4 Tips for Couples Transitioning from Two Incomes to One

How to Make the Switch to a One-Income Household

4 Tips for living on one income

You've decided that one parent will stay-at-home, while the other will be the sole breadwinner. Congratulations on making that decision!

I'm sure you're excited, but also a little nervous. You're accustomed to living on two incomes. How do you transition to one?

Here are four tips for living on one income that will help make the transition seamless.

#1: Live on One Income BEFORE You Quit Your Job

Think you can live on one income after a baby is born?

Put that idea to the test: start living on one income immediately.

Direct-deposit one spouses' income into a separate savings account, at a separate bank, and don't touch that money. Don't even think about that money. Pretend it's not there. Live completely off one spouses' income.

How easy or hard is it? Do you have to make more cutbacks than you realized? Do you have extra cash each month? (I hope so, because babies are expensive!)

This spending exercise is similar to riding a bicycle with training wheels lifted just an inch off the ground. You're "really doing it," but the training wheels are still there to catch you when you wobble.

There's an added benefit to this exercise as well. By living on one income and saving the other for several months (or years), you'll amass a significant savings cushion.

This savings will come in handy once your income becomes tighter. Don't splurge on a bigger house or car.

Keep your savings cushion intact in case there's a family or medical emergency and you need to pay for babysitters, medical bills, etc.

#2: Talk to a Tax Professional

The good news? You'll probably pay fewer taxes now that you're a one-income household. You may be in a new and lower tax bracket.

Dwindling from two incomes to one will have some major tax consequences.

Meet with a tax professional to figure out ways you can rethink your tax strategy and learn about new deductions you may be eligible for. This is a good time to learn how to budget for your taxes.

#3: Re-Think Retirement

Now that you're a one-income family, you'll have to plan more carefully for retirement. After all, one person's salary needs to save for two people's retirement.

You might have more retirement saving avenues available now that you're a one-income family. For example, you may become eligible to contribute to a Roth IRA if you weren't before.

#4: Find Side Income

Of course, the spouse who's leaving his/her full-time job doesn't need to have an income of zero. The stay-at-home spouse could earn side income through freelancing, consulting, babysitting or small side jobs.

Just bringing in an extra $100 a week ($400 a month) can go a long way towards the family budget, retirement savings, or college savings (it's never too early to start!). Think of it this way: if you save $400 a month for three years, you'll have $14,400, enough to buy a car in cash.