Published on June 6, 2016 2:28 pm, by Sally Tindall
Living on one family income can be a terrifying prospect – especially if it’s a situation we find ourselves in after loss of employment.
For some, though, dropping that second income is a choice: a financial hit worth taking for the sake of staying at home with children, caring for an elderly parent, doing some study or pursuing a business venture that takes time to get off the ground.
No matter what your situation, with careful planning you can survive – even thrive – during this period without going backwards financially. Here’s five tips on how to plan for a drop in family income:
1. Work out your budget and trim it down
This may sound obvious to those who are natural planners, but if you’re prone to impulse buying, now is the time to map out what your current budget is and where savings can be made.
Then it’s time to trim the fat. Large expenses such as insurance are a good place to start –you can save hundreds of dollars by looking for a better deal on your home, pet, car or medical insurance. Another expense ripe for savings is your car. A recent vehicle running cost analysis by RACQ found buyers who choose smaller cars over larger ones can save an average of $2,800 per year, so consider trading in that SUV for a smaller, more fuel efficient model.
Once you’ve identified where you can make savings, consider putting them to work with a savings account. Switching to a high interest savings account can save you money before you drop down to one income. Just make sure, when comparing high interest savings accounts, to check if the account comes with conditions to qualify for extra interest, such as a maximum amount of withdrawals.
2. Hone in on your discretionary spending.
Close to one-third of our food budget goes towards eating out, according to ABS figures from 2013. Cutting down on your weekly Thai fix could make a huge difference in savings. And while you’re at it, can you swap your gym membership and join a local running group instead? Buy less takeaway coffees? Scale down your Pay TV subscription, or even cancel it completely?
The aim isn’t to cut out all forms of pleasure from life; there’s no point saving money if the cost is your mental well-being. Instead, create a budget for treats. You may decide your weekly yoga class is a worthwhile investment, or make room in your budget for a well-earned meal at a restaurant and a special bottle of red.
3. Find out what Government payments you are eligible for
With your family’s overall income about to drop, you may find you are eligible for Government supplements and payments that you previously didn’t qualify for. Payments worth investigating with the Department of Human Services include:
4. Manage your debts.
Dealing with debt can be stressful when your income dips down, but there are some avenues you can try to keep debt manageable. One short-term solution is switching to an interest only home loan. Lowering your monthly repayments by only paying interest gives you a chance to breathe while you’re taking a break from the workforce.
Another option is a balance transfer on a new credit card. By moving your existing debts from one credit card to another, you can take advantage of low interest rates on offer, or use the introductory interest-free period – which can be up to 62 days – to pay down your debt. Just be careful; if you don’t get your balance down to zero by the end of the interest free period, the lender may hit you with a high interest rate.
5. Look for alternative income streams
Did you know renting out your spare bedroom could earn you up to $15,000 in a year? Or that a parking space attached to an apartment in Melbourne’s CBD can bring up to $300 a month in rent?
With so many people on the move, renting out part of your house may help you earn extra money while you’re on one income. As a bonus, any rent money you receive are generally regarded as assessable income by the taxation office, which means you can claim deductions for the associated expenses – such as part of the interest on your home loan.
Sally manages the RateCity editorial team, producing consumer-focused insights into personal finance and cost of living issues. Sally is passionate about helping everyday Australians get access to affordable finance options without falling victim to marketing ploys. She’s also passionate about helping people save money through smart budgeting and easing everyday expenses.