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A guide to managing finances when you move from being a double income to a single income family.
By Poornima Kavlekar
Vidya Ravikumar, 33, a marketing professional in a Chennai-based garment company was doing very well professionally. She became the Marketing Head even before she celebrated her 30th birthday. But, along with it came frequent travels, long hours and many times, weekend meetings! Even the little quality time she had with her four-year-old daughter began to suffer. That’s when she decided to give up her successful career and become a stay- at -home mom. “It wasn’t an easy decision at all, since I was an equal contributor towards the family income. But I didn’t want my daughter to grow up totally under the care of nannies,” she reminisces.
For Bangalore-based Aditi Avadhani, 30, giving up her career as a Brand Services Director was a conscious decision that she and her husband took. “We planned for it since the confirmation of my pregnancy. While my financial independence is important, so was raising our baby.”
Sounds familiar? Many women are suddenly faced with such constraints – ailing parent, young children or higher studies. Such situations should have a cushion of financial planning to fall back upon as it will empower not just you, but also those who depend on you.
Be it a short-term career break or a long-term one, here are 5 things you can do to manage finances when you transition from a double to a single income family.
This fund will supplement the single income when you go on a break and help you pay off your current commitments. Aditi and her husband shortlisted their home for purchase when they discovered that she was pregnant. They planned their loan amount in such a way that they could repay it with a single income. “We also saved up enough from my salary to be able to contribute towards the EMI for a year,” adds Aditi.
This will help you carry on your current lifestyle till you adjust to your new routine. This apart, prepare an emergency fund that you can fall back on for any unforeseen situations and maintain it all the time.<
Giving up your full time job doesn’t mean you have to live without any income at all. Where possible, take up part-time or consultancy assignments. When I gave up my full time job 8 years back, I opted for part-time assignments within six months of my daughter’s birth. This helped me pay Rs.15,000 every month towards a personal loan.
Aditi has similar plans. She says, “I want to work from home in whatever free time I get.” Income apart, a part time job also helps remain updated and connected with the workplace. Always leave your current employer on good terms. You can either take up consultancy assignments with them later or even return to a full time job when possible.
Healthcare: This is the most important expense that your family must be able to take care of within a single income. While in employment, your employer may have offered health cover for the whole family. Before you quit, make sure you have independent health cover policies to replace the ones you will lose after employment.
Debt: Try to get out of all debts before you give up your income. Prepay the most expensive loan (in order – personal loans, car loans and then the home loans) first. In case you are unable to pay off your home loan completely, make sure you repay at least a substantial portion of it before you give up your income. If not, ensure that the EMI to be paid is not more than around 30 to 40 per cent of the single income.<
Savings: Have clarity on how much you can save on a single income. For this, you need to have a clear grip on your expenses. Track your expenses 3 to 4 months before you give up your job. This will not only help you draw up a budget that works around a single income, but also help to set aside for the future keeping in mind your important long-term goals like child’s education, marriage, retirement.
When you shift from a double to single income, remember the change in your risk taking capability and choose safer investments accordingly.
Needless to say, the shift to single income requires some amount of changes in your lifestyle. While you may be planning to return to a full time job in the future, or have taken up a part-time job currently, the compromise you make to your living standards depends on your share in the family’s total income.
Look at the discretionary expenses first. As double income offers a high rate of savings, the need to budget may not have been felt by you. But now it’s time to start doing just that. Vidya says, “I now think twice before I buy anything. I am more aware of what is needed and what is not, and spend with discipline.”
You could save under various categories like clothes, transportation expenses, etc. Cut down on the eating out or impulse shopping sprees. If you use a credit card, stay within your credit limits and pay before your due date. Do not opt for revolving credit. While on the topic, Aditi suggests, “Redeem your credit card points which we most often forget to use. But at times like these the points can be used to purchase some white goods.”
If you still find it hard to cope, try cutting down on some mandatory expenses. But if you find yourself in a situation where you have to compromise on your long term goals, then it’s time to rethink your decision.
Finally, give yourself time to settle into your new lifestyle. Remember, it is normal to go through a period of uncertainty during this transition. But all it takes is prudent money management, proper planning and a disciplined spending pattern to restore your confidence, and reassure you regarding your decision to opt for a single income.
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Very well written article!
Point 2 is particularly helpful. Quite apart from all other savings, it really helps to have six months’ expenditure in the bank.
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