Moving from Two Incomes to One
There are many reasons that a family might need to adjust from two employment incomes to one: when the couple is expecting a child, someone is going back to school, or even an unplanned layoff. Whatever the cause, it is important to be ready for the potential challenges and how to navigate them. Here are some strategies to keep in mind if you foresee falling into this situation:
Practice living on one salary
This is a time to budget. Which expenses can stay? Which should go? It is important to be willing to cut back on non-essential spending. Try it for a little while and see what unexpected cash outflows pop up. If you were to be laid off, you might not have the luxury of a trial run, but this could be a time to see if your emergency funds can buy some time, or if getting another job is necessary.
Talk to a tax or financial planner
A drop-off in income could open doors that were previously closed, such as the ability to contribute to a Roth IRA. You also will pay less in taxes, so it is important to take a second look at your withholding elections for your remaining income.
Consider health care costs
If both earners had health care through their own employer, there could be sticker shock if the remaining employer’s health care options disallow, or have a surcharge for, family members of the employed. Not all health care plans are the same, so it is imperative to understand the cost and benefits when adding your family to a new employer’s health plan.
Don’t ignore retirement savings
If you don’t have enough leftover funds to contribute to your retirement savings, it is probably a good time to prioritize that over other expenses. Nobody wants to work forever!
Get a side hustle
Just because a parent is home with an infant does not mean that they are disqualified from earning. In whatever spare time you have, organize a garage sale, sell crafts online, or freelance or consult on smaller projects in your area of expertise. Even a few hundred dollars a month could take some pressure off a tight budget.
Discuss the long term with your partner
Will you be living on one income only until the baby starts school full time? Is this until all the kids go to college? The answers to these questions could evolve over time, and it is paramount to keep an open and honest line of communication with your partner. Working with a Baird Retirement Management Financial Advisor is a great way to make sure you are thinking and planning for the long term.