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Shifting from Dual Earning to Living on One Income

September 21, 2020

Whether due to a layoff, homeschooling children, or divorce, many people find themselves going from a dual-income to a single-income household at some point in their lives. While it might seem impossible at first, making the shift to living on one income is doable when you’ve thought through the changes you’ll need to make, and put one or more of the ideas below into action.

12 Ideas for Transitioning to a Single Paycheck

No matter what you’re going through, the first step is not to panic. 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.

Cutting expenses

Having breathing room within your budget often comes down to spending less, not earning more. This can be especially true if you experienced a bit of “lifestyle creep” with dual 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. Most of us have at least one streaming subscription we’re not using, or a monthly service we forgot we signed up for. As soon as you pare down, you’ll immediately have more wiggle room in your budget.

Building a budget

When you had two incomes to cover bills, it might have been easy to forgo budgeting as a couple. But when you’re living on one paycheck, having a functioning budget is essential.

For now, as you adjust to your new lifestyle, you may want to keep your budget simple. Make things too complicated and you may end up abandoning it in frustration somewhere down the line. Use budgeting apps or a spreadsheet to help you keep track of it all without the stress.

Qualifying for special payment plans

Your drop in income may qualify you for lowered costs on everything from health insurance to student loan payments (both of which can be income driven). In the aftermath of COVID-19, many states have changed the income thresholds at which one qualifies for essential services, like Medicaid. Go through your expenses looking for any items you can renegotiate (or apply for) based on your now reduced income level. In many cases, the difference can be staggering and a welcome relief.

Refinancing payments of all kinds

Take a look at all the things you’re paying off over time and refinance those payment plans. For example, by refinancing your car or truck, you could reduce your monthly expenses by paying off the remaining balance over a longer period of time, or save money over the life of the loan with a lower interest rate. Either way, take a look at the tradeoffs and make the best decision given your current situation. You can even ask about “refinancing” your child’s braces with a simple call to the orthodontist. Most medical offices have payment plans available to help in times like these.

Take these steps ASAP while you still enjoy a good relationship with the companies that you’ve been making timely payments to until now. Explain your situation, and they will more than likely offer you some options. But you have to ask. You should also be aware that lenders and credit providers are offering deferred payments in the aftermath of the pandemic. While you’ll need to pay the balance eventually, this can provide some much needed breathing room while you adjust to living on one income.

Refinancing your mortgage (or moving)

By refinancing your mortgage, you can often reduce your monthly payment in exchange for a longer term on the loan. As of this writing, interest rates are at historic lows.

You could also consider selling your house, moving to a place where housing is cheaper, and pocketing the difference. A cost of living calculator will show you how much the average person saves when moving from one place to another. If you could drop your overall expenses by 20 percent or more, it could remove a lot of financial pressure.

These decisions are never easy, but if you’ve already been thinking about moving elsewhere, now may be the time to take the leap.

Negotiating a lease or rent reduction

If you’ve been renting your place for a while, ask the property owner if he or she is open to taking some portion of your long-ago security deposit today in exchange for reducing your rent for a period of time. For example, a $2,500 security deposit you made years ago could turn into a $205/month reduction in rent for a year. In essence, you’re borrowing from your future self, who will not get the security deposit back when you move out.

If rents in your area have fallen significantly since the pandemic began, you might also negotiate your lease at lower market rates. Typically, you’ll have more leverage to negotiate if you’re at the end of your lease or already paying on a month-to-month basis. However, you can still strengthen your case by showing your landlord comparable (lower) rental listings when you make the request.

Consolidating your debt

If you’re carrying credit card debt, you could be paying thousands of dollars in interest alone. In 2018, the average interest rate for general purpose credit cards was 20.3 percent, according to the Consumer Financial Protection Bureau.

By opting for a debt consolidation loan, you could pay off your higher interest credit cards in favor of a lower interest fixed monthly payment. Before you sign up, compare rates and fees against several lenders to make sure you’re getting the best deal.

Using a rewards card

If you aren’t carrying debt, now could be a good time to maximize your credit card rewards. Using a rewards card will give you a small amount of free money every time you spend. Route all your expenses through it and use the rewards to help pay down your balances. Just make sure you don’t use more than 30 percent of your credit limit (which may mean multiple payments throughout the month).

Finding the lowest price for everything

Buying? Buy used. Buy refurbished. Buy “open-box.” Better yet, join a neighborhood Buy Nothing group on social media sites like Facebook or Nextdoor.

If you have favorite brands (clothing brands for instance), sign up for their email newsletters to get notified when they have sales—and wait for the biggest discounts. Whenever possible, avoid paying regular price for anything.

Saving an emergency fund

You may not think you have enough excess income to save anything, but let’s face it, you need an emergency fund. Save whatever you can. The ideal is to save six months of expenses. Start with saving a month’s worth. It may take you a while. That’s OK.

Ideally, your emergency fund should be separate from any other form of savings. If you can, put your emergency fund in its own account and pretend it doesn’t exist.

Tapping into community resources

If an income was lost due to injury or disability, you may be able to tap resources that you didn’t previously know were available. While working, you likely paid for state disability insurance, so if you’ve been disabled, you can now collect on that (you already paid for it). Your employer may also have an insurance policy to help employees in your situation.

What communities do you belong to? Are you a member of any union, church, alumni group, or nonprofit? Does it have resources available that can help you make a better transition? These resources may be safety nets, including COVID-19 financial resources, but they may also be positive opportunities. For instance, look into scholarships for your children based on your new (lower) income.

Checking in with your finances regularly

Going forward, schedule some time to look over your finances and the pragmatic details of your life. Put it on the calendar right now. Spend that time going over bank statements and looking for expenses that can be cut or reduced. Check in about your income stream (especially if it varies), upcoming expenses, planned purchases, and more.

The Bottom Line

While there will be period of adjustment, you can reduce the stress of shifting to living on one income by creating and maintaining a budget, keeping an emergency savings account, reducing your debt expense, and practicing other money-saving techniques.

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