When Two Become One

Georgia and Thomas Gentry of Des Moines, Iowa, were tired of their consumer debt. After eight years of escalating debt, they threw up their hands. "It seems as if the more we pay down, the more we charge. We don't want to work just to pay our credit card bills!"

They decided to do something radical: they cut up all but one of their credit cards, shut down other lines of credit, and began to live on one income. Neither Georgia nor Thomas quit their jobs, they just acted as if Georgia was no longer working and applied her modest salary toward paying off their debt. Within two years, they dug out from more than $15,000 of consumer debt and funded an IRA and mutual fund.

The Gentrys aren't the only couple who decided to live on one income. In fact, at CafeMom.com, working moms were asked, "If you could afford to stay at home with your child, would you quit your job?" An overwhelming 89 percent responded, "Yes!"

When Nancy and Ron Anderson, from Huntington Beach, California, decided to map out future parenthood, they acted on their plan before they had kids. Nancy explained, "For the five years before Nick was born, we lived on half of what I made and put the other half in savings. Then we didn't 'need' my income when Nick was born, so we just withdrew the same amount from savings. We had five years of no pressure, and by the end of that time, Ron was making enough money to support our family."

Before you make the jump to living on one income, it's important to develop your blueprint and then build on it according to your unique needs as a couple. In Luke 14:28, Jesus says, "But don't begin until you count the cost. For who would begin construction of a building without first calculating the cost to see if there is enough money to finish it?" So whether you're looking at a one-income lifestyle to pay down debt, or using it as a way to bring home mom or dad, here are seven steps to determine if it's feasible to live on one income.

Step one

Assess your current income The first step is to assess your current income. On a sheet of paper, make three columns. In the first column, list all your monthly income sources, including salaries, dividends, and interest. The second column will be the amounts you bring in for each of these. So if you earn a salary of $1,200 a month, you'll list that in the second column. In the third column, under the heading "Variable, Yes/No," indicate if each income source varies from month to month (such as commissions, tips, or dividend income that isn't consistent).

Add everything in the second column to come up with your total current income.

Step two

Calculate your current monthly expenses
Next, on a separate page, list your monthly expenses. This is similar to planning a budget. Here are some things (along with the recommended percentages) to include:

Tithe/charitable contributions (10 percent)
Savings/investments (10 percent)
Clothing/dry cleaning (5 percent)
Education/miscellaneous (5 percent)
Food (10 percent)
Housing/utilities (30 percent)
Insurance (5 percent)
Medical/dental (4 percent)
Recreation/vacation/gifts/Christmas (6 percent)
Transportation/car loan/gas (10 percent)
Debts (5 percent)

Some variables will automatically reduce your overall cost of living once you're on one income (such as childcare, a professional wardrobe, commuting expenses, meals eaten out). You'll factor those in later.

Step three

Determine your current assets
The next step determines current assets and establishes net worth. Once you have a clear idea of your assets, you'll also know what you might be able to liquidate in order to reach the goal of one-income living. In rare cases, couples find that they need to move to a less expensive home or sell a car to pay cash for an older vehicle. You'll need to conduct your "due diligence" with research to get an accurate number. For example, you may have more equity in your home than you thought. Call the mortgage company and see what numbers they have. Then go to a website such as zillow.com to get a rough idea of the fair market value of your home. Do the same for car loans (edmunds.com or kbb.com) to determine the "private party" value of your vehicles.

On a piece of paper, list each asset. Next to the asset: list the amount still owed (if applicable), the equity or acv (actual cash value), and whether or not you can sell or liquidate. The final part of this step will be a time of self-reflection. Are you willing to part with assets to meet the one-income goal? These are some items to consider:

Home • Other real estate • Savings • Checking • Mutual funds • Money market • Stocks/bonds • Retirement plan • Other funds • Cars • Furniture • Jewelry • Household goods • Boat/RV/luxury items • Antiques

Then list the totals for each.

Step four

List your current liabilities
This is the step where you may feel you're having the dream that you're walking down the street in your pajamas. This is where you find out how much debt you have. This step helps determine what needs to be paid down before living on one income. Next to each liability or loan, list three things: total balance due; minimum monthly payment; and months until it's paid off.

