Going from two stable income streams to one can prove challenging, but it is a necessary step if you, or your spouse, want to stay home with your kids, go back to school or even start your own business. To avoid ending up in a pinch when the big day comes, planning for the transition to a single income household is a must. You can ensure the transition goes smoothly by making the right changes ahead of time.
As you set up your household for success, you can move forward with confidence that everyone will thrive in your new financial climate. The following tactics can help ease the transition to a single income and help your household thrive.
Map Out Your Budget
Before you can switch to a single income, you have to figure out if it is even doable for your household. You can run the numbers to see if the incoming funds will cover your bills and other expenses for each month. Do not forget to add in infrequent expenses, including pet checkups, dental care copays and car tabs, to your budget for the year. If the funds do not cover your bills, you will need to see where you can make adjustments, such as reducing your power bill or cutting your cable service. Once you have a realistic and manageable budget mapped out, you can start to live on it to see how it goes for your household.
Switch to Living on One Income Early
Well before your intended job change goes into effect, it is important to start to practice living on a single income. You will likely need to change your approach to paying your bills, going grocery shopping and even buying clothes to make a single income work. These things take time to learn, and it helps to start early to give yourself room for mistakes. In the meantime, your second income will go unused, giving you an opportunity to pay down debt and increase your emergency fund.
Increase Your Emergency Savings
If you do not have at least 12 months of living expenses tucked away in case of an emergency, then padding this fund should be a top priority. The money you save while working, yet living on a single income, should go directly into your emergency fund to better protect your household from devastation. This will ensure that you remain ready for anything that comes your way, despite having limited funds coming in each month.
Pay Off Debt Balances
Once you have built an adequate emergency fund, you can direct your funds to quickly pay down debt. You can eliminate many monthly expenses by completing paying off the balances of credit cards, personal loans, student loans, auto loans and other open accounts. The elimination of debt can also reduce stress as you aim to stick to a single income budget each and every month.
Maximize Your Retirement Contributions
When you switch to one income for your household, your retirement savings progress could slow considerably. While you have the funds to work with, aim to maximize your contributions for yourself and your spouse. Setting yourselves up for future financial security will pay off big time in the long run and is always well worth the effort.
Speak With a Tax Planning Professional
You will likely need to make some adjustments to your normal tax procedures as well, so it is important to speak with a knowledgeable tax planning professional. Tax experts will assist in helping you find the best approach to your taxes now that your household only operates on a single income. You can receive helpful advice about changing your W-4 withholding, for example, maximizing the money flowing into your household without compromising on tax compliance.
Adjust the Household’s Insurance Coverage
Switching to a single income does not just come with a decrease in incoming funds. It can also come with the need to find alternative health and dental care coverage. The entire household may need to switch to coverage offered by the breadwinner’s employer, resulting in additional costs to consider. The change in insurance will also come with different coverage levels, eligible services and provider lists.
Consider Short-Term Disability Insurance
If the solitary income earner in the household suffers an illness or injury, they could end up out of work for an extended period. During that time, your household will have to subsist on your emergency savings, hoping nothing else comes up in the meantime. You can avoid the stress by investing in short-term and long-term disability insurance from a trusted provider. This type of coverage ensures your household receives a modest cash flow while the breadwinner remains out of work.
Pursue Side Hustles for Extra Cash
Hobbies can quickly turn into extra cash when you can sell your wares to your community. From soap-making to creating flower arrangements, the sky is the limit in generating cash for your household. The money does not have to come in regularly or in great quantities to be helpful, either. You can cover sporadic expenses, boost your retirement savings and bolster your financial health — all while having a great time.
Make Open Financial Communication a Priority
To make living on a single income work for everyone in the household, there must be open lines of communication to discuss financial worries and woes. You can make open communication about finances a priority by setting aside time to talk with your spouse on a regular basis. You can discuss the various ways the cash flow switch works, and doesn’t work, and then find ways to enact changes. By continuing these discussions, and making adjustments to your approach, you can make this switch a way of life that truly works for everyone in the household.
As you integrate these tactics into your plan for transitioning to a single income household, you can ease into the change with confidence. You can even continue to achieve your savings, retirement and debt repayment goals while making this important transition. As you get your personal finances under control and make the most of your cash flow, you can turn your focus toward your initial reason for switching to a single income.
Each month, we will send you a roundup of our latest blog content covering the tax and accounting tips & insights you need to know.
We care about the protection of your data.
You can count on us for professional, timely and reliable tax and accounting services. If you’re ready to get started, just fill out this form and we’ll be in touch.