One of the hardest, if not THE most difficult thing to do in improving personal finances, is not learning the math nor finding out how to boost investment returns. It’s adjusting one’s lifestyle to suit one’s income.
There’s difficulty on both sides of the table – when the income is rising or when it’s shrinking. When Dad gets a big jump in salary, he thinks of getting a faster car. When mom gets a big break in her home business, she thinks of getting a new condo.
What happens when the global economic slump hits Dad’s company or mom’s big break unexpectedly turns into a big heartbreak? The kids are not the only ones that find it very hard to get used to a smaller house and a less funky ride.
Today’s personal finance article “Learning to cope with a single income” is about a mom who decides to stay at home for the kids. It’s also about adjusting one’s lifestyle to a shrinking budget:
Question: I am a mom with two kids, ages three and one. Every time I go to work in the morning, I feel a pang of guilt leaving them with their yayas. My husband and I have decided that I give up my job and stay home to take care of the kids. I’m happy about that, but also nervous about making ends meet in the long run. I’m due to resign at the end of the year. Can you please give me advice on how we can live well on my husband’s income alone? – Annie
The advice below are crucial to her and her husband’s peace of mind:
- Practice living on one income for the next seven months. This will help you assess your financial resources and adjust your lifestyles. Live as if you are already supported only by your husband’s income. No doubt this will be difficult, but practicing now will help you see how you can live simply. Start by cutting down on eating out. Bring baon to work. Start taking public transportation if you have been used to taking the car. Cut down on splurges, such as weekly home massages and trips to your favorite coffee shop. There are many ways to simplify lifestyle.
- Save your income for the next seven months. Since you will be living on your husband’s income, put your income away as an emergency fund that can support you in times of crisis (e.g., illness, job loss, death). You will need this fund to dip into in emergency cases so you won’t have to borrow money and pay for the cost of borrowing. This fund may be placed in investment products that may potentially earn more interest, such as high-interest savings deposits, time deposits, bond funds or equities funds (from mutual funds or unit investment trust funds). Putting your money in such instruments will give you more interest than a regular savings account.
I like how Annie thought this through. She did not decide on the spur of the moment. Choosing to be a SAHM (stay-at-home-mom) by the end of the year gives her some leeway. Emotional moms who feel those pangs of guilt can easily quit, just like that. I know, as I’ve felt that urge many times in my working life.
So, since Annie knows when she will have to deal with a much-lower paycheck, she can prepare. Why wait for December to adjust? Start pretending to live on a single income right now and consistently set aside her salary in her buffer fund. Or at least start with a 50% savings, and make it a family challenge to stay within the budget for the next couple of months.
As always, careful preparation and delayed gratification is key.
Check out the rest of the article here.
June 12th, 2008 at 8:12 am
[...] the bills that are hard to downsize, like tuition, utilities, medical bills and debt obligations. Do a trial run. Try to live on single income for a while and save one parent’s income in a separate bank account. [...]
May 26th, 2008 at 8:01 pm
This is such a straightforward down to earth advice. I find it very helpful that in fact, I’m tempted to put into my living starting today!
Thanks so much!
May 20th, 2008 at 12:45 pm
pinoy investor, if there is any gene that i would hope could be cloned, it would be the gene of entrepreneurship!
May 20th, 2008 at 11:56 am
salve, as much as i would want to, i don’t think i am gifted with any entrepreneurial skills at all… and the skills that i have are limited to be practiced in an office setting (think specialized IT skills where my specialty needs a very expensive software license).
i may soon be in baroom’s predicament though, so i’m just waiting for that…
thanks for the tip though…
May 20th, 2008 at 8:36 am
hi, salve, life sometimes teaches us the hard way. we see those retiring around us w/o any savings - not even P10T in the bank, nor w/o any property - at least a place to live in. the thought of growing old and having nothing to fall back on when there’s no money coming in scares us! we can’t always depend on our parents, our siblings, our children. as filipinos, they’re always willing to help, but it isn’t their obligation. we really all need to work to be individually financially independent.
that’s why i’m glad you and the other bloggers are there to help us out reach that goal!
May 20th, 2008 at 6:54 am
paetechie, most of my single friends find it hard to save because they have no purpose; no arms clutched encircled around their necks reminding them and driving them to set aside more for the rainy days. but again, it doesn’t have to be that way. easier said than done, though.
May 20th, 2008 at 6:52 am
femaad, you really are a beacon and a shining example to us all. that has been my “avowed” strategy since i started to work at home (eight years ago), but from time to time, i have been “kiting” and spending some of my own income on my gazillions of luho hahaha. i finally wizened up and told myself i gotta be more disciplined. so far, so good! let me know how you keep it up and remain consistent!
May 20th, 2008 at 6:48 am
baroom, can i share your comment in a new entry? that’s not quite the same as most families who move overseas expect.
May 20th, 2008 at 6:46 am
hi jeff, thanks for dropping by. That’s a great way of putting it. “It’s not how much we make that matter in the end, it’s how much we keep.”
May 20th, 2008 at 6:44 am
G, I know what you mean. Have you tried setting up your own business? Some businesswomen say that’s more mommy-friendly.
May 14th, 2008 at 3:57 pm
Look at the positive side. Quitting a job gives you the opportunity to start a home-based business. That’s what my wife did 10 yrs. ago and she’s been self-employed since then. She would never start a business had she not quit her nice job as bank officer. We keep a modest lifestyle and spend only 20% of our income, the rest goes to savings, investments and business.
May 14th, 2008 at 10:37 am
haha! that’s the usual advice i give to my friends. Imagine single, no dependent, with higher than normal income and yet always short in money? I told them increase in salary is hard but limiting spending is key. even most of my poor neighbors are like that. they don’t have money for school and food and yet vices and gambling takes too much of their meager income
May 14th, 2008 at 8:11 am
hi salve! my husband is a graphics designer, and as it is in the arts department, no project, no money. so, all these years, we have been living on single income - mine. whatever he earns goes directly to an account we hope to never touch. it’s our back-up money. we are blessed because so far projects have been regular, so back-up money is regularly increasing.
this method has helped us a lot! and in these hard times, couples shld probably start living as if there were only one income. it doesn’t hurt to live simply
May 13th, 2008 at 9:55 pm
We’ve been living on a single income for months now. No choice. There’s no one to take care of my preschooler. It’s hard especially if one’s been used to earning own keep for years. Hay… the sacrifices of moving overseas. We monitor cashflow all the time, which is a good thing really, since we know where the money goes. (Much of it goes to rent, actually.) And we live such a frugal life. Quite different from what we were used to back home. It’s a learning experience.
May 13th, 2008 at 7:36 pm
“It’s adjusting one’s lifestyle to suit one’s income”
Being able to manage one’s expenses and aiming for savings is really the key that leads to the road of financial independence
in my own experience, i never really was able to grow my assets significantly until i was able to control my expenses, its not how much we make that will really matter in the end, its how much we keep..
thanks,
May 13th, 2008 at 4:55 pm
i can certainly relate to this working mother. my almost 3-yr-old sometimes plaintively asks me not to go to work in the mornings, it breaks my heart.
it’s hard though not having some economic freedom…