Whether you have made a conscious decision to move from a dual-income to a single-income situation or you find yourself in this position unexpectedly, there are actions you can take to minimize the financial impact. The idea of losing one income due to early retirement, layoff or simply a lifestyle decision can be daunting, especially when most of us have been brought up in a world where economic commitments and expectations often demand two incomes. Adjusting to living on one income can be quite challenging. Here are a few simple suggestions for easing the transition.
Understand your broad financial picture. It is important to review all of your finances so you know exactly where you stand prior to living on one income. Gather together all of your financial records and statements to assess your situation. Calculate your net worth by subtracting your total liabilities (debts, mortgage loans, personal loans) from your total assets (bank or other saving account balances, stocks, bonds, home or other personal property).
Track income and expenses. Next, you’ll need to determine exactly what your take-home pay will be once you move to a single-income. While you may not have had to worry about sticking to a budget with two incomes, it might be a good idea now to evaluate which of your regular expenses are absolutely necessary and prioritize spending. When you reassess all expenses, chances are you will find multiple ways to save that you may not have considered before. When you take a closer look at your finances, you may find you are spending a lot to maintain a lifestyle you don’t necessarily enjoy.
Eliminate job-related expenses. In addition to bringing in extra money, having a second income can also produce extra expenses. From commutes and child care fees to fancy cufflinks and dry cleaning expenses, there are added costs associated with working outside the home that can take a huge bite out of a paycheck. Additionally, busy work schedules may require you to hire outside help to maintain your household. When you realize these costs will no longer exist, it’s easy to see why it may be easier than you think to say goodbye to a second income.
Take advantage of hidden savings. While you will certainly save money by eliminating work-related expenses, there are additional steps you can take to help reduce the financial strain of living on one income, and at the same time save money.
- Review your home and automobile insurance plans. Consider saving on your premiums by raising your deductible, dropping unnecessary coverage and taking advantage of discounts.
- Review interest rates and investigate refinancing your mortgage to possibly lower your monthly payment.
- With one person out of the workforce, you will generally pay less in overall income taxes. By estimating your new tax bill and adjusting tax withholding for the working spouse appropriately, you may be able to increase your take home pay.
- And remember, depending on how much each of you earn, eliminating one spouse’s income may lower your marginal tax rate – possibly decreasing your tax bill significantly.
Stay focused on your priorities. Evaluate your personal definition of success. For some, the prospect of having a parent home with the children is worth the financial sacrifice. For others, it’s the promise of regular family meals, or time to care for aging parents, or the ability to decrease stress in their lives. Whatever your motivation, take the time to evaluate your spending patterns often to ensure they are in alignment with your family’s priorities.
Get professional help. As families look for a balance between the demands of their professional and personal lives, it is often beneficial to consider the advice of a qualified financial advisor who can help you explore options for transitioning from two incomes to one. A financial advisor can work with you and develop a plan to help ensure you don’t overlook any possible savings strategies and help give you the incentive you need to stay on track and achieve your financial goals. The Atlanta based Wealth Management Team of Benedetti, Gucer & Associates can be a valuable asset in this regard. They are fee-based, fiduciary advisors who have decades of experience working with clients to give them objective advice.
You don’t need to be a millionaire to live on one salary, but you do need careful planning, clear objectives, and a dedicated commitment to making it work. Often, the rewards of staying true to your priorities can far outweigh any financial concerns you may have.
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