The decision to move from two household incomes to one can be a challenging one. Many people face it when they’re having their first child, or when they’re contemplating a career change that will require going back to school.
Sometimes, it’s not a decision at all, as a life change can force you into this type of situation. Perhaps one partner becomes disabled, or they face job loss in the coronavirus economy. (Sometimes, this can happen abruptly, with the unexpected passing of your partner.)
For Sarah and I, the moment that triggered our choice to move to a single income household was the moment we discovered that our third child was on the way. With two other preschool-aged children at home already, child care was becoming so financially demanding that we were questioning whether it was worth it anyway, and the desire to simply have a tighter knit family for a time while the kids were so young cinched our decision.
Here are seven strategies that worked very well for us in planning for a transition from two incomes to one.
How to transition from two household incomes to one income
1. Create a budget for life after the change
If you’re considering the possibility of moving to a single income household, your first step is to figure out the financial feasibility of it. Is it even possible to pull this off?
The easiest way to do that is to assemble a budget that incorporates both your reduced income level after the shift as well as the changes in your expenses. You’ll have to make some estimates as to how many of your expenses will change. For example, you’ll likely see a drop in commuting costs, professional clothing, and meals eaten outside the home, and you’ll probably see a natural drop in overall food costs. However, you’ll likely have to supplement that with additional belt-tightening.
How does one even start assembling a budget? Begin by figuring out where all of your money is actually going, tracking it down with bank and credit card statements. Organize all of those expenses into categories that make sense for you, and total up how much you spent in those categories. Then, figure out sensible cuts within each of those categories.
When Sarah and I assembled our one-income budget we realized we would have to drastically cut our entertainment and food expenses to make things work. We decided that strictly adhering to eating at home and cutting back heavily on spending for entertainment and travel would have to happen, but it was still possible and realistic to make it work.
2. Consider your health insurance options
In an ideal situation, the person who is remaining in the workforce already has the best health insurance package, which the whole household is already using. However, sometimes you may find that the person leaving the workforce is the one with the better option, meaning that you either need to switch to the other health care plan or, if one isn’t available, shop for one on the open market.
3. Consider long-term FMLA leave or a sabbatical
Some workplaces offer unpaid leave through Family Medical Leave Act (FMLA) that can last for up to a year in some situations, and other workplaces offer sabbaticals in the form of periods of unpaid leave. These options can help you retain access to some workplace benefits while you are away from the workplace.
4. Do a trial run on one income first
Now that you have a clear picture of the expenses that you’ll face after moving to one income, do a “trial run” on that income. Commit to living as though you had just one income as closely as possible, sticking to your reduced expenses in areas like food, entertainment and hobbies to see what problems expose themselves.
If you find that you cannot sustain your household on one income, try revisiting your budget to find other areas where you can cut back on expenses. In the case that you find you can’t cut back any more expenses, consider some work-from-home jobs to pick up a side gig or increase your income while staying home.
5. Build a healthy emergency fund
An emergency fund is a pool of cash that is set aside for unexpected events, typically in a savings account. One of your major goals during the time leading up to transition to a one-income household should be to build up that emergency fund, so that you’re able to handle unexpected events easily once you go from two incomes to one. If you’re executing the trial run strategy, then the extra income from the second income earner during that trial run period provides the funds you need to build that emergency fund.
Ideally, all families should have a healthy emergency fund, but it’s even more important when you’re transitioning to a single income, as there’s more financial risk involved. The truth is that life contains a lot of risk and emergencies will happen, and while there are many things you can do to avoid debt in an emergency, the best one is to simply be prepared for it. Aim to have at least a couple of months of living expenses set aside, so that things don’t fall apart if the single income earner loses their job as well.
6. Pay off high-interest debts
If you have a healthy emergency fund in place, the next step is to get rid of as much of your high-interest debt as possible. As with the emergency fund, this is much easier to do if you’re doing a trial run of transitioning from two incomes to one income.
Start by assembling your own debt repayment plan, which will help you organize your debts in a sensible way and will naturally prioritize high-interest ones.
The advantage of paying off debts during your trial run period is that it reduces your expenses when you’re living with a single income. That’s one fewer bill that you have to deal with, meaning it’s easier to make ends meet.
7. Develop home economics skills
As you’re preparing to switch to a single income household, one very useful tool to have in your repertoire is basic frugal household skills, like food preparation, household management and basic repair skills. Use this trial run as an opportunity to really hone your skills in those areas when you have a financial safety net of a second income to help clean up any mistakes along the way.
For example, you might completely burn dinner as you’re learning to cook at home, but this is much less of a crisis if you can afford to order pizza, an option that might not work as well later when you’re on a much tighter budget.
Too long, didn’t read?
If the possibility of switching from a two-income household to a one-income household looms in your future, there are many things you can do to set yourself up for success. Start with a realistic budget for after the switch, and try to live by it. Make sure your health insurance is taken care of. Use the money you’re saving by living lean on your trial run to build up an emergency fund and pay off debts, and build up skills during this period, too. These steps will set you up for a great transition to a single income household.
Founder & Columnist
Trent Hamm founded The Simple Dollar in 2006 and still writes a daily column on personal finance. He’s the author of three books published by Simon & Schuster and Financial Times Press, has contributed to Business Insider, US News & World Report, Yahoo Finance, and Lifehacker, and his financial advice has been featured in The New York Times, TIME, Forbes, The Guardian, and elsewhere.
- Courtney MihocikLoans EditorCourtney Mihocik is an editor at The Simple Dollar who specializes in personal loans, student loans, auto loans, and debt consolidation loans. She is a former writer and contributing editor to Interest.com, PersonalLoans.org, and elsewhere.