How To Live On One Income – 10 Things We Did To Make It Work

Our family did these 10 things to prepare to become a one income family. For one, we started planning how to live on one income before we were married. Then we paid off debts, refinanced our mortgage, and now keep our cost of living low. We sometimes see friends on Facebook asking about local daycare facilities or looking for a nanny to watch their kids while they work. It must be stressful to find high-quality affordable daycare. We’ve never had to deal with child care because we started thinking about how to live on one income before we were engaged, more than three years before our first arrival.

Mrs. RBD stays home and takes care of our three kids. It’s difficult work and the pay is crap. But it makes our lives easier in so many ways.

While writing last week’s post about not feeling wealthy, I came across a scary ranking. Washington D.C. is the most expensive city in the country to raise a family out of 618 metro areas. That’s ahead of New York and San Francisco (though it ranks 4th behind them in another study).

It costs on average $106,493 per year for two parents to raise two children. The article sites child care costs north of $30,000 as a culprit.

That seems a bit high to me, but it’s still not cheap here.

With her staying at home, we do save on the cost of child care. But we miss out on her full-time earning potential.

Becoming a stay-at-home parent isn’t solely a money decision. Some parents enjoy their career and don’t enjoy being home all day with naggy kids.

Other parents want to stay-at-home, but can’t.

Mrs. RBD had a lucrative career before having our son in early 2012. She doesn’t miss it. But she sees other women balancing careers and family and wonders if she is doing enough.

She definitely is in my book, though I certainly won’t mind if she decides to work again.

Nonetheless, we’ve been thriving on one income four years now. Looking back, I’ve identified ten things we did to make this happen.

How to Live on One Income – 10 Actionable Steps to Make it Happen

We’ve made sacrifices to live on one income.

We’re not as wealthy as we’d be if Mrs. RBD continued her career. Our house isn’t our dream home. We stay in most nights and don’t get babysitters. We don’t have family nearby.

But when a kid is home sick from pre-school, we aren’t scrambling for help or using vacation days. She’s always there.

Making this work took planning. In fact, we starting thinking about it while we were still dating.

These ten steps we took worked for us and may work for you if you or your spouse would prefer to stay at home.

#1 Start Planning Before You Marry

You’re might wonder how to do this without being awkward. Boyfriends/girlfriends are easily scared off by these kinds of conversations. Tread lightly!

By the time Mrs. RBD and I were dating for eight months, we were fairly confident our relationship had staying power. We were in our thirties, established in our careers, and both knew what we wanted in a partnership.

Then one night after a marathon of Arrested Development DVDs, the talk came up. Children. There we were happy together, but we didn’t know if each other wanted kids. I casually asked her if she did. She asked back.

A simultaneous sigh filled the room.

That harmless conversation put the wheels in motion for me. I knew she didn’t love her career and figured she’d prefer to eventually stay home. From that point forward, I was in spreadsheet planning mode.

Seems obvious, but if you’re in a relationship that may go to marriage, kids should be an early topic. Add working status to that. If you both want kids and one parent would prefer to stay home, plant that in your mindset immediately.

#2 Move in Together Before Marriage

I know, I know… this isn’t for everyone. We were fine with it and so were our parents. The only discomfort was keeping it a secret from Mrs. RBD’s 100-year-old Grandmother.

Cohabitation is a powerful financial maneuver. We saved tens of thousands of dollars before our wedding by living together.

Cohabitation is common in expensive cities like D.C. for two reasons: it’s a big cost saving where living expenses are high, and big cities tend to be more liberal.

Doing this helped us to pay for a wedding, build up cash to buy a home in the suburbs, and it gave us a cash cushion to start to live on one income.

#3 Pay off Student Loans and High-Interest Debts

Moving in with me saved her an extra $900 per month (after I charged her $500). She put every dime of that and her positive cash flow toward her remaining student loans and car loan. Six months later they were gone.

