TAKE CHARGE OF YOUR MONEY
Learning to cope with a single income
INQUIRER.net
First Posted 10:09:00 05/13/2008
(This is part of Take Charge of Your Money, a partnership between INQUIRER.net and Citibank to help readers handle their personal finances well.)
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
Annie: It’s good that you have discussed this with your husband and you have both come to a common decision. However, this comes with a huge sacrifice. You’ll be having a huge pay cut and you will become fully dependent on your husband.
Given that the cost of living goes up over the years (soon, your kids will go to school too), you may want to consider working part-time from home for now, instead of giving up work altogether. You can pursue a hobby and make a business out of it from the comfort of your home. Not only will you get to spend more time with your children, you will also contribute in adding to the family coffers.
In time, if the demands of caring for your family increase, you can reconsider your working hours, and maybe by then you will be ready to become a full-time wife and mother. Of course, this is just one option. If you are all set to give up work at this time, that is fine too.
Since you still have about half a year left until you retire, we encourage you to do two things:
1. 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.
2. 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.
Once you have resigned from work:
1. Watch your costs. Don’t stop paying close attention to your cost of living when you finally resign, even if you have already practiced for seven months. Develop an eagle eye for more ways to cut corners. For instance, instead of having two yayas, maybe you’ll only need one now since you’ll be at home.
2. Budget. Make it a regular habit to write down expenses and summarize these at the end of the month. See if you have lived successfully on your husband’s income. If not, adjust again and cut down on some more expenses.
3. Shop wisely. Find out where you can get groceries and other necessities at lower prices that are reasonably accessible to you and patronize that store. When buying furniture and home items, consider going to secondhand shops. If you are a regular shopper of a store chain with a rewards program, rack up points to be exchanged for rewards. Maximize your credit card’s rewards program but buy only what you need.
4. Don’t neglect insurance. In the course of saving and living simply, you may be tempted to lay aside availing of insurance coverage. Insurance preserves income in untoward incidents like sickness and death. Get life insurance for you and your husband and health insurance for everyone.
5. Save for your retirement. Retirement may be the farthest thing in your minds right now, but saving for your retirement this early will let you reap the benefits in the long run. Compound interest over the years will let your fund earn more. Look into getting a pension plan, or do a self-styled investment plan in consultation with a financial advisor who can help you determine how much you need for retirement, and how much you need to save from now on.
Living on one income will be challenging, but if you and your husband are committed to make it work, it will work. We wish you the best.
(INQUIRER.net and Citibank invite readers to ask questions regarding financial matters. Send your questions to personal_finance@inquirer.net or comment through our personal finance blog called MoneySmarts)
*Disclaimer: Readers are solely responsible for their own investment decisions and should thus conduct their own research and due diligence and obtain professional advice. INQUIRER.net will not be liable for any loss or damage caused by a reader's reliance on information obtained from our web site. INQUIRER.net receives no compensation of any kind from companies or industries or funds that are mentioned here.
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