After addressing the short-term decisions, then it’s time to make long-term ones.
So what are the considerations that are considered as long-term?
Your house… Are you still renting, or are you paying a mortgage for your own home like we were then, or are you one of the fortunate ones who already have their own home before the need to plunge into a one-income household came? If you are renting, can you still afford the rent with just one income? Maybe you should also consider moving to a more affordable place to cut on rent expense.
Your children’s college fund… Do you have enough savings, or already paying up for a pre-need college fund? In our case, we already completed our first child’s educational funds, and still paying for two, when the “tragedy” at Prudential Life struck. Fortunately for us, I have a cousin who was working there, and she was able to give me sound advice to withdraw. We were able to withdraw, at a loss on the two that we were still actively paying for, and a break-even on the one that we have finished paying for. (Maybe in another post, I will share what we did with the money we were able to get back from Prudential, but suffice it to say that we did not spend that money, nor did we even think of making it part of our disposable cash.)
Your retirement fund… Have you started investing on a retirement plan? Can you continue to save up for your retirement with just one income?
Those were the three major items that we focused on when we became a one-income family. We had to weigh our immediate needs against what we need to prepare for in the future.
Giving up one income means a big cut on your old budget. But giving up some expenses, like househelp, lunches out, designer clothes and such, and managing your utilities expense, like going for a lower postpaid plan on your phone, or maybe switching to prepaid, may not be enough to address your long-term plans, like college education and retirement. You will need to save up for those.
So here’s what worked for me in terms of savings…
You see those ATM card plastic jackets? I have several of those, and each one is labeled with “phone/internet”, “electricity”, “grocery”, “gas”, “doctor”, “allowance”, “emergency”, “savings”. etc, and each payday, I would put in the budget for each expense there, so that when the utilities fall due, I have the cash. Notice that I have a jacket for savings. Some see savings as what’s left after all the bills have been paid just before the next payday. Not for us. Savings should be taken out of the total take home pay before you even start budgeting what’s left for your household expenses. However small, savings should be constant. If you can afford to save 20% of your take home pay, go ahead and do so, then watch your spending to make the 80% work for the rest of the expense. But of course, again, you should only decide on the lifestyle that you are willing to live, so maybe 20% is too much. Try 15%, and if still it won’t work go for 10%. The important thing is that you commit to that 10% no matter what. Make it a regular thing. Like in my case, I didn’t even think about my husband’s full take home pay anymore. My mind was set to receiving just the net of the amount we have agreed to put on savings.
And speaking of husbands…
If your one-income family has the husband as the one going out to work, please don’t forget that the husband has to receive an allowance, too. Agree on an amount that he will receive from the take home pay. I used to give my husband his allowance at the beginning of the month, before the next payday cycle, and I’m proud to say that at the end of each month he would always have some amount left that he gives to me to be added to either our savings or to the emergency fund.
It pays to have your money put in an account that you have no immediate access to. In our case, I put it in an account with higher yield than a regular savings, like a time deposit, but allows for up to three withdrawals per month. And then there’s what they call the maxi saver, where you get a yield much higher than a savings account for as long as you don’t make any withdrawals. If you ever need to withdraw, then your account will be put on a regular savings rate, but leave it another full cycle without any withdrawal and you’ll be back to having that high interest rate.
Once you are comfortable with what you have in your savings account, meaning you have an amount that can cover an emergency, consider putting some amount in mutual funds. In building a retirement fund, it pays to start an investment portfolio early, however small, because in growing money, time is your best friend. Time, and compounding interest.
Until my next update on this series!
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