There are many couples that want to have a parent at home with their children or future children, but feel they financially cannot make it happen. When looking at family budgets there are four things that seem to derail decisions to stay home – mortgage, student loans, vehicles, and lifestyle.
One hurdle could be your large monthly mortgage payment. If you have not purchased a house yet try to keep your future mortgage cost under 25% of take home pay. If you do own a home, the current mortgage rates are low so you may be able to refinance and reduce your payments to create savings. Another option is to talk with your current mortgage company about re-amortizing your loan. This keeps the interest rate and maturity date the same, but it changes the payments based on your current mortgage balance. This works well if you have paid down the mortgage more than expected with lump sums, bi-weekly payments or just sending some extra money in from time to time. There is a small cost to having the mortgage company do a re-amortization, but it should be under $500. And finally, it may be time to change homes and downsize. This could be considered a lifestyle choice, but you may be able to trade down in house value to reduce your monthly payments.
2. Student Loans
Though you had a great time at college and learned a lot, you are now faced with a large student loan. Similar to suggestions on the mortgage, if your loans are with a private bank you may be able to refinance to lower payments by reducing the interest rate. Attack the smaller debts first so you can get some quick wins and keep working on reducing your debts.
You probably have some nice vehicles in the garage that you are making payments on or even leasing. I would suggest you look at the vehicles you do have and determine what you really need. There are many great car dealerships that would love to sell you a cheap but efficient car for your budget. Then with the free services of websites like Craigslist.com you may be able to sell one of your vehicles to someone that values it more than the dealership will. If you have time, focus on getting one or both cars paid off before you drop down to one income. Your goal is to have your cars completely paid for and totally under your ownership. If that means you have one car that doesn’t look very “cool” to commute to work in, then that may be a sacrifice for your one income lifestyle.
Changing your lifestyle can be the toughest part of your one income transition. If you are used to meeting friends at restaurants, you may have to start sharing meals with your spouse or offer to cook dinner at home for everyone instead. If going to concerts or the movies is a weekly event it might just have to be a special occasion event and instead more Red Box rentals at home. For people coming out of college, you may be used to the lifestyle of our parents. We seem to forget that it took them 15 plus years of making an income to provide us that lifestyle. Have some conversations with your parents about how they lived when they were first married. Did they rent a cheap apartment; leave some rooms unfurnished in their house, or go without a second car for a while? This can give you some ideas on how to reduce your lifestyle wants.
The Solution: Budget Time
If you haven’t already started, it is time for monthly budgets. There is good information available at Crown.org or try Dave Ramsey’s 7 Baby Steps! Both programs focus on keeping your spending below your income. The simplest way to spend less is to use cash for expenses that are tough to control, like eating out. In the end here are some things you can eliminate to reduce your monthly costs – cable, cell phone, extra purchases at Target, season football tickets, movie tickets, eating out, family trips, organization memberships, golfing, newspaper subscriptions, and magazine subscriptions.
E.F Schumacher, an economic thinker, said “Any intelligent fool can make things bigger, more complex, and more violent. It takes a touch of genius – and a lot of courage – to move in the opposite direction.” I hope you find that downsizing some parts of your life, might just mean upsizing others.
This was a guest post from Adam Obrecht, CFP®. He is the owner and founder of AO Wealth Advisory in Waukee, Iowa. His life passion is helping individuals, families and businesses maximize what they earn, invest wisely, and give generously to their family, charities, and community.
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