I was already free of consumer debt after paying off my first car loan in 2004. But I had two mortgages on the condo. The second mortgage had an ugly 8.5% interest rate. I focused on paying off all $43,500 of it in 23 months because I hated it so much.

Having no consumer debt payments enabled us to save aggressively for a home to start a family. We knew that if she wanted to stay home, we needed to permanently stay out of debt.

Mrs. RBD had the cash flow to pay off her debts quickly, and that should be the priority. But not everyone has enough cash flow to pay off debt quickly.

If you don’t, you can free up cash flow in your budget by consolidating credit card and student loan debt.

I recommend SoFi for low-rate personal loans and to refinance student loans. Or try LendKey to get competitive rates on student debt refinancing.

Another favorite for consolidating a variety of debt is Lending Club.

By consolidating and getting a lower rate, your payments decrease giving you more firepower to pay off the debts early.

#4 Combine Finances

The personal finance world has a fairly robust debate about combing finances after you marry.

If you expect one parent to stay at home with kids, combining makes the most sense. Combining finances simplifies family spending and budgeting. And when you marry, it’s forever, right? So start off right and combine everything right away.

But only if it’s right for your marriage, of course.

I do see how couples who both work and don’t have kids would want to keep things separate. Especially if both are set in their ways, or have vastly different views on saving, spending, and investing.

We combined our finances right away and it was the right decision for us. This made our transition to living on one income very smooth.

#5 Buy a Modest Home Based on One Income

When we were ready to start a family, we moved out of the condo into a single family home in the suburbs. The one bedroom condo became a rental.

We had two very good incomes and credit at the time. So our mortgage pre-approval level gave us a lot of flexibility.

But since we eventually wanted Mrs. RBD to stay home, we based our purchase ceiling on my income alone. That ceiling held and we stayed under our budget, though we were tempted to spend a little more.

Instead, we valued the prospect of her staying home with children more than a spiffy house.

#6 Refinance Your Mortgage

Refinancing a mortgage is one of the most powerful financial maneuvers you can execute. We’ve refinanced twice at the condo and twice for our primary residence. This was possible because rates fell substantially a few years after we bought.

Each refinance saved us at least $300 per month. If you can keep closing costs under $3,600 and save $300 per month, your payoff is just one year. So as long as you plan on staying, the savings really adds up.

Rates are now rising from the lows. With the Federal Reserve looking to raise rates again soon, refinancing is one big opportunity to save that may not be here for long. If you can knock at least 1% off your interest rate and reset your balance back to a 30-year-fixed term, there’s a good chance you can save money.

For our most recent refinance, we used LendingTree to find the best rates. Check out the nifty calculator below to see if you can save money.

#7 Ease Into It with Part-Time Work

Mrs. RBD received a promotion while she was pregnant with our first child. Her company and clients all liked her and wanted her to come back full-time after maternity leave. She didn’t want to.

However, the company offered her some part-time work once her three months of maternity leave was up.

She took the deal.

The new role required 12 hours per week and she could work from home. She took a proportional pay cut. It started as a perpetual gig, but we quickly realized it wouldn’t last forever.

The smaller income helped us ease into life without her income.

New parents don’t realize it, but many babies don’t give you 12 extra hours a week. The company needed her to be available during the day. Our son was a terrible napper.

On top of that, the company was having trouble keeping a few clients. After 15 months, the deal terminated.

We saved and invested every dime she made and only lived off my income during that period. All the money went into retirement and cash accounts to support us when she stopped working. Part-time income eased the transition.

#8 Budget Budget Budget

To live on one income, you need to know where all your money is going each month. That way you can identify leaks and tighten things up.

We used Mint.com for a long time to track our income and spending once Mrs. RBD stopped working. This helped us by setting expectations at the start of each month and keeping us on track.

A tool I like even better is Personal Capital. It meticulously tracks spending and charts everything so you can see where your money goes. It also tracks your investments and net worth automatically. I’m a huge fan. Best of all it’s free.

