Donna Freedman

Living With Less

How to become a one-income family

It's not easy, but it's not impossible either. These 5 steps can help make the transition easier -- whether the choice was yours or not.

By Donna Freedman
MSN Money

What happens when a two-career couple becomes a one-income household?

Some downsize willingly -- to stay home with a baby, to go back to school, to start a business. That was the case for Jaime and Matt Tardy, ages 28 and 29, who live near Auburn, Maine.

Jaime deeply disliked the 60-hour workweeks and frequent travel required by her job in the cable TV industry. She rarely saw her husband, and she wanted to work with people rather than with technology. Jaime wanted to change careers, but first she wanted to have a baby and stay home at least one year.

Matt, a comedian, supported her goals. But Jaime's $100,000 salary represented more than two-thirds of their income -- and it was a steady paycheck. Matt earned $30,000 to $40,000 per year but could go through an entire winter without a paying gig. They also had almost $70,000 in debt. Could they manage on Matt's earnings and still start a family?

For others, the change from two incomes to one is involuntary and terrifying. Spicer and Carolina Matthews, ages 28 and 37, respectively, of Portland, Ore., found themselves in that situation. Spicer owned a construction company that was bringing in as much as $250,000 a year (although he reinvested a fair amount into the business). He'd spent several years buying properties and building multi-unit dwellings. Thanks to "easy money" from banks, his condos often would sell before they were even built.

So they weren't worried when Carolina quit her job as a preschool teacher to go to grad school. Her graduate degree from Brazil wasn't accepted in the U.S.; a new master's, they figured, would qualify her to work in public elementary schools. Until then, Spicer's salary would suffice.

Four months later, the economy crashed. Business dried up almost overnight, leaving them with more than $3 million in debt. Spicer never saw the recession coming.

5 steps to one income

Both couples have tips to offer from their successes and their mistakes. Whether you're choosing a major life change or are worried about job loss, you have the option of preparing now or regretting later.

Here are five basic steps to downsize from two incomes to one:

Step 1: Look at your finances -- and look HARD

Both couples tightened their spending, though Spicer and Carolina wished they had done so sooner. Spicer believed the recession was just a "little hiccup" in the economy. So it took a few months for him to sell his fairly new truck to save the $450-a-month payment and buy an old Jeep for less than $1,000 cash. They put their house on the market, but it didn't sell. Spicer says they should have gotten a roommate, which would have brought in $500 a month.

They were living on savings, having gone "from two incomes to no income and college tuition," Spicer says. (They avoided student loans by paying cash as they went; toward the end of Carolina's 20-month program, her family helped out.)

Spicer knows that he should have closed down his company sooner. Not only did he keep paying employees longer than he should have, he also kept trying to refinance his properties. (Eventually they wound up as short sales.)

He spent countless hours calling banks and private investors, seeking money to finish a couple of partially built projects. In late spring 2008, the entrepreneur faced facts: His business was dead, and he and his wife owned properties they could neither develop nor sell.

"Any good entrepreneur should try to save the business, but you should also know when to let go," Spicer says now. "The sooner you accept it and start moving forward, the better."

Jaime and Matt had the luxury of preparing for their change. But because they'd never tracked their spending, they didn't know how much they needed to live on. They didn't know how much debt they were carrying, either. When they did the math, they found:

  • $26,000 in student loans.

  • $24,500 left on a home equity loan.

  • $19,300 on the Honda Civic they'd just bought.

"I felt really stuck," Jaime says. She proposed a lifestyle makeover and an aggressive debt repayment plan.

Matt initially saw the plan as "limiting." But Jaime pointed out that once their debts were repaid, she could afford to be a full-time mom for longer.

"Once we talked about what it could mean for our future," Matt says, "I was more gung-ho than she was."

Continued: Redo your budget

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15Comments
12/31/2010 10:36 PM
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I really feel that there are alot of people worse off than the people in this article. They are living on more after downsized incomes than we did with 2 wage earners. There is no trick to it either, when the money is gone you have to quit spending. I never had much discretionary income so I never got used to recreational shopping, but I'm still surprised by how many people do just that! Happy New Years all!
12/27/2010 9:44 PM
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Ecuador, Malaysia etc.  DO NOT retire in the U.S! do the research.  As  for the dual income deal, good luck, for some it'll take "triple" income.  If you're not blessed with money "in the FAMILY" or a HIGHLY-HIGHLY paid professional, you are NOT going to be a "PLAYER".  Get used to it.  As the article said-create the "budget" you pretty much have to live with for most of your life. I have 2 degrees in business and journalism, and I am not going to be rich! EVER! SO what. Priorities folks.  If you want a ton of money before you're 50, then you cannot have the life circumstances of the folks in the above article.  You have to eat-sleep-think-crap-breath the "business".  Otherwise it ain't gonna happen for ya.  No matter what "uncle Ted" say's "life is what you make of it, hard work..bla..bla, that ain't the case...most of life IS LUCK!  you are either in the right spot, OR YOUR NOT, period.  Happy New Year.
12/14/2010 2:08 PM
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Just wanted to point out that the Mathews family was living on $30,000 to $40,000 a year when Jaime wasn't working.
They do have more now because of her home-based business. But if some or all of her business coaching gigs vanished they could still manage on a lot less.

