For many, the idea of budgeting and saving on a single income can be difficult to conceptualize, especially coming from living situations with multiple incomes. However, learning to rely on a single source for all your financial needs — whether you are considering living alone without rent or mortgage help from roommates or are looking for ways to support a family with one income — can be done by following some basic budget and savings best practices.
Creating a Single Income Budget
No matter the reason you are shifting to living on a single income, creating a family or household budget should be a priority and can be done in relatively few steps.
1. List your expenses
Get started with a budgeting app, pull out the old-school pen and paper, or bring up your previous multi-income budget and create a list of all of your expenses. Be as accurate, specific and granular as possible to give yourself the clearest picture of your situation. Some common things to include are:
- Housing expenses
- Utilities (including internet)
- Insurance
- Healthcare
- Credit balances
- Subscription services
- Groceries
- Entertainment
- Child care
- Savings (toward car, house, or other)
- Retirement
This is by no means an exhaustive list, and even here there is plenty of room to get more specific depending on your particular situation. Taking the time to gather all the information you can will go a long way towards successful single-income living.
2. Reduce spending
The easiest, and sometimes scariest, part of creating a budget is subtracting your expenses from your income. If that number is positive, congratulations! You have some extra cash to stash or use each month. Don’t be shocked if the result is negative, though. Going from a lifestyle supported by multiple incomes to a single income often results in some necessary expense reduction to make your budget work. If you see easy places to make cuts — less child care costs if a parent is going to take on more care responsibilities or a lower rent if you are moving into a smaller space on your own — it’s a good idea to save that money early on to avoid overusing sources of credit or draining your savings.
3. Track spending
Keeping detailed records of your first month living on a single income can be very beneficial, especially if you haven’t been in this situation before. Your real life results will help you adjust your budget as necessary and reveal the next steps you can take to start saving money on a single income.
4. Adjust as necessary
After your budget gets put to use, it may require some refining. Finding creative ways to reduce spending and carve out extra room in your budget will go a long way toward meeting your savings goals. Some ideas to consider include:
- Using public transportation or going down to one vehicle
- Applying for mortgage deferment or forbearance or rent assistance
- Cook and eat more meals at home
- Find free or inexpensive entertainment
- Replace flights or expensive vacations with less costly trips
- Cancel subscriptions you don’t use often
It’s important to remember that reducing expenses in these areas does not mean you should cut them out of your life entirely. Completely removing passions and fulfillment from your life could add stress and anxiety while switching to a single income. Creative solutions and moderating your behavior will be necessary, but enjoying your life should still be one of your main priorities.
Saving Strategies
Once you’ve settled into a single income budget that has designated money for saving, it’s time to make decisions about how you want to save for retirement, a new home, future education or any other significant milestone. Take a look at a few savings options to decide what best fits your needs and future goals:
High Yield Savings Accounts
An ideal option for many short- and medium-term savings goals, high yield savings accounts offer much higher interest rates than traditional savings accounts. While not quite as high as investing in the market, high yield savings accounts are much less volatile and the funds are easily accessible for when you need them.
Great for saving up toward: emergency funds, down payments, vehicles, weddings, traveling, child care.
Learn more about opening a high yield savings account today!
Coverdell accounts
This is a great option for saving for a child’s future education. Distributions are tax free and each beneficiary can contribute up to $2,000 every year.
Great for saving up toward: future education.
IRA Accounts
For many saving on a single income, IRAs are a great way to save for retirement. There are options when it comes to IRA accounts — such as Certificate, Money Market and Savings — that offer various terms and dividend structures to meet whatever retirement savings goals you have.
Great for saving for things like: retirement, qualified education expenses (including Coverdell accounts)
Money Market Account
Another good way to have your savings work for you is by earning dividends that are comparable to many uninsured money market mutual funds. Some options, like DCU’s Money Market Account, require no minimum deposit to open, making them very useful for incremental saving on a budget.
Great for saving for things like: emergency funds, long-term savings, down payments
Ways to Supplement a Single Income
For those who want to ease into living on a single income or families adjusting to the loss of an income, looking for creative ways to bring in extra cash can go a long way to reducing the stress and budget crunch of single-income living. If the move to a single income was unplanned, picking up a part-time job or side hustle while looking for full-time work can be stressful on schedules, but will help ease the immediate financial change. If absolutely necessary, tapping into your emergency savings can also be a way to help with the unforeseen loss of an income.
Here to Support Your Financial Goals
The transition to a single income can be daunting, whether it’s planned or not. Thankfully, with a little work on putting together (and sticking to) a budget that works for you, single-income living can be so much more than just getting by. For even more support in your journey, consider becoming a DCU member — we’ll be with you every step of the way.
*The national average annual percentage yield ("APY") for savings accounts is updated monthly, please refer to the Federal Deposit Insurance Corporation.
Please note, membership is required to open a DCU savings account. Visit our membership eligibility page for more information.
This article is for informational purposes only. It is not intended to serve as legal, financial, investment or tax advice or indicate that a specific DCU product or service is right for you. For specific advice about your unique circumstances, you may wish to consult a financial professional.
