31 Mar How do I know if my family needs two incomes?
Although it used to be common for just one parent to work outside the home, dual-income families are the norm these days. In fact, according to Statistics Canada, about 69% of Canadian families have two working parents.
But whether you want to spend extra time with your toddler or need to chauffeur your kids to hockey practice without losing your sanity, you may be wondering if either you or your partner can afford to stay at home.
How do you know if your family can survive on a single income that’s generated by just one working parent? Consider these 4 key questions:
1. Can we cover our daily expenses?
You may already be daydreaming about having more time to cook healthy family meals or being the one to put your child down for an afternoon nap. But before you or your partner submits a resignation letter, you’ll want to make sure that the remaining income is more than enough to cover your daily expenses. After all, it’s hard to cook healthy family meals if you don’t have enough money to buy healthy food.
Not sure what your daily expenses are? Track them for a couple of months. As much as you may be tempted to, don’t skip this step and try to make an educated guess. Daily expenses can seem so trivial that they’re often easy to forget about. So instead of trying to rely on the skills you’ve picked up by watching The Price is Right, record everything you spend for two months and see what the numbers add up to.
Once you’ve finished tracking your expenses, use this information to create a budget for your family and compare it to the single income you’d be living on. Remember that if you or your partner stops working, this person won’t have to pay for work-related expenses (e.g., paying for transit, a work wardrobe, and takeout lunches). And neither of you will have to pay for childcare. But keep in mind that even though you’ll be saving some money, your family’s new income shouldn’t just barely cover your daily needs. After all, you’ll have other expenses to pay for too (more on this below).
2. Can we cover our future expenses?
When you and your partner are thinking about switching to a single income, it’s easy to focus on how you’ll pay for the high-quality grocery produce, gym memberships, and kids’ summer camps you don’t think you could live without. (You don’t want to be at home with your kids all summer long, right?)
But daily expenses aren’t the only costs you need to think about if you’re considering having one of you stay at home. You’ll also need to determine whether you’ll have the money to cover future expenses, such as a down payment on a new house, your children’s post-secondary education, and an emergency fund. You may decide that you can forgo moving into your dream house and that your kids can pay for their own education. But if you don’t have the money for at least an emergency fund, you’ll be at risk of facing a financial crisis if the working parent loses their job.
To determine if a single income can cover your future expenses, set aside enough money to cover 6–12 months of your family’s daily expenses. Then account for future expenses you don’t want to sacrifice. Make sure you can cover these costs on top of the daily expenses you identified by answering the previous question. Remember that you’ll have to continue buying eggs and milk while you save up for that family vacation or a home renovation.
3. Can we still save for retirement?
Switching to a single income can put a dent in your retirement savings game plan in more than one way. For example, because the working parent’s income will have to cover all of your family’s expenses, there will be less of this income left over to put toward a retirement savings plan, such as an RRSP.
But that’s not all. Because you need to be earning an income to contribute to some retirement savings plans (including an RRSP), the non-working parent will also have fewer retirement savings options.
Assuming that both you and your partner live to enjoy retirement, you’ll want to make sure you have enough money to retire comfortably. This is why it’s important to factor retirement savings into your decision if you’re thinking about becoming a single-income family.
4. Are we willing to adjust our lifestyle?
You’ve identified your daily expenses, future expenses, and retirement savings needs. But when you compare the grand total to the single income you want to live off of, the numbers don’t add up in your favour (and not just because you’ve always been terrible at math).
Are you out of luck? Not necessarily. It all depends on how much you’re willing to adjust your current lifestyle to fit your new budget. For example, are you willing to stop going out for dinner once a week? Do you mind switching your kids from a private school to a public school? And can you find creative ways to make memories with your family that don’t involve jetting off to a tropical beach once a year?
Most families that switch from living off two incomes to living off one income have to adjust their lifestyle to some extent. So as long as the benefits of living off a single income outweigh the sacrifices you’d have to make, having one parent stay at home may be the right move for your family.
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