 | ||||||||||||
|
To print article, click Print on your browser's File menu. Go back | ||||||||||||
|
||||||||||||
 | ||||||||||||
|
Related Articles 10 ways to stretch your salary Can you afford a stay-at-home husband? A simpler way to save: the 60% solution How small cuts become huge savings Related Sites ehealthinsurance.com |
||||||||||||
| The Basics | |||||||||||||||
| Could you downsize from two paychecks to one? | |||||||||||||||
|
How a dual-income couple works to live on one paycheck -- and loves it. Plus: 5 steps to a one-income life. By Kiplinger's Elaina and Jared are performing an impromptu finger-puppet show. When their mother applauds, they protest: "Were not finished yet!" The 4- and 5-year-old stop in the kitchen for juice and animal crackers and then wander outdoors to wave bubble wands in the sunny backyard. Its just one of the quiet, mundane moments that make up a childhood. The preschoolers' parents, Marcus and Lisa Marchegger, have spent several years arranging their finances so that at least one of them could share such moments. Now, Marcus, 39, earns a lucrative income as a loan officer at Neighbors Financial Corp. in Sacramento, Calif. Lisa, 34, happily does home duty, including poring over the budget to keep the plan on track. Of the high-paying job she left, as vice president of a credit union, she says, "Theyd have to drag me kicking and screaming to get me to go back."
For the Marcheggers, living on one income has been a longtime goal. For many families, though, the drop from dual-income to single-paycheck status is an unwelcome change forced by the loss of a job. Still, whether you're following your dream or surviving a pink slip, you can ease the transition with planning, flexibility and discipline. Such a formula may prove liberating even for reluctant one-incomers. Outplacement consultant John Challenger notes: "There are some families who have said, 'This is a better lifestyle. We can manage our lives and be happier this way.'" Face your future When Elaina was born in 1999, the Marcheggers decided that Lisa should stay home, even though Marcus, then an auto-shop manager, couldnt come close to duplicating their joint income. "We always knew thats how we were going to do it," Lisa recalls. "But I dont think we spent enough time figuring out how it was going to happen. We never sat down and looked at the real numbers." Its a big mistake to assume that the financial issues will work themselves out, says Charles Long, author of "How to Survive Without a Salary." Long recommends that families take a hard look at their finances and start making adjustments as soon as a change appears possible -- even if it's years ahead. Before Long left his salaried job as an economist in 1975, he and his family spent three years "whittling back expenses and seeing what we really needed and what was fluff." Families facing a layoff don't have the luxury of that time frame, which gives them all the more reason to do a quick reality check when the ax falls. "People go out and buy self-help books, talk to Dr. Phil, do everything except grab the oars and start rowing," says William L. Tatro IV, author of "The One Hour Survival Guide for the Downsized." Instead, he says, "you have to realize that this is an immediate change in your life." Dont panic, but dont slip into denial.
