How to live on one income: budgeting for singles

Living on a one-income budget

Whether you’re a single individual or part of a one-income household, adopting a strategic approach to managing your finances is crucial for long-term stability. If you’re having difficulty making ends meet, it often helps to analyze your spending and create a budget that will help you get back on track.

• Assess your financial situation
  Start by understanding your current financial status. Calculate your total monthly income, including salary and any additional income sources.
  
  
• List fixed expenses
  Make a comprehensive list of fixed expenses like rent or mortgage, utilities, insurance, and debt payments.
  
  
• Track changing expenses
  Record discretionary spending such as groceries, dining out, entertainment, and personal items for at least a month. It might be helpful to utilize budgeting apps or spreadsheets to streamline the process and gain insights into your spending patterns.
  
  
• Differentiate needs vs. wants
  Classify expenses as essential (needs) or nonessential (wants) to prioritize necessary spending.
  
  
• Set financial goals
  Define short-term and long-term financial goals. For example, paying off student loans, paying off credit cards or other debts, or saving for retirement.
  
  
• Create an emergency savings fund
  Allocate a portion of your income to build and maintain an emergency fund, aiming for three to six months of living expenses. This safety net provides financial security during unforeseen circumstances, like medical emergencies or a job loss.
  
  
• Allocate for savings
  Prioritize saving by allocating a specific percentage of your income to savings or investment accounts.
  
  
• Start a debt repayment plan
  If applicable, devise a plan to pay off debts systematically, focusing on high-interest debts first.
  
  
• Protect yourself with insurance
  Ensure that you have adequate insurance coverage, including health, life, disability, and property insurance. While it may seem like an additional expense, insurance provides financial protection against unexpected events that could be financially catastrophic otherwise.
  
  
• Avoid impulse spending
  Be mindful of impulse purchases and stick to your budget to avoid unnecessary financial strain.
  
  
• Negotiate rates
  When applicable, you can try negotiating rates such as your monthly cable or internet bill. If you have a lot of high-interest credit card debt, you can look for 0% interest rate balance transfer offers to help eliminate some of the monthly interest you’re paying.
  
  
• Plan for intermittent expenses
  Anticipate and budget for irregular expenses like car maintenance or emergency travel expenses.
  
  
• Celebrate milestones
  Saving money is important, but so is rewarding yourself every now and then. Without going overboard, acknowledge and celebrate financial milestones, whether it's paying off a debt or reaching a savings goal, to stay motivated.
  
  
• Seek additional income streams
  Explore opportunities to supplement your income, whether through freelance work, part-time jobs, or passive income streams. Diversifying income sources can provide an extra layer of financial security.
  
  
• Stay educated
  Invest time in expanding your financial knowledge. Stay informed about personal finance strategies, investment options, and economic trends. Knowledge empowers you to make informed decisions about your financial future and can be a great motivator in keeping you on track.

Remember: Creating a budget is an ongoing process, and flexibility is key. Adjustments may be necessary as circumstances change.

What is a good income for a single person?

It can be hard to pin down an exact dollar amount that is universally considered a “good income.” What a frugal person might consider to be a good amount might not be enough for someone else. Additionally, the cost of living can vary greatly depending on where you live. But on average, single workers in the U.S. require an annual income of $57,200 to make a living wage in America, according to an analysis by GOBankingRates.¹

How to save money on one income

Regardless of how much income you make, how much you save will be more influential in boosting your financial well-being. Whether you’re supporting a family or focusing on personal financial goals, here are some practical tips to help you save more money on one income.

• Understand your goals
  When it comes to saving money, choosing the right place to park your funds can help a great deal. Before choosing a savings account or investment option, you should first clarify your financial goals and consider the interest rates and benefits associated with each option. Are you saving for short-term expenses like a vacation or emergency fund, or are you planning for long-term goals such as retirement? Understanding your objectives will help guide your decision-making process.
  
  
• Compare interest rates
  Interest rates play a pivotal role in the growth of your savings. Research different savings accounts (even banks themselves), certificates of deposits (CDs), and other investment options to compare their interest rates. Generally, online banks and credit unions tend to offer higher rates than traditional brick-and-mortar banks.
  
  
• Consider compounding
  Compound interest can significantly boost your savings over time. Look for accounts that compound interest regularly, whether it’s daily, monthly, or annually. The more frequently interest is compounded, the more you’ll earn on both your principal and accumulated interest.
  
