Making the switch from two incomes to a single income can be a challenge. Keep these tips in mind if you find yourself making the transition.
If your entire financial situation has been built around two incomes, it can be challenging to make the jump to becoming a one-income household. This is a situation that many households face every year. There are a variety of reasons for switching to a single income, such as you and your partner expecting a child and one of you deciding to stay home, or one of you losing your job. Regardless of the reason, consider the following tips as you make the transition.
Try to prepare ahead of time. If you’re making the decision to become a one-income household in advance (which obviously isn’t always possible), take advantage of the overlap time. Attempt to slowly make the transition into one income by using the second income for preparation purposes (paying down debt and building up savings). This overlap time can be valuable as you begin to see what one income will look like while still having the second income as a cushion.
Restructure your budget. Hopefully, you had a sound budget in place that was built around both of your incomes. As you prepare to become a one-income household, it will probably be necessary to restructure your budget as your income totals will be changing. A strong budget can help you feel confident and prepared as you make this change. For tips on creating a budget, see our earlier article on this subject.
Trim your expenses. There will be natural changes in your spending as a result of an income change for one of you. For example, you’ll probably save some gas money by eliminating a daily commute. But you can also look for opportunities to reduce discretionary expenses. Cutting back on things like cable, dining out and vacationing can help make up for some of the lost income. Consider looking for other (more cost-effective) options to take the place of things you may have to cut out. (See our article on affordable date ideas).
Cut back in the right areas. Prioritize the different expenditures in your life before deciding what to cut out. It may be smart to continue setting aside the same amount of money into savings and retirement accounts. This can be beneficial to your financial situation in the long run. While you’re probably going to have to cut back in some areas, speak with your partner and your financial professional to help prioritize where your money should go.
Reassess your expectations. When your household loses a significant portion of its income, it’s probably going to have an effect on your financial goals and expectations. Maybe it’s going to take some more time to save up for that car or home you’ve been wanting. You may not be able to “keep up” financially with others in your neighborhood who may live on two incomes. But try to maintain perspective and have confidence in the decision you’ve made to switch to a single income.
Understand your decision isn’t permanent. If you find that being a single-income household just isn’t possible for you at the time, you can always look into other options. You can look for opportunities to work from home, to work part-time or even to reenter the workforce full-time.
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Has your household made the switch from two incomes to one? What’s your advice?