Analyze the budget The first step in any downsizing is to identify all your assets, including such potential resources as the equity in your house, cash-value life insurance and a retirement fund. "A lot of people know about net worth but havent really done the exercise," says Virginia Kravitz, a life coach in Rocky Hill, Conn. "Even if you see assets you might not want to tap in to, it's still confidence-building to know theyre there." While youre at it, consider refinancing your house to lower your monthly payments or taking out a home-equity line of credit for emergencies. Each is easier to do when both you and your spouse have a paycheck coming in. It would be nice if a quick look at your budget also revealed enough savings to cover three to six months worth of expenses and a zero in the space where consumer debt might otherwise appear. No matter how spiffy your ledger, you'll probably need to scale back expenses to match a smaller income. Start by separating fixed costs, such as mortgage and car payments, from those that could be adjusted. "The key is variable spending," says Terry Gustafson, a financial planner in Carlsbad, Calif. "How many times a week do you go out to dinner or clothes shopping? Get the variables down to an amount where you can say, 'This is what well spend and no more,' so you can see what kind of cushion you have." That doesnt mean you have to vow to eat beans and wear sackcloth forever. Indeed, most financial planners recommend preserving a few luxuries, just on a smaller scale. Says Tatro: "If youre used to going out to dinner three times a week and spending $100 each time, go out, but find a cheaper place." Expect surprises The Marcheggers were in good shape on several fronts: They had put together some savings, paid off their student loans, rolled their credit-card debt into a home refinancing and opened an equity line of credit to use as an emergency fund. Still, their monthly budget relied more on good intentions than on cold-blooded analysis. "We figured, if there are other expenses, we can eliminate them," says Lisa. Not long after, the couple found a major flaw in that reasoning: Lisa became pregnant with Jared, who arrived just 12 months after Elainas birth. To be closer to home, Marcus took a job at an auto dealership, a move that involved a pay cut. Then the couple learned that Jared had serious food allergies and required protein-free formula, to the tune of $500 a month. With no provision in the budget for high-priced formula, much less two babies, the Marcheggers began dipping into their $20,000 equity line and quickly maxed it out. "We realized we werent making ends meet," says Marcus. Meanwhile, Lisas former employer was wooing her back with a fat salary. Plan B: Lisa went back to her old job, and Marcus quit his job to stay home and care for the children. Seize opportunities That adjustment represented a setback for the Marcheggers, who preferred that Lisa stay home, but at least they had the flexibility to keep their goal and finances afloat. Two-salary couples whose expenses have risen to match their earning power dont have that luxury, say Elizabeth Warren and Amelia Warren Tyagi in "The Two-Income Trap." "They cant afford to quit and cant survive if something goes wrong." In Marcuss case, jumping off the career ladder actually led to opportunity. Over the following months, he stole moments from diaper duty and playground patrol to study for a real estate license, aiming to take advantage of Sacramentos sizzling housing market by becoming a mortgage lender. By September 2002, he had secured the license -- and a babysitter -- and launched his lending career part-time. (That same sizzling housing market took care of the $20,000 home-equity debt, too. The couple paid it off with profits from the sale of one home when they moved to a new one.) Meanwhile, Lisa was chafing at her schedule, which often ran 12 hours a day. "I never saw my kids," she recalls. "I knew it wasnt going to work for me when Jared got his first tooth. I was in the boardroom, and Marcus text-messaged me the news on my phone." Plan C? In a detour, the couple put both kids in daycare full time so that Marcus could develop his new career. Stay focused For the next three months, the couple shared the stresses and expenses familiar to all working parents: juggling schedules, relying on prepared foods and footing a $1,300-a-month daycare bill. "Both of us had dry cleaning. I needed business suits," says Lisa. "At daycare, the kids would get paint all over themselves, and their clothes would be ruined. It was awful." The strategy paid off, however. As Marcuss career began to flourish, Lisa cut back to working three days a week, a period during which she prepared for her imminent departure from the job force. "We sat down and went through every single bill," she says. "I went over all our insurance and raised our auto deductible and homeowners deductible. We switched to the absolutely lowest-cost cell-phone plan. I looked at the numbers and said, 'Whoa! Groceries cost this?' We did everything we could do to squeeze." By April 2003 the couple was not only on solid financial footing, but also on track to replace Lisas six-figure income with Marcuss. Confident in his new career, he told her, "All you have to do is stay home and set me free, and I will take care of us. I can do this." Jettisoning dual-job-related expenses -- especially the cost of day care -- eased the transition. Now, prospering in their new life, the Marcheggers appreciate the contribution each has made to get there. "He never comes home and asks, 'What did you do all day?'" says Lisa of the former diaper slinger and bottle washer. Adds Marcus, "Were a good team." | |||||||||||||||
| |||||||||||||||
MSN Money's editorial goal is to provide a forum for personal finance and investment ideas. Our articles, columns, message board posts and other features should not be construed as investment advice, nor does their appearance imply an endorsement by Microsoft of any specific security or trading strategy. An investor's best course of action must be based on individual circumstances.