Surviving on a single salary would be a challenge for my family since we have grown accustomed to a six-figure household income. With layoffs constantly on the horizon at my media job, I am revamping our budget now so we will thrive on one income. On the plus side, a reduced income will have a favorable impact on the amount we owe in taxes. On the downside, we will have to make severe cuts to our spending and dramatic changes if I decide not to re-enter the workforce. According to a recent Washington Post article, only 63 percent of Americans are in the labor force. Participation in the workforce is at its lowest level in 35 years. Many of my colleagues in the media field have given up looking for work. I think my family can make it on my husband's higher salary if we plan ahead. To revamp our finances, we are asking ourselves key questions.
What are our priorities?
If I can't find honorable work that allows me to stay at home, I don't plan to return to the work world. We would like to stay out of debt, save for retirement and remain in our current home. Our children's tuition payments have been paid. Since they can work and pay for any future classes, we no longer have to make saving for college a priority. I estimate we will save $250 a month by no longer saving or paying for college.
Is our house still affordable?
When it comes to our housing situation, we have several choices. We could downsize, refinance to get a lower payment or cut other expenses to afford our current mortgage. Since our mortgage is only $900 a month, we shouldn't have to make any changes. However, if money became tight down the road, we could refinance to a 30-year mortgage instead of keeping our current 15-year mortgage. I estimate we could shave off $200 from our mortgage.
How can we cut expenses?
On one income, we would no longer be able to pay extra on our mortgage or car loan. We could reduce how much we spend on clothing, eating out, entertainment, leisure travel and hobbies. We could trim our discretionary spending by as much as $550 a month without causing too much distress in our family.
Can we handle future expenses?
We have to think about what kind of expenses we will have in the future. If I lose my full-time job, we will have to pay more for medical insurance coverage. Also, we will be retiring in another 25 to 30 years. My husband's 401(k) savings will most likely not be enough. We would not have enough money for a spousal Roth IRA on his salary alone.
After thinking about the possibility of living on one income, we came to the conclusion that I'd have to continue to work part-time. If I couldn't at least earn half of what I currently make, we'd no longer be able to afford our home, car and current lifestyle. With about $75,000 to $85,000 equity in our home, we could downsize. However, making such a radical life move would only be an option if we had no other options.
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