Tuesday, August 7, 2012

preparing to stay at home: finances

like many families, the biggest question james and i had in deciding if i would stay home would be if we could afford to live on one income.  not just one income, but a firefighter's salary (our ideal is that james does not have to get another job so he can be home with our family as much as possible, but he has offered several times to get a second job if that is what it takes for me to be able to stay at home).  just to give a ballpark (since gov't salaries are published anyway), we are talking about living on less than this guy who wrote a book on a family of 4 living on $40,000/year

i don't share this to claim that we are super people or money experts by any means, but in hopes that our story will encourage others that they can live on one income if desired no matter what that income.  the other day i was at the pool reading money (nerd alert) and came across an article, "the challenge: saving for college & retirement on one income."  i squealed to a friend, "this article was meant for us!" and then went on to read that the one family income was $136,000/year.  whh..whhhat?  then the expert predicted a 60% success rate of reaching financial goals.  depressing.

so for anyone with a one family income that is not six figures, this is for you.  you can plan and live on much less if you really want to.  for us and the author above, the key to living on less is long term planning.  you won't get rich over night and nor will you go deeply into debt in one day (hopefully).   3 1/2 years ago while i was pregnant with our first child, parker, i blogged about our financial plan.  it is fun to look back and read our financial ideals and how we are doing on accomplishing said goals. without further ado, i give you

5 steps taken to live on one income:

1. low house payment.  i really hoped to have our house paid off by the time i quit work.  1 1/2 years ago we made prepaying our mortgage a high priority, and paid off over half of our homes' current worth.  coincidentally with interest rates below 3% right now on 15 year fixed rate loans, we refinanced our remaining balance and have a very doable payment.  i'm not going to lie--it is bittersweet knowing that if i worked 2 more years we could have the house completely paid off, but in 2 more years parker will be in kindergarten i don't want to give away those precious years with him.  plus knowing that we are paying more principal each month than interest makes me feel better that we are still working to pay it off (and we can always pay more if we want to, but with interest rates lower than inflation who is in a hurry?).

2. 10 month emergency fund.  we never had a spoken goal in terms of months (i think 3-6 probably would've been fine), but my husband is very conservative when it comes to saving and so we set a target $ amount together and i put in my notice after we reached our goal.  i ended up working 8 more weeks which added a little padding and paid for all of our summer vacations so we didn't have to use savings.  if for some reason our budget is not working, our emergency fund should give us plenty of time to reevaluate and find extra work.

3. pay off all debt besides our mortgage.  when we first got married, we set a goal of never financing anything besides our home.  if we could not save up the cash for a car or anything else, then we didn't want to buy it.  i know this sounds like a lofty goal, but in trying to live on one income while we still had two, i think it is possible.  we did this as much as we could and even though the firefighters make fun of james' corolla, it is worth it to us to not have car payments.

4. save for our next car. we knew we would not be able to save a lot each month on a firefighter's salary besides the amount going to the principal of our house, so we set aside a little money for our next vehicle whenever we need one and put it in dividend paying stocks.  the fate of the market will determine our our vehicle selection, so if you see us driving a beater around town you know what happened :).  seriously, though, we have read several articles on dividend paying stocks and appreciate the small quarterly income they provide in this low savings rate era.

5. prepay as much as possible.  we've prepaid our gym membership until march of 2014 (which i would not recommend!), so james and i try to take advantage of this and other free activities like our neighborhood pool, going on walks, going to the park, playing tennis, etc.  we also paid 6 months of car insurance, cell phones (we are on a family plan so we pay a family member), etc. while we had two incomes to make the transition easier during the first few months.  i also stocked up on deal piggies and living social vouchers for fun summer activities like jumpzone and the tulsa zoo.

phew.  if you are still reading, thanks for your time.  james and i are just starting this journey and hope to report in another few years that we are so happy with the decisions we've made.  love you all and have a wonderful day!


Krista said...

You are right, it is doable. No lie here though...I wish we had been a 2 income family for longer. I will never regret staying home with Aidan from day one because I know that is what I was supposed to do, but it would have been nice to get to the place where you guys are before I started the SAHM thing. But, there is still hope for people like us because we are making it work somehow. We have everything we need and have been used to living this way for awhile so we don't feel like we are missing out. I am okay with driving an old car because it runs and gets me where I need to go. I am also okay with not having a smartphone or cable or a gym membership either. It just doesn't work for us to make those choices over paying off debt and saving money.

DaMorgue said...

What an excellent blog! I am amazed at how strategically you planned ahead and live so frugally...yet it seems like you've hardly made any "sacrifices." You still do fun stuff, go out to eat, and enjoy your life! I am so encouraged by this and think that we could definitely do better with our budgeting. I may be asking for some advice soon! Love reading your thoughts! You should write in a magazine column for extra $! :)

Shalini said...

BTW, the above comment was from Shalini...not "DaMorgue"! Ha!

Dana said...

I love this and I appreciate it!!!! Thank you for the encouragement! Keep blogging!

Melissa said...

so glad you're getting to do thins! i'm a huge advocate for this if it can be done. :) jason and i ahve been on a similar journey for the past three years and have found many blessings in it and ways God has provided for us that we never would have noticed before. it's been awesome. God has also really challenged some of our thinking when it comes to retirement/savings/etc which are super anti the american way but for whatever reason is where God has us in these. even just here in th epast 6 months some things ahve unfolded that give us a clearer picture as to maybe why He convicted us to do all this 3 years ago. anyway, it's a cool journey to be on! and jason and james can chat and laugh about their cars together cause jason likewise gets made fun of the lincoln towncar he drives everyday. ha.

Katie said...

I'm so glad you're getting to do this, too. We took a lot of the same approaches you did, paying off all debt but the house, and having an emergency fund. It's good to be prepared! And a good chunk of Josh's salary goes to tithe, the company's stock options, 401k, and insurance, so what it says he makes versus what he actually brings home is quite different. :) But again, it's worth the sacrifice. Good luck to you!

Jenny said...

This is such a timely post for me :)...the hubs and I are in the process of crunching numbers and attempting to live on one income while I'm still working also. With the hope that I can soon become a SAHM too! Thanks for sharing this and I'm so glad I found your blog! I am looking forward to following your journey ! :-)

Erin said...

Great post. It's difficult to talk about money, but you really give useful and honest information, while keeping personal information personal.