even the electrics gone up a little bit. Yeah, we're doing cost diapers, so we're doing a couple extra loads of laundry on top of.
Washing her clothes and all of her things. Obviously medical bills are higher. Usually had fairly well medical bills and, and didn't even come close to it through my deductible. Now we're going to the doctor pretty regularly.
So yeah, and while a lot of those are covered in our plan, there's been some that are a little bit extra so that's been a little higher and we've budgeted for that though. I certainly advocate for health savings accounts and being able to use those to cover expenses.
I had been feeding my HSA for years so comfortable placed now where I'm not necessarily worried about having even having a year where there's a high number of medical bills because I've planned for that.
Yeah, but while we've, as I say, reduced our overall discretionary spending things for the baby or taking a bigger cut of that than what we would have otherwise spent on ourselves. So we're still, the money is the money.
Elle Martinez: Yeah.
Joe Mecca: Yeah, it's just how you allocate it. There are some weeks where, you know, we, we need some extra baby items and, you know, that means maybe we put off a purchase for next week or something like that but we're pretty flexible.
One thing that's probably going to be down for awhile is entertainment and cost. We like things like concerts and sporting events and, and really haven't spent that kind of money. Yeah, during the pandemic because of it, but coming out of it where know, maybe looking forward to having more entertainment options.
We're really hitting the brakes on that for a little while unless it's things that we can do with the baby. So I do anticipate our entertainment costs to be, to be down for awhile. But really at the end of the day, the money you have to work with is what you have to work with so it's just a better of how you decide to carve it up and alley.
Elle Martinez: Yeah, absolutely. I completely agree. From one parent to another automating those savings because you're going to be so busy with baby and your kids, that it, it makes a dramatic difference.
I really appreciate these tips, Joe, and I do want to mention to any listeners who are in the Raleigh Durham area and are coastal members Coastal's does have a wealth management team for these pivots in your life. That would be a great resource.
I've met some on the team. Not only are they knowledgable, but they really care about helping you align your savings, your family finances towards your goals.
If you're thinking about becoming a single income family, or you're transitioning into parenthood, these are like great moments to sit with someone who's knowledgeable that can help you craft the plan that fits you.
Joe Mecca: Absolutely.