  
• Evaluate account fees
  Be sure to pay attention to any fees associated with a savings account. Some banks may charge a monthly maintenance fee or transaction fee, which can erode your savings. Opt for accounts with minimal fees or explore fee-waiver options based on certain criteria, such as maintaining a minimum balance.
  
  
• Explore bonus offers and incentives
  Many banks offer sign-up bonuses or promotional interest rates to attract new customers. While these can be attractive, be sure to consider the long-term sustainability of the account after the introductory period ends.
  
  
• Review withdrawal options
  Different savings accounts have different withdrawal restrictions. Some may limit the number of transactions per month, while others might have penalties for early withdrawals. Consider your savings goals and liquidity needs and choose an account that aligns with your expected usage.
  
  
• Diversify your savings
  Depending solely on traditional savings accounts might not be the most efficient way to grow your wealth. Explore diversified investment options such as mutual funds, stocks, or bonds, depending on your risk tolerance and long-term goals.

Choosing the best place to save your money requires some thoughtful analysis of interest rates, fees, and overall benefits. By understanding your financial goals and carefully considering the options available, you can optimize your savings strategy for both short-term needs and long-term growth.

It’s important to regularly reassess your savings and investments to adapt to changing market conditions and ensure that your money continues to work for you. Regardless of how money-savvy you consider yourself to be, a financial professional can provide valuable insight into the best savings strategy based on your individual circumstances.

Single retirement planning

According to the U.S. Census Bureau, the average retirement income for a single person over age 65 is roughly $42,000 per year. That income may come from Social Security, pensions, and other sources.² Of course, depending on where you live and what you plan to do in retirement, you may need more (or less) to fully cover your retirement.

Financial planners often recommend replacing about 80% of your preretirement income to sustain the same lifestyle after you retire. This means that, if you earn $100,000 per year, you'd aim for at least $80,000 of income (in today's dollars) in retirement.³ If you’re planning for retirement as a single person, it may be a little tougher to save as much as you should during your working years, but the earlier you start, the easier it will be.

Related: How to save money—learn to start saving now

Here are some tips to keep in mind:

• Set clear goals
  Define your retirement goals by estimating the lifestyle you envision. Consider factors such as housing, healthcare, travel, and daily expenses. Knowing your financial target will be a great help in guiding your savings strategy.
  
  
• Maximize your retirement accounts
  Contribute to tax-advantaged retirement accounts such as 401(k)s, IRAs, or similar options available to you. Aim to contribute the maximum allowable amount each year to benefit from tax advantages and compound growth. If your employer offers a company match, make sure you’re at least contributing enough to take advantage of the full match—otherwise you’re leaving free money on the table.
  
  
• Invest wisely
  Diversify your investments to mitigate risks. Consider a mix of stocks, bonds, and other assets based on your risk tolerance and time horizon. Periodically review and adjust your portfolio to align with your changing needs and market conditions. When it comes to investing, it’s highly advisable to consult a financial professional who can help you choose the right investments. The stock market can be a great way to boost your nest egg, but it also comes with inherent risks.
  
  
• Stay debt-free
  Minimize and eliminate high-interest debt as it can hinder your ability to save for retirement. Prioritize paying off debts, with a focus on high-interest loans.
  
  
• Live below your means
  Resist the urge to match your lifestyle with your income. Living below your means allows for more substantial contributions to retirement savings. Cut unnecessary expenses and seek cost-effective alternatives whenever available.

Living on one income can sometimes be challenging, but with thoughtful budgeting and careful financial planning, your financial stability will grow. Whether you're a single individual or part of a one-income household, don’t hesitate to seek expert advice when it comes to financial planning. Often, the best thing you have working for you is time. The earlier you start on the right track, the sooner you’ll achieve your goals.

¹Adriana Diaz, “These Are the Salaries Single People Need to Survive in Every State,” New York Post, August 30, 2023. https://nypost.com/2023/08/30/these-are-salaries-single-people-need-to-survive-in-every-state/

²Justin Pritchard, CFP, “What Single People Need to Know about Retirement,” Approach Financial. https://www.approachfp.com/retirement-planning-for-singles/

³Robin Hartill, CFP, “How Much Do I Need to Retire?,” The Motley Fool, November 6, 2023, updated January 9, 2024.  https://www.fool.com/retirement/how-much-do-i-need/