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The decision to transition from two income to one doesn't come lightly. There are many reasons… to become a stay at home mom or dad, freedom, work-life balance, whatever your reason – the desire to live off one income exists.
The thought of living on one income can sound FRIGHTENING! But, it doesn't have to be if you take the time to PLAN. It will take some adjustments to live off one income. However, it is totally doable! We made the transition and survived. So, you have one or two choices:
Choose A: Plan a transition to one income.
Choose B: Be too scared to transition to one income and always wish that you did.
Which path are you going to choose? Honestly, if you are reading this, I am guessing you want to learn how to make it happen. So, let's dig in…
How to Transition from Two Incomes to One
1. Plan for the Transition & Anticipate Circumstances
First of, you must plan for the transition (if you can). If you didn't have that opportunity, read my story here and then jump straight to Step 2. Assuming you have time to plan for the transition, take the time and energy to understand the full consequences of your decision. This isn't a decision to be taken lightly. It will affect every area of your life.
Here are a List of Questions to Ponder:
– How long do you plan to live on one income?
– What areas are of your life will be impacted?
– How are you going to change your spending habits?
– Are you willing to change your spending habits to live off one income? Be very honest.
– How will this affect paying off debt (if you have some)?
– Should you wait until debt is paid off?
– Will this transition help you to save? Or will it hurt your saving ability?
– Does your W-4 withholding need to be modified?
– Are the health benefits sufficient for the person carrying the medical insurance?
– Will everyone in your family have adequate medical coverage?
– How secure is the job for the person that will continue to work?
– How will your family benefit from the transition?
– When would you prefer the transition to occur?
– Is a side-gig biz or side hustle a possibility?
After you have pondered these questions, gauge if you are ready to transition from two incomes to one. If the pros outweigh the cons, move on to step #2.
2. Develop your Cents Plan based on the One Income
The hardest part of transitioning from two incomes to one is living and operating under one income. With two incomes, there is a little bit more flexibility and breathing room. Typically, the first items cut in a transition to one income is in the fun spending category. Sit down and develop your Cents Plan based on the single income. Figure out what works for you and your family. Look at how you will be able to save on one income. Look at how the ability to pay off debt will be impacted.
Related Post: Cents Plan Formula – Not a Budget
One of the most common complaints I hear when living off one income is “I make the money, so I can spend what I want, when I want.” This is why conversations beforehand are SO crucial. Discuss how this transition will affect your current way of spending and saving for each party. Both parties need to be equals in this conversation. Also, this is where slush money is VERY important. With slush money, each person is allocated the same amount of money and the other party has zero say on how it is spent. (Also, an outside opinion can be beneficial in these situations.)
Make sure you have continuous conversations about the upcoming change. Discuss what is working and not working in your Cents Plan. Communication is the key to be successful in the transition and long-term.
3. Start Living On One Income
Once the decision has been made to transition from two incomes to one, start living on one income. This will be the true test to see if your household is truly ready to live on one income. Address any problem areas in the Cents Plan. If it seems difficult, maybe consider going part-time as a better solution. Then, reassess again in the future. Possibly, you may need to realign some of your visions.
4. Save Income #2
Since you are planning to live on one income, save all of the income from the person who will be leaving their job. IMMEDIATELY. Put the money aside to cover expenses if something happens. If necessary, factor in child care expenses and take the net income to save (you won't have childcare expenses anymore if you goal is to be a stay-at-home-mom). When living off one income, a higher emergency fund may be necessary and what I recommend. By saving all of the income, you are able to prove to yourself that this is a good decision and will work for your family.
Related Post: How to Save Money
5. Pick a Transition Date
If things are going smoothly, pick a date to transition from two incomes to one. Circle is on the calendar! Make sure to give plenty of notice to your employer (and child care center, if applicable). Also, remember to check your tax bracket to see if it advantageous to transition before you hit a higher income bracket.
6. Make it Reality
Enough talking, saving, and planning…Take action and transition from two incomes to one. Enjoy!
The transition from two incomes to one doesn't have to be scary, daunting, or frightening. In actuality, it is very freeing. We were forced to transition from two incomes to one without much notice. It took us by surprise, but we learned to live with a lot less (and were just fine). Every couple of months, reflect on your decision and review the questions from Step #1.
Comment below if you are thinking to transition from two incomes to one, your reason, and what it holding you back.
Learn the basics needed to change your financial future forever.
This will be the best choice you have made for yourself.