How to Prepare for the Transition from Dual to Single Income

by Tamila McDonald on June 18, 2018 · 0 comments

Shacking up with a partner or getting married can set you up for a comfy living; but if you get used to that lifestyle and then one of you loses your job or wants to make a career change, then you have to make some changes, fast. Here’s how to prepare for your transition from dual to a single income.
Going from a dual to single income household how do you make that transitionThis kind of transition is a lot easier if you and your partner have a dual-income, no kids household. DINKS tend to have a significant amount of disposable income, bolstered by not having to spend the $12,350 and $14,000 annual cost of raising a child.Regardless of whether your children or not, here’s something to consider: the loss of one person’s income doesn’t necessarily pencil out to a 50 percent cut in the entire household’s income if the two of you don’t make the same amount.

In fact, the difference can be anywhere from a 35 to 65 percent reduction of income, based on U.S. Census statistics: The average income for couples who file taxes jointly is $117,795, while those filing as single pull in $73,298.

Advance Preparation

The further in advance you can prepare for the switch to a single income, the better the transition will go. The ultimate form of preparation might be to act as if you never had two incomes in the first place.
One way to do that is to make sure you have money in savings to cover you in case of unanticipated job losses. Create an emergency fund that covers three to six months of expenses to severe as a buffer should the unexpected occur.

You can also look at investing options, like brokerage accounts, to support additional savings. If you want them to be accessible as a potential source of income, then don’t choose retirement accounts with restrictions for withdrawals. Instead, choose traditional investment vehicles that aren’t specifically tied to retirement.

Budget for One Income

You’ll have a greater ability to save for emergencies if you set that up with a budget — create a budget that assumes you only have one income, and for whatever period of time you still have two incomes, you can allocate that money toward savings.

Now if an impending switch from two incomes to one appears to be voluntary, you should begin preparing for the transition before either of you actually quits a job.

Create a budget together. Look at all of your expenses and debts to determine what it takes to meet your obligations. Then, examine the remainder of your income to see if it will cover living costs, like food and gas.

Cut Costs and Free Up More Income

The first iteration of your budget will likely show you that you’ll need to adjust some of your non-fixed expenses, like your grocery and entertainment budgets. You may need to cut back on dining out or look for cheaper food options to make the transition possible.
Plus, you’ll want to plan to optimize the amount of income you get from the single income: Consider changing your tax withholdings when you transition from a dual to a single-income household.
You will probably move into a lower tax bracket and thus it might behoove you to claim fewer withholdings.  At the same time, you’ll want to calculate whether you might lose any tax deductions associated with work expenses for the partner whose job is going away.

Pay Down Expensive Debt

Another way to reduce your expenses over the long term is to try to pay down debts — that can ultimately reduce the amount of money that goes out the door every month.
At the very least, try to pay off the debt with the most expensive interest rates, like credit cards. As you whittle down the balance, the minimum monthly payment should go down.

Another way to rein in expenses: Look into housing that is more in line with a single income — whether you’re renting or buying a property. This ensures that your mortgage payments don’t exceed your capabilities should one of you lose their job or need to make a change.

Sort Out Insurance

Another way to keep costs in line when you go from two incomes to one: Just say no to COBRA, which can cost a small fortune nowadays.

Instead, the partner who still has insurance should add the other member of the couple to their plans — at least on an interim basis.

Plan for this in advance by reviewing both of your employers’ offerings: Find out what you need to do to add each other in case one of you are fired or quit. The processes can be cumbersome, so understanding them in advance is a must.

It’s also a good idea to look into what’s available through private insurance — you might need this type of coverage on an interim basis. Although coverage through these sources might not be as expensive as COBRA, it can still be pretty costly and require careful budgeting.

Look Beyond the Money

Shifting from dual to single-income household comes with more than just a financial impact. Often, there is an emotional toll as well.

A change in your lifestyle can be stressful, particularly if you have to make sacrifices to keep yourself on budget. If a member of the couple was fired, that could also be hard in its own right, creating feelings of doubt and even worthlessness.

Whether the transition is voluntary or forced, you need to keep the lines of communication open. There are going to be challenges along the way, even if you have a plan in place. Check in with each other regularly to see how you are both doing, and don’t focus solely on the finances.

By being there for one another, you can make it as a single-income household, either for the short term or in the long run.

Readers, how have you managed your finances with your partner? What kind of experiences have you had with income imbalances in relationships? Please tell us all about this by posting in the comment section beneath this post.

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