With the high cost of daycare and the logistical challenges of caring for an infant, many young couples decide that it’s best for one parent to stay home. But how do you seamlessly transition from two incomes to one? It’s a question worth exploring and requires planning.
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Tips For Going Down To One Income
It doesn’t matter what your income is – trimming your income by 25 or 50 percent (which is what most couples in this situation end up doing) – creates some challenges that have to be worked around. Being aware of these challenges is half the battle. The other half is figuring out how to offset the negatives and make this new financial situation work. Here are a few helpful tips:
1. Reframe Your Way Of Thinking
Going down to a single income isn’t all about dollars and cents. For many families, it’s the mental and emotional side of things that create the most conflict. By reframing your perspective, you can ensure the transition is much smoother.
“While living on one income presents its own challenges, it can also be extremely rewarding,” CardGuru mentions. “You have the opportunity to figure out where you really want to spend your money, and it will allow you to focus more on spending time with your family and friends, putting more focus on relationships and less focus on money.”
Viewed through this opportunistic lens, your one-income life can become a joyful adventure, rather than a burden that causes you to grit your teeth and force a smile.
2. Build Up An Emergency Fund
You don’t want to move from two incomes to one if you don’t have a solid emergency fund in place. This is simply a cash savings account of three to six months of household expenses. So if you need $4,000 a month to make basic ends meet (rent, utilities, food, car insurance, etc.), you’ll want $12,000 to $24,000 on hand. This gives you something to fall back on in a job loss or emergency.
If you still have a few months before the baby is born, the best thing you can do is pretend like you’re already operating on one income and to pile up the paychecks from the other job to put into the emergency fund.
3. Figure Out Benefits
Take the time to think through any loss or change in benefits that will result from the loss of one job. Will this impact health insurance, retirement, and other perks? If so, you’ll need to have contingencies in place.
4. Speak With A Tax Advisor
One of the perks of downsizing to a one-income household is that you’ll pay fewer taxes. You might even move down an entire tax bracket.
“Downsizing from two incomes to one will have tax consequences and, in some cases, these consequences could be significant,” personal finance blogger Paula Plant writes. “If you don’t have a tax professional, then you need to find one to figure out ways to alter your tax strategy to your new circumstances. There may also be new deductions you’re eligible for.”
5. Develop A Budget
Go ahead and develop a budget for your new financial situation. Where will you need to cut back? Where will expenses go up? How will you save and invest? These are all important questions to work through and figure out in advance.
Find The Right Fit
If this is your first child, you won’t know exactly how you’ll feel about the matter until after you bring the baby home from the hospital and settle into a new routine. As you previously anticipated, you may be reassured that leaving your job and staying home is the right thing to do. Or, like many parents, you could come to the realization that you need to return to work in order to feel fulfilled.
Ultimately, you won’t know what’s right until after you’ve had some time to process what this new life looks like. But if you have the slightest inclination that you or your spouse will be staying home, it’s smart to plan like you’ll be transitioning down to one income. In doing so, you’ll have the flexibility to pursue multiple options.
If you are interested in even more lifestyle-related articles and information from us here at Bit Rebels, then we have a lot to choose from.
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