If you’re old fashioned, you can always use a pen and paper or free spreadsheet tool like Google Sheets.

We also started talking about the month ahead on the 1st of every month to identify forthcoming expenses. This gets us on the same page and helps to avoid unnecessary spending.

#9 Build Passive Income

Investment income, aka, passive income, is about doing work once up front and reaping the rewards later on. Dividend investing is a common passive income.

No income is 100% passive (although this one is close). So you need to keep up on investments. Passive income is supplemental to your regular income, so you earn when you’re not working.

If you’re looking for passive income ideas, check out this post where I list out ten of them. You can also Subscribe to RBD and you’ll receive my free eBook on the subject.

We earn nearly $8,000 in investment income every year and it keeps growing. I track this number every quarter and publish it on this website. Click here to see all the past updates.

#10 Build a Side Business

In September of 2013, we welcomed our second child into the world. A girl this time. Not coincidentally, that’s when I started the Retire Before Dad blog.

My wife was now a full-time Mom and I was feeling the pressure to earn extra income outside of my day job and investment income.

I knew online was a place I could earn money from home, but didn’t know how. Starting a blog was my foot in the door.

Today, RBD is a full-fledged side business. A side business can empower the future you by giving you options, but it also helps to support a family.

Income came slowly, but now I earn from home by simply writing this blog. Whether you want to start a blog or other online business, side income can help support a one-income family tremendously.

Conclusion

These ten actions we took all helped us achieve our goal of enabling Mrs. RBD to stay at home with our kids while continuing to save and invest each month.

Part of our success is having a good income. We’re fortunate there. But good income is offset by the high cost of living in the Washington D.C. area. It’s easy to be careless and spend it all.

More important than income, we’ve always lived below our means, both before and after Mrs. RBD stopped working. We build up savings to buffer the switch, and we’re conservative with our cash savings in the event of an emergency.

As my job security and our assets have increased, we’re much less nervous about living on one income than we were five years ago. Much of our comfort stems from the planning we started back as boyfriend and girlfriend.

Our youngest is now one-and-a-half. Soon, we may be out of the fog of young kids. When Mrs. RBD is ready, she can go back to work on her own terms. The same flexibility that enables her to stay at home now will carry forward to her earning at home instead of going to an office.

That extra earning power and flexibility should help us reach our ultimate goal to retire early and travel as a family.

Does your family live on one income? What was the most important thing you did to make it happen?

Photo credit: Nikolay Osmachko via Pexels

15 Responses to How To Live On One Income – 10 Things We Did To Make It Work

  1. droubal49 March 15, 2017 at 9:56 am #

    Thanks for that great article. I am wondering how you decided what you should pay for your first home. Don’t know if you have covered this before.
    What was your process.? Select a home that is a certain multiple of your income, say 2x; or based on the mortgage payment being a % of income, thus limiting housing to a certain % of your income, in your budget.

    Another good article would be on discussing money. You regularly discuss money and began before married. That is very unusual, because, as we know; Men are from Mars and Women are from Venus.

    Most couples have difficulty talking about money. Probably something they inherited from their parents.

    Thanks for your valuable blog,

    Dennis

    • Retire Before Dad March 15, 2017 at 10:04 am #

      We based our house purchase level on a few things. First, we wanted to put a full 20% down and get a conventional 30-yr fixed mortgage. So we needed that chunk of cash which limited us. We also had a monthly payment amount we didn’t want to go over. It wasn’t based on a percentage of income, more just what we felt comfortable with on my income alone that number included pmt and escrow.
      -RBD

  2. Tawcan March 15, 2017 at 1:14 pm #

    Great tips, as a single income family as well we definitely do follow most of these tips.

    • Retire Before Dad March 15, 2017 at 9:00 pm #

      Doesn’t surprise me to hear that Tawcan. You always seem to have your $hit together over there!
      -RBD

  3. TheRetirementManifesto March 15, 2017 at 3:27 pm #

    Happy Mrs RBD can stay home, that’s worth a lot! Another tip we used: when my wife was working outside the home (before kids), we saved 10% of her pay. We knew she was going to be a stay-at-home mom, and we didn’t want to get dependent on her income.

