People decide to leave the workforce for many reasons. It may be to become a stay at home parent, health reasons, going back to school, or more. One of the biggest adjustments can be making the switch from dual incomes to a single income. Here are some factors to keep in mind both before and during the transition process.
DO THE MATH
Before one person leaves their job, both parties should sit down together and crunch the numbers. Is living on one income feasible? How will it affect our lifestyle? How will it affect our bills? Etc. Compare your monthly expenses to the monthly income you are planning on keeping. If there is an astronomical difference, living on one income may not be an option for you right now. If the difference is only slight, with a few lifestyle changes, you may be able to make it work.
START A BUDGET
When you have less money coming in, it becomes even more important to have a budget. Track your spending for a month or two prior to the income change, if possible. This means, all of your expenses, including bills, gas, groceries, etc. This will help you make a realistic game plan that you can implement before your income changes.
COST OF CHILDCARE
If there are children involved, it may be more expensive to have both parents working because of childcare costs. According to Care.com, the average cost of childcare in 2016 was over $10,000 per year for daycare. These costs are estimated to continue to rise over the coming years. Remember to include this expense in your budget.
Changing the amount of money that you are making as a couple could change how you file your taxes. This could mean you're in a different bracket, the deductions available to you may have changed, or you may owe less. If you have specific questions regarding your tax situation, talk to a tax professional.
If both parties have been contributing to your retirement fund, erasing one of those incomes may have a negative impact on your planning. However, only one income may mean you are now eligible for retirement saving options that you weren’t before. Speak to a financial advisor if you have any questions or concerns about your retirement planning.