How to transition to living on one income

Certain life events can lead a household to transition from dual income to one income, whether that’s starting a family, recovering from an illness or injury, caretaking responsibilities, or choosing to travel while one person works remotely. Whether the change is out of preference or necessity, it’s important to carefully create a financial plan and adjust a lifestyle to accommodate the shift in income. Here are eight tips that could help ease the transition.

Revise the budget

Having a detailed budget is the key to any money management endeavor and can be especially essential when making the move to one income. Look at monthly income versus expenses and categorize costs by essentials like housing, utilities, and groceries; and non-essentials like travel, entertainment, and dining out.

Discuss lifestyle changes

Sometimes living on one income means making lifestyle changes, even if it’s temporary. This could include downsizing a home, opting for a less expensive vehicle, working out at home instead of the gym, skipping dinners out, or making other changes that align with your new budget.

Adjust shopping habits

With less money coming in, it can be a good idea to cut back on expenses and look for ways to save on essentials. Consider looking for discounts, use coupons, buy in bulk, and compare prices to save on groceries and household items.

Create an emergency fund

Prior to moving to one income, create a designated account that is set aside only for emergencies. This financial reserve can help cover a sudden house or car repair or a medical emergency and ease the pressure of trying to cover these costs on one income or increasing credit card debt to pay off the bill. Continue to add to this fund as frequently as possible.

Bulk up savings

If the transition comes with eliminating commuting costs or childcare expenses, consider putting some of that money toward savings or paying down debt. Explore options like high-interest savings accounts that can help build savings more quickly.

Maintain a retirement plan

Moving to one income should not mean cutting out saving for retirement. If possible, it’s important to make regular contributions to a retirement savings account and to think about income needs in the future. Some ways that could grow your assets and can supplement a retirement income plan, such as annuities, might be worth considering.

Communicate and plan together

If making this transition with a partner, communicate openly about financial goals, expectations, and worries. Work together to create a plan that supports both of your needs and continue to check in with each other to ensure you’re on the same page and feeling confident about your financial situation.

Explore ways to earn extra money

Instead of working full-time, finding part-time gigs or a side hustle could bring in extra cash and be a flexible option for someone with other responsibilities. Opportunities could include ridesharing, delivery driving, tutoring, pet sitting, or freelance writing and editing.

Considerations for single-income living

Living on a single income has its own set of advantages and challenges. Here’s a look at some of the key pros and cons:

Simplified budgeting

With only one income to manage, budgeting can be simpler and more straightforward, potentially making it easier to track and control spending.

Reduced stress from dual careers

Managing one income might reduce the stress associated with juggling two careers, commuting, and coordinating schedules.

Increased focus on family

If one partner is not working, they may have more time to focus on family, home life, or personal interests, which can improve overall quality of life.

Greater financial discipline

Relying on a single income can encourage more disciplined financial habits, such as saving and prioritizing expenses.

Financial strain

Relying on a single income can be challenging if unexpected expenses arise or if the income is lower than anticipated, potentially leading to financial strain.

Limited income growth

With only one source of income, there may be fewer opportunities for income growth, which can impact long-term financial goals and security.

Potential for lifestyle reductions

To manage on a single income, lifestyle adjustments may be necessary, which could include cutting back on spending or postponing major purchases.

Increased dependence

Financial dependence on one person can create financial stress if that person loses their job or experiences a reduction in income. Households can also be impacted by unplanned expenses, potentially leading to increased debt to maintain a desired lifestyle.

Balancing pros and cons often involves careful planning and communication to help ensure that both financial and personal goals are met while managing the challenges of single-income living. Meeting with a financial professional can help you navigate this transition more successfully and allow you to create a holistic and flexible financial plan that addresses needs, builds savings, and keeps you on the path toward reaching your goals.

The term financial professional is not intended to imply engagement in an advisory business in which compensation is not related to sales. Financial professionals that are insurance licensed will be paid a commission on the sale of an insurance product.

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