Splitting up from a partner or losing a job is hard. You’re suddenly dropping from two incomes to one, and it means a whole change in your lifestyle.
In some cases, this drop is temporary. You may have just been let go, or you may be waiting for a new job to start.
However, there are times when the drop in income is permanent, due to a relationship breaking down or a need to change the way you and a partner handle work and life at home.
Either way, changing your lifestyle is necessary. And here are my top tips based on when I dropped from two incomes to one.
Look at Your Budget Again
The first thing you need to do is look at your budget.
Take a look at what’s coming in and what’s going out. If you don’t do this, you’ll keep spending as if you’ve got the two incomes coming in, and this is going to create debt.
Make sure you include any other income that you have. When I separated from my husband, I had more in child benefit coming in. It also meant a few expenses changed, because I didn’t have to pay for items my ex had agreed to pay for.
So, I sat down with my spreadsheets and worked it all out again. It was the first thing I did, as I needed to immediately change the way money was going out.
You may need to cut back on luxuries. I didn’t want to cut back on saving for retirement, so I cut back on things like streaming platforms, eating out, and other fun things. I looked for more free things to do in my area, so I could still go out and have fun.
Prioritize Getting Out of Debt
You’ll be surprised by the amount of money you spend on your debt. The interest rates add up, and soon all your income is going on that.
It’s time to prioritize paying your debts off.
I was fortunate that I walked out of my marriage without a lot of debt. It took little time to pay it off, but that’s because I’d already had a budget set up and I’d cleared the majority of my debt before my marriage came to an end.
Not everyone is like that, and I get it. So, you want to prioritize that first.
If I did have a lot of debt, I would have put saving for retirement on hold, and then I would have put that money onto the debt to get rid of it.
You’ll also want to look at refinancing if you can. In some cases, you need to do that anyway, as there will be houses and other assets to sell.
If you have credit cards and car loans, look at consolidating everything into one debt. I usually recommend either the snowball or avalanche method for clearing debt, but when you suddenly drop to one income, consolidating can often be the best option.
Eliminate as many unnecessary payments as possible as soon as you can.
Get Your Emergency Fund Established
You need an emergency fund now more than ever. When you drop from two incomes to one, you may already have an emergency fund to fall back on temporarily.
This is great if you’ve just been laid off and are just waiting for the next job’s pay to kick in.
However, if you’re permanently dropping, then you need to try to keep that emergency fund intact as much as possible. What happens if you lose your job? What if you go to zero income? You need that emergency fund!
So, I would say put that before retirement.
Again, I had the benefit of having a small emergency fund, and with a complete change to my budget, I was able to figure out a way to add a little to it each month while thinking about the future. My retirement fund is also in a TFSA, so I can access it if I need it in a dire emergency.
Do a Trial Run!
It’s easy to get trapped in the two-income pattern, so if you know you are going down to one income soon, consider doing a trial run.
Maybe you’re expecting a baby and will be taking a year off. Or maybe you need to take time off work due to stress or other medical issues.
When you have the ability to plan, you can start making changes before you suddenly drop to one income.
So, create a trial run. Look at your budget as if you only have one income, and make it work. That second income can then be put into savings, so you build your emergency fund right away.
If you struggle one month, that’s okay! It’s a trial, and you have time to adjust.
Whatever you do, budget! That’s the best way to go from two incomes to just the one, however permanent or temporary it is.
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