Some debt to consider:

Home/first mortgage • Second mortgage • Car #1 • Car #2 • Furniture/computers • Student loans • Boat/RV/luxury items • Outstanding taxes/IRS • Department stores (list each separately) • Credit cards (list each separately)

Add your totals in each column.

Now is also a good time to order a free copy of your credit report and check it against your records. You may think you owe $350 to JC Penney, but the credit report indicates you really owe $750. Due to new Federal Consumer Protection laws, each person is allowed to receive a free copy of their credit report every year from each of the credit bureaus.

Equifax (800-685-1111), equifax.com

Experian (888-397-3742), experian.com

TransUnion (800-916-8800), transunion.com

You may order each of your free copies from:

Annualcreditreport.com or
Annual Credit Report Request Service
P.O. Box 105281
Atlanta, GA 30348-5281

Step Five

Project your "one-income" numbers
In this step decide your projected one-income numbers. Basically, you'll deduct any second income and include any consistent income, such as the primary income, at-home business income, or dividend earnings. Ask yourself if any of these income sources are variable. Take the total amount of your adjusted income and use it as a basis to determine the goal expenses in your next step.

After you've crunched the numbers several times, you may come back and need to add variable savings income (we'll discuss that in step seven). So keep this list handy!

Step six

Give your goal expenses
There's an old saying in Texas that's worth repeating: If you aim at nothin' you'll hit it every time!

This step helps you set a goal for projected expenses that allow for an adjustment to one-income living. Go back to the last step and get the projected income number from the total column. Now take out your sheet from step two that lists all your current expenses and break down your projected numbers, just like you did the current numbers, by applying the percentages given by each expense category. Those new numbers are your projected expenses. For example, if the new projected income is $40,000, then according to the percentages, the "Housing/utilities/taxes" expense would be:

$40,000 x 30 percent ÷ 12 months = $1,000

Next, subtract the "projected expense" number from the "current expense" number and list that amount as "difference." This number shows you exactly how much you'll need to go in order to make the jump from two incomes to one.

One word of caution: as you're working through these figures, some numbers may disturb you. But don't follow the "sky is falling" routine. Keep in mind that these numbers are completely negotiable! They are, as they'd say in the movie Pirates of the Caribbean, "more like guidelines than actual rules."

Finally, using the "difference" numbers as a guide (along with this next step), tweak the numbers to fit your unique situation, and establish a realistic "goal expense." That is the new operating expense number.

Step seven

Finding your variable savings factors
Here's where you'll compare projected income with goal expenses and see how they line up. If the projected income doesn't jive with the goal expense numbers, then this is the step where you create your own plan based on the information you've accumulated from the above steps. There's no "one-size-fits-all" for the adventure of half-price living, and there will be as many variables as there are couples.

If you don't have enough income, then here are several variable savings factor options that may help you reach your goal:

Accurate expenses: Go back through the numbers, making sure that you've adjusted down the expenses to accommodate a one-income lifestyle. For example, if Mom is no longer working in an office, then she won't have the same dry cleaning, childcare, new wardrobe, or commuting expenses.
Adjustable expenses: There's no rule that you have to stick to the recommended goal expense percentages. If you don't need 30 percent for the household expenses because your mortgage payment is lower, then adjust it accordingly and move some of the allowable funds to the recreation fund or clothing fund if they're lacking.
Variable savings income: This was mentioned earlier as part of your projected income figures. This is where a couple can really make up the difference by learning to save money in all categories. For practical, easy ways to cut costs on just about everything, go to www.elliekay.com to get tips and money-savings links.
Variable assets: Go back to your assets list. Is there anything you'd be willing to sell to build the savings account safety net you need? One couple decided to sell their Harleys, eliminate those payments, and apply the difference toward another category.
Save while on two: If you'll recall Nancy and Ron's story, they saved 50 percent of her income while she was working and gave themselves permission to use this savings as part of their monthly income when they made the move for her to stay home.
Variable liabilities: Another factor to improve monthly expenses is to revisit your liabilities list. By creating a debt repayment plan for liabilities, you can then factor those numbers into your goal expenses to make up the difference.
Variable income factor: Consider opening a home-based business in order to supplement the one-income lifestyle.