When two-income families switch to a single wage

By DIANA CLEMENT

Deep intakes of breath followed by muttered comments about "how will they afford it" can be heard when a couple announce their impending parenthood to childless friends. Likewise when redundancy strikes, a couple may feel that Armageddon is upon them.

Losing one income even if just for a period of months seems an unattainable luxury for those used to living in this double-income economy. Yet the suburbs are full of families that have learned to do just that.

Intellectual property lawyer Iva Wright and her husband have had to re-prioritise their spending after Iva gave up her US$100,000-a-year job and husband Darren exchanged a secure salary as an accountant to buy into the New Zealand Business Coaches franchise.

"The big picture for me is that the pendulum has gone from managing our surplus cash to debt management," Iva says. "We are surviving to cover our bases."

Although the family always budgeted, they now do it on a strict month-to-month basis and forward plan for up to a year.

"In terms of detail, we go pretty much the whole nine yards to keep our cash flow under control and limit our exposure [to debt]," she says.

Last-minute Christmas Eve shopping sprees are a thing of the past. Instead, Iva is aware of what is needed for Christmas months ahead and keeps her eye out for a bargain.

Perhaps the biggest change has been to plan holidays, budget for them and look for discounts. "I'm not saying we don't go away on holidays. But it is a planned event, not a spontaneous one."

The couple's reduction in income coincided with having their first child, and the change in lifestyle meant costly nights out and spontaneous weekends away were less likely to happen.

Impending parenthood often sends couples and singles into head-in-the-sand mode. But AMP's general manager of adviser sales, David Chote, believes that middle-income couples can afford children much more easily than they believe.

When Chote's wife was expecting their first child, he found himself obsessed with building a fence around his property. Thoughts of a new suit and a holiday in Fiji went out of the window.

"My own personal experience was that I cut back in the area of entertainment costs when we had children. Your general living expenses can come down if you are not both in work mode. It is surprising how expensive work is if you cost in work wardrobes, travel expenses and lunches."

Going back to work while your children are young can cost dearly from a financial perspective. A full-time day-care place at Kindercare can cost $190 a week or $250 if you want a place in central Auckland.

With all this to think about, says Chote, couples planning children or those who have recently had them are prime candidates for a total financial makeover taking a holistic look at everything from day-to-day spending to mortgages, life insurance, protection policies and wills.

Key advice from Chote would be:

* If money is limited, consider putting long-term saving on hold until you're used to living on one income.

* Take short-term payment holidays on mortgages, superannuation where possible. * Concentrate on protection policies such as life insurance, health and critical illness cover and ensure that both partners have life cover.

* Given a choice, life insurance comes before other protection insurances in the scale of importance.

* Review your mortgage and consider fixing it so that you can control your outgoings.

* Ensure you've got a will.

* Go through your budget with a fine-tooth comb and see if you can make savings. * Find a financial planner you can trust through word of mouth, Yellow Pages, or internet search as there's no "dating agency" to match you up with one.

"Having children had me shivering from a financial point of view," says Chote. "But as we got more comfortable in our parenting shoes, we turned to financial issues such as retirement."

The word "budget" puts many of us into automatic denial mode. Calling it a "spending plan" as the Americans do, may be less daunting. Either way, if you're about to face losing an income, they're the way to go.

If you're in any doubt about what you can cut from your spending, get a notebook or use your electronic organiser to note down every last cent you spend a month. You may be surprised at what you spend. I did this when I was living in London and found that I spent twice as much in wine bars than I did on food.

If you're serious about budgeting then you need to sit down regularly and account for everything you spend. If you're computer-minded, then you can download a free personal budget template for Excel from Microsoft's website. If you're willing to shell out some money, buy yourself a copy of Microsoft Money or Quicken Personal Plus personal finance packages. They allow you to download your bank statement, analyse your spending, forecast ahead and manage your investments.

For those in need of budgeting advice, a network of community and church-based free services can be found in the Yellow Pages or at the New Zealand Federation of Family Budgeting Services.

One, the West Auckland Western District Budgeting Service, helps hundreds of families. Manager Fiona Snijder says the first step in coping with a sudden income fall is to differentiate needs from wants.

In my case, my trips to the cafes of Devonport and Belmont feel like an investment in my sanity. But the reality is that coffee and cake are a habit that costs me at least $1800 a year.

Needs, Snijder says, include rent, mortgage, power, petrol, phone and hire-purchase payments. Items that people often think are needs but are, in fact, wants include: Sky TV, call waiting, eating out, buying lunches, eftpos charges and lawn-mowing services. If cash in your wallet grows wings, Snijder advocates carrying a notebook to note down your purchases.

The Western Budgeting Service recommends freeing money from the "wants" list and paying off debts.

If you are in debt you should:

* Inform your creditors and ask for a better repayment plan.

* Consider rolling your debts into one at a lower interest rate. If not, pay the debts with the highest interest rates first.

Finally, some of the service's best tips include:

* If you're an impulse buyer don't go to the shops on payday.

* Make lunches.

* Look carefully at your groceries - is there a cheaper option such as buying fruit and vegetables from a market or fruit shop.

* Draw cash instead of using eftpos to avoid charges.

* Set up automatic payments or direct debits to take advantage of discounts, but check the money is in the bank.

* Quicken Personal Plus www.quicken.co.nz Microsoft Money www.microsoft.com/money Microsoft Excel budget template http://office.microsoft.com/en-us/templates/TC062062791033.aspx.

New Zealand Federation of Family Budgeting Services Family Budgeting

* Diana Clement is a freelance writer.