Think you can’t get ahead financially on a single income? These families show how it’s done.
With many dual-income American couples living paycheck to paycheck, single-income families may feel even more pinched, especially since they don’t have the security of another income if one partner loses their job.
However, as these families prove, it’s not how much you earn, but rather how much you save that makes the difference, whether you’re a single parent, a stay-at-home mom or dad or you have another family structure. U.S. News talked to three families about how they managed to save a big chunk of a single income.
Focus on the big three costs. All three families committed to saving money rather than letting money slip through their fingertips. That mindset shift helped them make more purposeful spending decisions. Jackie Cummings Koski, a single mother in Southwest Ohio, a financial literacy advocate and author of the book “Money Letters 2 My Daughter,” suggests focusing on saving in three main expenses: housing, transportation and food.
“Rather than trying to cut expenses more if you feel like you’ve already cut to the bone, look at things that are already in your life that you might be able to do a little bit smarter,” Koski says. For instance, whenever she gets a car loan, Koski shops around for the best rate instead of just accepting whatever financing the dealer offers. She also recently compared prices on car insurance and saved $300 a year by switching insurers. While there’s nothing wrong with couponing, you’d have to clip many coupons frequently to save $300.
Rein in what you can. Kim Anderson was a stay-at-home mom in Georgia when she and her husband managed to pay off their $93,000 mortgage in two years on his income. “Just because [a non-working spouse is] not getting a paycheck doesn’t mean they can’t make forward progress,” Anderson says. “As a stay-at-home wife, I knew that there were things that I control financially, and the first thing I could do was groceries. I switched to only shopping with cash, so I wouldn’t be tempted to overspend.”
Anderson, who is author of the recently released book “Live. Save. Spend. Repeat.: The Life You Want with the Money You Have,” and now lives in North Carolina, stresses the importance of still enjoying life while aggressively saving or paying down debt. “We really valued still being social so we found ways to eat at home and feed a crowd,” she says.
Use retirement benefits. With one income, retirement savings become even more important. Koski says she spent time educating herself and taking advantage of everything that was available in her 401(k). Her employer offers a match on her 401(k) contributions, so she would not only get a match, but also max out that account, she says. Automatic contributions to a retirement account make it easier to save. Plus, the employer match amplifies her savings over time. Koski also contributes to a Roth IRAand a health savings account.
For couples who file joint taxes where one spouse isn’t working, the working spouse can contribute up to $5,500 per year (or $6,500 for those over age 50) to a spousal IRA. If the working spouse does not participate in an employer-sponsored retirement plan, the full contribution is tax-deductible. If the working spouse does participate in an employer-sponsored plan, the deductibility depends on income and tax filing status.
Get creative with housing. After living on a single low wage for several years with his young family, David Coss and his wife Kim managed to retire in 2012 at age 40. They’re currently in Brisbane, Australia, where Coss runs the blog FinanceLiberation.com. One of the decisions that made early retirement possible on a single income was nontraditional living situations.
“Just after we got married, we had some Chinese homestay students,” Coss says. The trade-off was some loss of privacy but the students helped furnish their home. Later, they converted the house into two separate units. They moved into the upstairs unit and the rent from tenants downstairs subsidized their mortgage. They now rent out the entire house.
As their family grew, Coss ran a furniture business while his wife cared for the children. “Sometimes we weren’t earning any money at all,” he recalls. Still, they made it work because the furniture warehouse had a large area that was converted into living space. “It had a shower, toilet and kitchen, but everything was kind of basic,” Coss says. “In our bedroom, we had to tread quietly because it was over the next door business.” Coss admits that it wasn’t ideal, but says, “[not paying rent or a mortgage] saved us so much money.” When people asked when they were moving into a real house or told him that they couldn’t live in a warehouse, he shrugged them off.
Don’t fall for lifestyle inflation. When your income rises, it’s tempting to upgrade your family’s lifestyle, but this can undermine savings goals. Koski says she saved a bundle by staying in her home, even though she could have afforded a bigger or fancier property as her income grew. “There’s so much money that flies out the window when you’re moving often,” she explains. “I stayed in an area that has very low cost of living. [My daughter] loved that home. It was close to the schools, so we stayed in that home.”
The same applies to buying a car and making other major purchases. A more expensive home often means higher property taxes and more space to heat and cool, while a fancier car might require more expensive repairs and premium fuel. Instead of trying to keep up with the Joneses, Koski stayed content with what she had and invested money from her raises over time to grow her net worth.