How to Go From Two Incomes to One

By Andrea Cannon on 12 January 2016 0 comments

Are you planning on taking some time off from work to raise a family — or has your spouse recently lost their job? Living on one income can be challenging, but it doesn't have to spell financial disaster. Consider the following ways to reduce the stress of a household income transition.

1. Plan a Trial Run

If possible, try giving a one-income lifestyle a trial run for at least a couple of months before making any sudden changes to your household. Act like the second income doesn't exist. This will help you determine if a one-income lifestyle is attainable, prepare you for any challenges ahead, and help you build up your savings in the meantime before transitioning to one income.

2. Make a Budget

If you aren't sure of how much you'll need to meet your monthly expenses on one income, then use a stay-at-home calculator for an accurate estimate. Once you understand your monthly needs, work on creating a budget and sticking to it.

Your budget should factor for fixed expenses like rent, car payments, utilities, health and life insurance, credit cards and loan payments, cable and cell phone bills, taxes, and necessities like groceries. But you should also account for variable expenses, like eating out and entertainment, subscriptions, and other expenses that you can more easily limit.

You may need to get aggressive in cutting some of these expenses, like canceling your gym membership or visiting the salon less often. And make sure you aren't living beyond your means when it comes to your rent or mortgage and car payments.

3. Build Up a Savings Cushion

Building a savings cushion becomes doubly important now that your household will be subsisting on a single income. The average family should save a minimum of three to six months' worth of expenses — and ideally up to a year's worth, if possible. While you're at it, create a contingency plan to help manage any further changes in income, unexpected expenses, or other financial emergencies.

4. Pay Off Debt

One-income households are less able to handle debt, so try to reduce what you owe as much as possible before transitioning to once earnings stream. Eliminate credit card debt and pay down as much as possible early on, and by all means, try not to add any further debt to your plate so that you don't increase your monthly expenses.

5. Strive to Save More Every Month

A lower household income means it's even more important to do all you can to save money wherever possible. Some easy tips for cutting monthly expenses include:

  • Shop sales and use coupons, whenever and wherever possible.
     
  • Limit dining out. When you do dine out, look for deals from sites like Ebates and Restaurant.com, so you can save money at all your favorite restaurants.
     
  • Take advantage of free activities with your family. Plan free date nights and family outings together.
     
  • Host swaps with your friends and family. You can swap food, clothes, books, or toys. You can clear clutter out of your home and receive items that feel like new from your friends and family.
     
  • Take advantage of personal finance apps to stay on track and receive alerts when you risk going over budget.

Living on One Income — Even When You Don't Need To

The steps outlined above are wonderful for households downsizing their income, but they work just as well in a two-earner household. In fact, living on a single income and saving the other is an excellent way to strengthen your finances quickly. And if you do find yourself needing to live on one income, you'll be better prepared — financially and psychologically.

What are your tips for going down to one income? Please share your thoughts in the comments!

0
No votes yet
Your rating: None
ShareThis

Disclaimer: The links and mentions on this site may be affiliate links. But they do not affect the actual opinions and recommendations of the authors.

Wise Bread is a participant in the Amazon Services LLC Associates Program, an affiliate advertising program designed to provide a means for sites to earn advertising fees by advertising and linking to amazon.com.


Guest's picture
freebird

Retirement is when I'll lose my W2 income to live on my passive 1099 income alone. I've always spent far less than I earned, so I won't have to cut back at all on my living expenses. Instead, where I plan to make changes is in the composition of my investment portfolio. Up to now I've avoided limited partnerships, stocks that pay non-qualified dividends, and non-municipal bonds. Dropping my W2 income puts me in a lower tax bracket so I'll trade into these higher yielding issues, and I'll be gradually Rothifying my 401k in order to reduce my tax burden on forthcoming RMDs. So hopefully if I play my cards right, the only expense I'll cut back on is income tax payments!