24/7 Wall St. Key Takeaways:

• Going from a dual to a single income is a huge lifestyle switch, and there is some serious planning that must be done to ensure the transition goes smoothly.
• Evaluating financial aspects, like your budget, is important. You also need to consider emotional aspects, like how responsibilities within the household will shift around.

For any dual-income household, moving down to one income is hard. It can be even harder when both partners have high incomes.

In one Reddit post I was recently reading, a couple, each earning around $450K, is considering going down to a single income, as the wife wants to quit work to spend more time with their kids. However, the poster expects there to be some serious lifestyle changes and is considering how they’re going to cope.

Here at 24/7 Wall St., we cover topics like this all the time. Here are some of my thoughts on transitioning from a dual to single income that goes beyond just cash flow changes:

1. Evaluate Your Current Financial Situation

Before making any decisions, it’s vital to consider your current cash flow. You need to look at things like:

• Monthly expenses
• Savings goals
• Debt repayments

Having a clear understanding of your money will help you assess whether your remaining income can sustain your financial goals.

2. Recalculate Your Budget

Going from $900K to $450K is a huge change, even though that’s still far more than many Americans make. You’ll need to recalculate your budget based on your new income and adjust any discretionary spending that is now outside your budget.

Sometimes, these expenses are easy to cut back on. For instance, you may be able to cut back on childcare now that one partner is staying home. That partner also doesn’t need professional, working clothes and won’t be commuting, which can help you save money on transportation costs.

You may need to cut back on extras like travel and dining out. Try to cut back on these optional items before cutting back on your savings.

3. Review Insurance Coverage

A huge part of a high-paying job is all the insurance coverage that comes with it. If you’re currently getting health insurance or life insurance through the quitting partner’s job, you’ll need to figure out how that changes your finances.

When in the year your partner quits may also matter for insurance purposes. It’s often easier to quit during certain times of the year, not right before you plan on getting dental work done.

Also, double-check your disability insurance, too. On a single income, it’s important to make sure that everyone is well-covered in case of unexpected disability.

4. Retirement Contributions

High-earning households often max out their retirement savings, such as 401(k) contributions. With one person leaving the workforce, you may need to reassess how that will impact your long-term retirement goals. You may want to read a recent response I made to another Reddit post about how much money you should have in your 401(k).

If your spouse still wants to contribute to retirement, they may be able to use a spousal IRA.

5. Tax Planning

Reducing your household income can have a huge impact on your tax situation. You may find yourself in a lower tax bracket, which can seriously impact how much you’ll owe. You may also qualify for certain deductions or credits that you couldn’t take before.

You should also be aware of credits and deductions that you may lose because you’re no longer filing with two incomes. A tax professional can help you navigate these changes.

 6. Long-Term Financial Impact

It’s easy to focus on the immediate changes in cash flow and budgeting. But you need to consider the long-term effects, too.

If your spouse is quitting permanently, that can impact future earnings potential. If they plan to re-enter the workforce later, that could lead to them being further behind in their career than they might be otherwise.

It’s important to have a solid emergency fund in place to handle surprises, especially when you only have one income.

7. Family and Emotional Considerations

There are some family aspects you need to keep in mind, too. Many couples who drop down to one income say the benefits of more family time and a less stressful life are worth the financial trade-offs. However, there are still some discussions that need to be had to ensure that the transition goes smoothly.

For instance, how will the household responsibilities shift around? If one spouse is expecting something different from the other, it could lead to more stress and relationship problems.

Many people don’t realize how much personal fulfillment they are getting from their jobs, either. The quitting spouse may need to find new ways to engage with the world, such as through volunteering.

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