How to shift from two incomes to one income
Key takeaways
If you're switching to one income by choice, take time to prepare in advance.
You have ways to make the transition go more smoothly, such as cutting expenses, paying down high-interest debt, and maintaining an emergency fund.
If you have trouble keeping up with your basic needs, research government and community assistance options in your area.
Switching from a dual-income household to living on one income may seem daunting, even if it's by choice. However, with a bit of planning and time spent shoring up your financial plan, it's possible to accomplish your goal and achieve financial security. Here are some tips to help you with the transition.1
Start by preparing ahead of time, if possible
The decision to learn how to live off one income may not necessarily be yours. A job loss, a divorce, or a medical crisis can come out of nowhere and make it difficult to plan.
However, if you're switching to living on one income by choice, it's important to start preparing for the transition as early as possible. For example, if you're starting a family and want one parent at home or you're planning to homeschool your children, you'll want to outline when you expect to make the change, so you can lay out your plan.
How to transition from a dual-income to single-income household
No matter why you're planning to live on one income, it's important to take a step back and evaluate your situation and opportunities to make it work. With some careful planning, you can adjust your finances and come out thriving. Here's what to do if you find yourself living with only one paycheck.
1. Build a budget
With a dual-income household, budgeting may not have been a necessity. Now that you're living on less, however, a proper budget may be crucial for your success.
To build a budget, start by listing your expected income and basic expenses. Then, add in your expected discretionary spending to get an idea of whether you're living within your means. If not, make adjustments to your monthly spending goals until you get there.2
2. Cut discretionary spending
While earning more money can certainly make budgeting easier, it's often more feasible to spend less, at least in the short term. This can be especially true if you experienced a bit of "lifestyle creep" with two incomes—adding services and amenities as your household income increased.
Go over your expenses from the last two to three months line by line, looking for things you can reduce or cut altogether to save extra money. For example, you can cancel subscriptions you can live without, dine out less frequently, or minimize your online spending.2
3. Look for opportunities to reduce necessities
While some expenses can't be completely removed, you may still be able to save some money. For instance, you can shop around for car insurance to see if you can secure a lower rate with a different insurer, or you can adjust your thermostat to reduce your utility bill.
You can also look for ways to cut your grocery bill, such as learning how to use coupons or switching to generic brands.3
4. Establish an emergency fund
If you have time to prepare for your transition, work on building an emergency fund to protect you in the event of a financial emergency. Financial experts recommend maintaining three to six months' worth of basic expenses, but you can evaluate your situation and money needs to determine the right amount for you.
If you don't have time to build an emergency fund, try to incorporate some savings into your budget as you get used to living on one income. Even if it's not much, it can still give you some peace of mind, especially if you generally live paycheck to paycheck.4
5. Eliminate high-interest debt
While your budget may be tight, tackling high-interest credit card debt can reduce your interest costs and free up some cash flow every month.
If you have good credit, a debt consolidation loan can potentially help you save money with a lower interest rate. Consolidating multiple balances can also simplify your budget and make it easier to stay on top of payments.
6. Refinance other debts
Take a look at your other debts to see if there are opportunities to save money through refinancing. If you have a mortgage or auto loan, for instance, compare your interest rate to the current market rates to get a sense of whether refinancing can help.
You can also get preapproved with a few lenders to get an idea of what your terms would look like based on your credit profile. If you qualify for better terms, it could potentially save you money.
7. Downsize your residence
If you're not expecting to go back to a dual-income household anytime soon and your mortgage or rent payment is steep, you may consider downsizing to a less expensive home or apartment.
If you're a homeowner, selling your home can also give you access to the equity you've built up, which you can use as a buffer or a rainy-day fund for financial emergencies.
8. Tap into community resources
If you're struggling to get by despite your efforts to cut back, research government programs and community resources to see if you can get help with rent, groceries, utilities, and other basic needs.
If you're unsure where to start, you can call 211 to learn more about assistance options in your area.
9. Check in with your finances regularly
Once you put your financial plans in motion, schedule some time to reevaluate your approach to ensure you're meeting your needs and still on track with your goals.
In the early stages, you may need to check in once a month or so. But over time, you may be able to stretch that out to every few months or even longer. The important thing is to avoid getting complacent and to maintain a frugal lifestyle.
The bottom line
Learning how to budget on one income can be challenging, especially if you're used to a dual-income lifestyle. However, meaningful changes to your spending habits and other efforts to manage your money more efficiently can help you not only accomplish your goal but also thrive.
As you consider your options, it's important to focus on your specific situation and financial needs to determine which strategies work best for you.
Consumer Financial Protection Bureau. “Financial well-being: What it means and how to help.”
Consumer Financial Protection Bureau. “Budgeting: How to create a budget and stick with it.”
Consumer Financial Protection Bureau. “Track your spending with this easy tool.”
Consumer Financial Protection Bureau. “An essential guide to building an emergency fund.”
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