When dual incomes becomes single
Categories: Financial wellness
Tags: Financial Literacy
Most households in South Africa make ends meet on dual or multiple incomes, be it wife and husband; a mother and her children; or siblings or friends living together. These setups help people to navigate living costs, remain debt free and not have to continuously borrow money.
However, people’s circumstances change. According to Statistics SA in 2018 (statssa.gov.za), four out of every 10 marriages in South Africa end in divorce before their 10th year. Adult children move out to get married or to live with partners, or simply relocate to a different city in pursuit of opportunity. Circumstances drive friends or partners apart, or someone gets a better job and decides to get his or her own place. One of the contributing members of the household could lose his or her job, leaving the other person or people to pick up the slack. Another, and hugely traumatic possibility, is that someone could die unexpectedly, or fall gravely ill.
How then do you handle a dual income household becoming a single-income household, or a multiple-income household losing a contributor?
As with many things in life, the best way to ensure you are okay when circumstances change is to plan for it before it actually happens. This may sound like a pessimistic way to approach a cohabitation situation, but it is in fact the most mature approach. Even if you move in with your best friend, or get married to your soulmate, the future is not guaranteed. Your best bet, therefore, is not to gamble on chance, but to make provision in advance.
This is particularly true in romantic relationships, but apply to all income-sharing situations. People who are deeply in love often prefer to ignore their finances. When it’s all moonshine and roses, who cares who pays for what? Similarly, the excitement of moving in with a friend or a sibling, or bringing your first paycheque home to mom can easily overshadow the need to have the who-pays-for-what conversation. Family habits, cultural norms and lack of personal financial planning can also prevent these conversations.
But there is no way around it: you have to set the financial ground rules of your household for three main reasons:
- When everybody knows who is responsible for what, the chances of a money fight reduce dramatically and household peace increases dramatically.
- When you know what the other person/people contribute, you will always know how much you would need should your living arrangements change.
- A drastic change in circumstances often involves emotional upheaval, which means that finances are not the only issue that must be dealt with. With the financial matters taken care of, it is easier to deal with the emotions and financial stress.
Armed with the knowledge that comes out of constructive money discussion, you can put plans in place that would cushion the blow should either of you decide to move on. Here are examples of such plans:
- Draw up a notice period agreement that would give the person staying behind time to find a new roommate to share the rent. If the other person cannot honour the agreement, he or she has to find someone new or continue to contribute until the agreement runs out. In addition to protecting both parties financially, such an agreement could also motivate you to work through disagreements and find solutions to small irritations before they blow up into a fight that destroys the friendship.
- Save specifically for this prospect. For instance, if the person you share expenses with contributes half of the rent, build up enough savings to cover at least three months of his or her share. This way, you’ll have three months to figure out the new situation without getting into debt.
- Keep a tight rein on debt. Make sure that you can meet your debt obligations at all times, and that you don’t depend on the other people in your household to balance your own books. Debt should always be something you take on in order to improve your longer term financial wellbeing; it is not the answer to the money you need to throw a party or buy new shoes.
- Invest in a safety net, such as a policy that will cover your children’s school fees in case of a loss of income. Alternatively, start a savings account dedicated to school fees. If you end up not needing the money for the kids’ education, you will have a solid nest egg to cover other expenses.
- Maintain good financial habits, such as always saving a portion of your bonus, salary increase or stokvel pay out. Just because you have money, doesn’t mean you have to spend it all.
- As soon as your roommate or family member gives you notice, take a hard look at your expenses and decrease as many of them as you can. Subscriptions to services that are not essential, such as DStv, are a good place to start, as are eating and drinking habits. You will survive without regular takeaways or that second or third drink every night. It might also be a good time to stop smoking, and to start doing your own cleaning and laundry.
- If you are a child living with your parent(s), agree how much you contribute and what that contribution covers. In this way, when you move out, everybody knows what portion of the contribution stops. This will allow you, for instance, to stop paying for rent and food, but to continue paying for your parents’ medical aid.
- Communicate, communicate, communicate. Being the main contributor to the household income can be a great burden. The pressure to continue to contribute has led many into debt they cannot manage. Keeping up to the Joneses when you cannot afford it, will result in financial distress, ultimately leaving you in a hole you will struggle to get out of.
- Seek advice. When you find yourself in financial distress know that it is not the end. It can be the beginning of a journey to financial wellness and security. There are a number of institutions and professionals that offer financial advice to help you get out of the situation you may find yourself in. help available include debt consolidation of your outstanding into one loan, debt counselling, debt relief etc. Debt management can ultimately assist you to clear debt sooner than you had anticipated. You will need to ensure that you use the services of registered financial institutions and professionals and make sure you understand the benefits and pitfalls including costs of such assistance.
Household incomes are not only disrupted when people move out. It could also happen that one of the contributing parties loses his or her job, or has to take a pay cut. Ensure that you have credit insurance to cover for such events. There are also non-financial ways to help cushion the blow.
For instance, the unemployed person can take over the household chores, thus easing the load that the breadwinner has to carry. Another way to help reducing expenses is by cooking meals instead of getting takeout.
With more time on hand, the unemployed person could grow a vegetable garden to cut down on the grocery bill and even generate an income by selling the fresh produce. He or she could also take over childcare duties to decrease the day-care or school aftercare bill. The point is that there are many ways in which you could compensate for not bringing in an income by contributing to the household.
The golden rules for dual-income households are the same as for all money matters: know exactly what you are dealing with, have the crucial conversations, and plan for a rainy day.