12/14/2010 1:38 AM
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I still have hope.  After my company downsized in August 2008 and I was one of many that were let go. I'm now starting to feel the effective of being out of work and with out a job and now without an income. Yes, I've reached my 99th week in August. What are people doing 55 and older and they can't find work?  It very stressful and depressing. 
12/13/2010 8:57 PM
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I found myself in a severe financial situation back in 2004.  Cancer.  I always thought if an American citizen that paid taxes all their life, donated to charities and so on, would get some help from government program when seriously ill.  I was very WRONG!  I got nothing...I had to use all my savings, cash in retirements, sell my vehicle and so forth.  One thing I learned was how cheaply I could live.  By the time the '08 mess started, I already was already living very frugal and owed no money to anyone.  The biggest problem I find is locating a resonable place to live(rent) that isn't in a trash neighborhood, or violent/dangerous area that I can afford and still save money.  I'm not paying high rent on anything...I'm a dependable paying tenet, don't trash the place or have wild parties, but everywhere I look landlords want a small fortune for housing.  It's a rip off.  Who's that guy that's famous for the line..."rents just to damn high!"  I agree. 
12/13/2010 8:53 PM
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Where are the real people in this article, those of us who bring home less than 18K a year, who maintain health insurance, who contribute 20% to retirement, who raise a family and own a home, who save and don't live like millionaires and actually have a very good lifestyle?

Get a freaking clue, people! It's not the material things that matter. Live within your means, stop spending and stop filling your houses with crap that means nothing in the big picture. Cook at home, plant a garden, save and recycle like it used to be done long ago, spend time with family and friends, send the kids outside to play and actually play WITH them!

If I made the money these people made, I'd be retired early, no bills and living the good life!

12/07/2010 11:24 AM
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It seems that most Americans who are down on their luck, and having a really hard time are people who are or were employed in making or selling goods or services. Wal-Mart = China mart. It is very difficult to find ANYTHING that is made in the U.S. anymore. (Yeah, I don't want a Chevy)

On Wall Street, they make a living moving imaginary money around and 'creating' things like derivatives that later help to screw people like you and me. That is fake, and dishonest, and it is what the world runs on now. Folks, those powerful people in the finance sector are deeply connected with government, and it IS and conflict of interest. If you have a chance, please check out the docu movie out right now called Inside Job. It will really Pi$$ you off.  I wish everyone who actually works for a living or is having a hard time right now has the very best.  Peace. 

12/03/2010 11:02 AM
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If you want a one income family, vote for Politicians that raise taxes on your employer.
12/01/2010 3:01 PM
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This article is not helpful at all.  Their "cut back" life and income is what my husband and i make combined a year, both working full-time.

Please write an article that shows what a REAL family, living off of $40,000 a year can do. 

12/01/2010 2:55 PM
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Step #1:  Declare Bankruptcy

Step #2:  Live on one paycheck

 

Oh... I guess we only need two steps.

12/01/2010 2:40 PM
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For all those wanting "good jobs"  Take a look at what you are buying and where it is made.  We have done this to ourselves people.  Welcome to the Third World of the United States..
12/01/2010 2:18 PM
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I earn 35000 a year. Im 25, and my wife is on unemployment. In southern california, its not something to boast about. We used to make 60,000 a year together, and now with a 6 month old baby, its pretty tight living. When you make poverty level income, you have to engineer every dollar like its oxygen on the Apollo 13.

 

With the examples given here, they clearly still have breathing room, and its rather uninspiring. I can appreciate the struggle from riches to rags, but hey. Welcome to the club.

 

Most of us face these problems day to day... maybe for a lifetime. Were not dealing with "goal oriented" budgets, our money vaporizes like water in the sand.

 

And no, its not just the unedjucated, foolish and ignorant that fall into this position. I have an AA in computer science and am working on a bachelors in business admin. Im not saying i am the pinnacle of righteous financial worthiness, im just saying finances dont work in a cookie cutter system - ever. Finances are a bloody surgical mess that can lead to lifechanging circumstances between barely paid rent notes and bills.

 

The real moral I encourage your readers to glean from this article is this:

 

"Live as though you are bankrupt; earn as though you own the bank" - because god knows i will if i earn more.

12/01/2010 12:26 PM
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My God, Try living on a combined $40K a yr, one child, one on the way. Lost our house, now filing bankruptcy. How about an article on how to live like that? They currently make $70-80K/yr and I am supposed to pat them on their backs for their efforts? They better be able to make it on that much.
12/01/2010 11:39 AM
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Can you write an story about people that don't earn $100,000 a year and want a year off? Their problems are small when measured against people earning $30,000 a year or two people earning $60,000 and less. This article has little effect and a narrow scope.
11/27/2010 12:06 AM
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i think the first step in being a one job household household is to get jobs back in the usa so we can at lest have a job in households right now we have a lot of no job households and people look down on them like there the pelage
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