How to Stay Solvent in a Single Income Household

It’s more common than you think.

How to Stay Solvent in a Single Income Household

A few years ago, I unexpectedly found myself raising two kids on one income. In my case, the situation was the result of my partner’s sudden death, so the change was utterly unexpected.

The loss was devastating. But even during that difficult time, I knew that I was fortunate, since I had a steady job. That’s not something everyone can count on in the face of an unanticipated change in circumstance.

And while changes in circumstance, like a death, disability, or job loss, account for some of the 37 percent of American families who are currently raising kids on one income, many are making this choice deliberately.

Some do the math and realize they don’t need two incomes. Others determine that it’s more financially sensible for one partner to stay home with kids, or that doing so is simply more aligned with their lifestyle choices. It’s also increasingly common for people to intentionally single parent.

Whether you are consciously raising kids on one income, want to plan for the possibility, or even find yourself unexpectedly doing so, there are a number of things you can do now to make the situation as manageable as possible.

Get Your Credit in Order

Taking care of a lousy credit score may seem impossible. But not only are there a number of things you can do to fix bad credit, there are many reasons to make this a priority.

Putting it simply, your credit score matters. It matters when you need a loan. It matters when you want to get life insurance. It can even matter when you apply for a job since, as nearly almost half of all potential employers ask to see a candidate’s credit report, though they can’t see your actual credit score.

While there are many ways to improve your credit score, you may not be able to do it alone. Getting professional credit counseling can be a big help, and turning to the right place is key.

Ruth Hayden a St. Paul, Minn.-based CPA and author of numerous books on finance and budgeting, advises sticking to not-for-profit organizations with solid track records, like Lutheran Social Services and the National Foundation for Credit Counselling, for credit help.

Deal With Debt

Whittling down debt is another key step in staying solvent in a single income household.

If you have credit card debt, tackle cards with the highest interest rates first. Moving your balance to a zero-interest card is another way to quickly eradicate credit card debt.

Make sure you have a cash emergency fund in place. If you don’t, and you find yourself with an unexpected or emergency expense, you are faced with having to charge it, which perpetuates the cycle of debt.

If you have student loans, consider consolidating them. My life was changed immediately when I realized I could consolidate my student loans, which nearly halved my monthly payments.

You could also determine if other expenses, like medical bills, are negotiable. Sometimes doctors and hospitals will waive certain fees, or charge less for services that are not covered by insurance if you make it clear you are paying out of pocket. It never hurts to ask.

Set a Budget

We all know that setting a budget is important. But when you only have one income funding that budget, and that line items just aren’t adding up, it can be tempting to give up.

But remember, there is no one way to set a budget, experts say. Finding the strategy that works for you and your family is key.

Chellie Campbell author Worry to Wealthy: A Woman’s Guide to Financial Success Without the Stress, suggests starting with a self-assessment. Determine your spending priorities by creating a budget that is categorized as “low,” “medium,” and “high” need, she says.

“Doing that means one sees not only what spending is limited to now, but what expansion might be possible if more money got created somehow,” she explains. She also stresses that it’s important to allow yourself some pleasurable spending.

“Every budget, even the low ones, need some [fun] money in the expense account,” she says.

Understand Your Tax Situation

The American tax system is famously complicated, and also subject to change.

Indeed, the current administration has proposed changes to the tax plan, which would eliminate both the head of household status and personal exemptions. This would potentially raise taxes for families with children earning between $20,000 and $50,000.

While this may not be great news for single-income households, be sure to take advantage of various programs that can help lower your taxes at the end of the year.

“Participating in HSAs, IRAs, and 401(k) plans can help reduce your taxable income, which ultimately saves you money,” says retirement income strategist Crystal Oculee.

If you’re a small business owner or work from home, you may be able to claim your home office expenses, as well as mileage, maintenance, and repairs to your car.

Deal With the Big Picture So You Can Think About the Day to Day

Ultimately, many people are able to comfortably raise kids on a single income, even if that income is at the lower end of the payscale.

The first step in making this a reality, whether it’s a choice or a necessity, is by sorting out your finances to get a realistic snapshot of your financial health. Once you know where you really stand, you can help eliminate unnecessary financial stress.

“Sometimes the day-to-day expenses, as well as paying bills, adds up and we feel like we’re living paycheck-to-paycheck, even if we really don’t have to,” Oculee says.

While plenty of people truly don’t have any financial wiggle room, or are saddled with expenses that won’t be affected by corner cutting, many others just need a different financial strategy to create some breathing room.

Whatever your reason for raising kids on one income, taking the necessary steps to stay solvent sooner rather than later will be infinitely helpful. Let’s face it: You can’t live your life worrying, hoping for a raise that may not come, or stressing out every time a bill is due.