One paycheck, one goal

DALLAS — When Brent and Renee Dunn decided that she would become a full-time mom after their baby is born in February, they knew what it would mean for their income.

“We started preparing a year and a half ago,” says Brent Dunn, 31, who has a joint professional counseling practice with his wife. “It’s amazing what percentage of income we’re losing.”

But they’re committed to providing their baby with a full-time parent and are preparing to move from a two-income household to one with a sole breadwinner.

Many families dream of being able to do what the Dunns are planning, and financial planners say anyone should be able to do it if they’re willing to sacrifice.

Planners’ main advice: Families need to plan in detail and come to a firm agreement on how they will adjust to living off one paycheck.

“I’m all for people who want to make lifestyle changes for their family, but the two ought to walk together,” says Bob Stowe, a certified financial planner at Stowe Financial Planning in Plano, Texas. “They have to integrate the financial reality of their decision.”

There are tradeoffs to downsizing to one paycheck, and you’ll have to weigh whether the positives outgun the negatives.

Part of the evaluation process is doing a dry run before one spouse actually gives up his or her income.

“Practice, practice, practice,” advises Trudy R. Turner, a certified financial planner and president of the Dallas-Fort Worth chapter of the Financial Planning Association. “My greatest piece of advice would be for the family to practice being a one-income family before they cease the second income. The family needs to actually live on one income for an extended period of time — three to six months or more — to see if it is realistic.”

She recommends that a family:

“Deposit the entire secondary income into a savings account and don’t touch it.

“Live only off the primary income. Make a budget for one income.

“We can’t replace all of her income, so we will be cutting some expenses,” Brent Dunn says.

“Build up an emergency fund. What will help is that you will be saving money you were spending for things such as day care, work clothes, transportation, gasoline and meals.

“Keep track of the budget results.

“Record the family’s experience of living on one income, including how they felt, their frustrations, their sacrifices, their surprises,” Turner says. “Was it frustrating? Easy? What sacrifices had to be made? Can the family adjust to the changes? What did they not miss at all?”

For example, if you barely missed the extra money — because you didn’t spend as much to feed that frantic both-spouses-working lifestyle, such as dinners out, maid service, lawn care, dry cleaning and lunch money — living off one income may suit you.

“If they find that their experience was frustrating and filled with anxiety, they will want to evaluate further before making the final decision,” Turner says.

If you decide to do it, here are some other things to consider:

Attack your debts

One thing that you must do before ratcheting down to one income is to pay off or pay down your debts.

“Be as debt-free as you possibly can be before you do that,” suggests Debra Outlaw, a certified financial planner at Perryman Financial Advisory Inc. in Dallas. “Pay off all debt, starting with credit card debt, then pay off car loans.”

Get medical coverage

The biggest factor you should consider is the impact on your health insurance coverage once you leave your job. Will you be covered by your spouse’s health insurance policy or does your spouse have any coverage at all?

“We see people who are self-employed or who work for a small company that doesn’t have that insurance,” says Outlaw. “Without the health benefits, a lot of people are sunk, especially if she is thinking about leaving to take care of the kids and the husband doesn’t have health insurance.”

The Dunns currently have health insurance through Renee Dunn’s part-time job at another company. They understand the implications of her planned departure from the firm after the baby is born.

“Our medical expense will increase because we will be paying for our own medical insurance without the help of a company,” says Renee Dunn, who’s also 31.

Keep funding that retirement plan

When Renee Dunn leaves her part-time job, she will lose the company match to her 401(k) contributions.

“I will continue saving for retirement without any kind of matching program, so all of our investments will be in a Roth IRA,” she says.

Going to one income may leave you less to save for retirement, but don’t eliminate it, “because it’s a habit, and you don’t want to lose the habit,” Stowe says.

“The main breadwinner needs to continue to be saving for retirement because of the compounding factor, doing that over time and the dollar-cost averaging,” Outlaw says. “All of those things are a real benefit.”

Don’t forget college savings

Another expense for couples who are losing one income because a baby is coming along is the added cost of raising the baby.

For example, couples have to stretch their money to support a college fund.

“A 529 (college savings plan) or whatever we select represents an additional new expense/outflow specifically connected to the very reason we will be shifting to a single-income family: because we are having a baby,” Brent Dunn says.

Increase your insurance coverage

Spending more money on life and disability insurance will take on special importance, because your family will be relying on the salary and earning power of one person.

“I need to increase my disability insurance because if something happens to me as the sole provider of the family, then it’s really putting my wife and my child in a risky position,” Brent Dunn says.

Finally, be realistic about how becoming a one-income family will change your life.

“It’s important to think about those things before they make that decision because if you stay home and you’re miserable with your kids (because of financial pressures), I’m not so sure that you’ve benefited them more than going ahead and working and having some income,” Outlaw says.