How to live on one income without going broke

Living on one income isn’t easy, as single parents know. Lately they’ve been joined by a huge influx in formerly two-income families who’ve become one-income (and sometimes no-income) households because of unemployment. Still others are choosing a one-income lifestyle so that one partner can stay at home with the kids, launch a business or otherwise pursue a dream.

1. If you have time to prepare in advance, I would recommend that you:

Retire your toxic debt. Toxic debt (credit card balances, payday loans, bounce fees at banks) is a sign you’re living beyond your means. It’s toxic because the interest you pay eats away at your finances like acid. Ideally, you would have all your toxic debt paid off before you become a one-income family, or at least be well on your way. If your toxic debt is still growing, you’re not ready to do without that second income.

Give yourself a trial run. Start living on one income while you still have two, using the second income to pay down debt or boost savings. You’ll put yourself in better financial shape and see where you’ll really need to cut back and adjust.

Boost that emergency fund. One-income families are often more economically vulnerable and need more in savings. Shoot for six months’ worth of expenses in a safe, liquid place like an online savings account.

2. If you didn’t have time to prepare, you should:

Slash expenses now. Better days may be just around the corner, but your finances  could be in a shambles by then. What you used to be able to afford is irrelevant–getting your current expenses below your current income is what counts. Check out the 50-30-20 budget calculator if you need help figuring out a sustainable spending plan.

Get help if you need it. If your income isn’t high enough to cover the basics, read Donna Freedman’s excellent guide, “Swallow your pride—and seek aid.”

3. Whether your one-income status is voluntarily or not:

Don’t let your job skills deteriorate. If you’re the one not working, stay in touch with your old colleagues, reach out to new people in your field and take classes if necessary to add to your skills. Use LinkedIn or other professional networking sites.

Keep saving for retirement. Unlike cable TV and dining out, retirement savings aren’t really optional and shouldn’t be on the chopping block. Putting off or reducing retirement savings can lead to a dramatically smaller nest egg. You’ll get to retirement age faster than you think, and you don’t want to be both old and broke. It’s good to have at least some retirement savings in your own name, and you can contribute to an IRA even if you’re not working (as long as your spouse is).

Take advantage of great Web resources. There are a fleet of stay-at-home parents who are blogging about their experience and sharing great tips. Start with The Centsible Life by Kelly Whalen, the blogger whose question about whether I had some tips prompted me to write this! Other good pieces to read include:

Our one-income family (from the Dollar Stretcher)

9 tips for going to one income (from PTMoney)

How to live on one income (from Frugal Dad)