Introduction
Two-person families often transition from living on dual incomes to a single income for various reasons. One partner may decide to become a stay-at-home parent, or may choose to return to school, becoming too busy to work. Regardless of the reason, the shift from dual incomes to a single income can be daunting.
Experience Living on One Income Before Leaving Your Job
Try living on one income if you are unsure of your ability to comfortably manage on just one salary. Deposit one partner’s income directly into a separate savings account and do not touch that money even in emergencies. But don’t limit yourself to just saving money. Keep records (or a journal) to evaluate how easy or difficult it is. Do you need to make more cuts than expected?
This experiment gives you the chance to save the entire income of one person for several months, allowing you to build a substantial savings cushion. But don’t let the extra cash lead to overspending. You will deplete your savings and undermine this goal if you spend it on a new car.
Talking to a Tax Advisor
The good news is that you will now pay lower taxes since you have become a single-income family, as you may move into a new and lower tax bracket. You may also qualify for the federal Earned Income Tax Credit if you are a low to moderate-income couple.
The transition from two incomes to one will have tax implications, and in some cases, these implications can be significant. You may need to seek help from a tax advisor to understand how to adjust your tax strategy based on your new circumstances. There may also be new deductions for which you qualify. It’s a good time to learn how to budget for your taxes.
Rethinking Retirement
You’re not too young to start planning for retirement, and now that you are a single-income family, you’ll need to rethink your retirement goals. After all, one salary will have to support the retirement of two people.
On the positive side, you may have more retirement savings options now that you are a single-income family. For example, you might be eligible to contribute to a Roth IRA if you were not able to before.
Exploring Side Income
Of course, the partner who leaves the full-time job doesn’t necessarily have to have zero income. The stay-at-home partner can earn side income through freelancing, consulting, or doing small side jobs.
Just bringing in an extra $100 a week (or $5,200 a year) can significantly contribute to the family budget, retirement fund, or emergency fund. You would have $15,600 if you saved $100 a week for three years, enough to buy a car in cash.
Source: https://www.thebalancemoney.com/living-on-one-income-453979
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