    We got a “twofer” with the approach: we boosted our “early career” savings (Go Compounding, Go!), and we were able to have her stay at home without any adjustments to our quality of life.

    • Retire Before Dad March 15, 2017 at 8:58 pm #

      I like that. We saved 100% when she was working part time. Most of that ended up in dividend stocks eventually. But we tried to buy a second rental that didn’t work out. But anyways, it gave us flexibility and let us see what restrictions one income would give us as a trial run.
      -RBD

  4. Dividend Gremlin March 15, 2017 at 4:38 pm #

    RBD,

    Long time since I commented. This article really speaks to me, as I am headed toward that situation (kids / house) over the next 1 to 2 years. I’ve been controlling our finances now for a while and we definitely did some of what yo u recommend – live together before marriage, invest, improve active income (in my job), killed off student loans (though we still have car loans). And I even got a side gig – working p/t at a brewery doing things I like.

    Great advice all around,
    Gremlin

    • Retire Before Dad March 15, 2017 at 8:57 pm #

      Nice to see you Gremlin! Glad to hear you still have that brewery gig. Sounds like you have your stuff together preparing for big life events. Time to attack the car loans!
      -RBD

  5. Get Rich Quick'ish March 16, 2017 at 5:04 pm #

    We’re also a single income family. It hasn’t always been easy to get by on a single income, but after years of living this way we’re finally in a position where we can thrive. Good post.

    • Retire Before Dad March 24, 2017 at 8:37 am #

      We were thriving at the beginning. Probably because we save extra before she stopped working. So we have a lot of cash at the point she stopped. It felt better. Now we don’t has a large a cash buffer because we’re investing more. Lots of give an take. Overall, it’s been the right decision for us.
      -RBD

  6. Machinator March 20, 2017 at 6:21 pm #

    I know different professions may be limited in the weaning off of work, but I’m growing more and more fond of it for both retirement and after reading this article, for childcare purposes. Even with the stress of work, the tectonic shift to quit cold turkey can be its own source of stress for several months.

  7. Dividend Growth Investor March 21, 2017 at 11:07 am #

    Thank you for sharing your story Mr RBD. It is very nice to read about the planning steps you took to prepare for the future, and that it worked out for your family.

    The work of mothers to take care of their children is very important. Unfortunately, it does not seem to be very well appreciated. It is so unfortunate that the US does not have the maternity leave policies that many other developed and less developed countries have. If you were in Europe, Mrs RBD would have received a 1 – 2 year maternity leave.

    • Retire Before Dad March 21, 2017 at 12:17 pm #

      Definitely true, DGI. Part of why I’m not happy with my employer is they have no policy on leave. When we had our three, I got zero days off for paternity. A partner company I work with gives DAD 16 weeks paid time off. Mom six months. That’s really strong for a US based employer. Unfortunately, I wasn’t employed by a good company when our time came. Something to think about for anyone considering children.
      -RBD

  8. Andrew@livingrichcheaply March 21, 2017 at 11:36 am #

    Great and timely post for me. We are not a one-income family but now with 2 kids we are thinking about it. We would love to have one parent stay home with the kids. Even when they are school aged, I think it would still be valuable to have a parent either work part time or stay at home. Once you get home from work at 6 and have dinner…it’s pretty much bedtime. It’s definitely tougher for us in the high cost of living areas so glad to hear it’s working for you guys.

    • Retire Before Dad March 21, 2017 at 12:19 pm #

      LRC,
      Tons of benefits to having one parent home. But it’s tough and thankless work. Our kids are tough on my wife and have no idea of what gratitude is. They just nag and beg for snacks all day, and cling to her. She’s wiped out each day, then I come home and they wipe me out. This really only worked for us because we started planning so early and kept our housing costs down at the start and through refinancing.
      -RBD

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