Many Living Expenses, One Salary
For couples used to living on a two-salary income, moving to a single income could be daunting. But there are several reasons why the switch to a single salary may be needed. For instance, one partner may need to stay home for a period of time. Or maybe a health issue arises, or there’s a retirement or divorce. There are certainly planning considerations and financial calculations that need to be made. But most importantly, there is hope. I will share some reasons below why the switch to one salary may not be as hard as initially thought. If you’re considering making the switch, here are some key factors to think about:
Realistically Assess Future Monthly Income
One of the biggest determinants in your decision should be the monthly income of the sole earner. You should determine the realistic monthly earnings as well as the security of the job. From an income standpoint, it’s probably best to make conservative assumptions around future raises and bonuses. And then, from a security standpoint, think about how quickly the sole earner could find a new job in the event of job loss. Whether a move would be required for new work should be a consideration as well.
Side-Income As a Supplement
An additional consideration here would be the likelihood that side income could be earned to supplement that single income. Having the flexibility of doing something on the side like tutoring, a trade, working in the service industry or some online venture could provide extra income to supplement this move.
Lower Tax Rate, More Tax Credits
One of the fringe benefits of going down to a lower total income is that couples tend to move into a lower tax bracket. They may also become eligible for more tax credits. The U.S. tax code is fairly complex, but since the tax rates are set up in a tiered fashion, the more you make, the higher your tax rate. The same concept applies when you reduce your income, so you keep more of your money earned. Additionally, things like the Child Tax Credit, education credits and various other tax credits get phased out at higher incomes, but they are more favorable at lower incomes. So, when you look at your total take-home income including tax benefits after the move, you may well end up ahead of where you’d hoped. Before you take action, it’s a good idea to speak with a tax professional.
Lower Expenses for Certain Services
When our family went to a single income, we saw some benefits we hadn’t though of initially. For instance, there’s no childcare expense with one of us home. We also don’t have to pay for someone to do a lot of other things now that there’s more at-home time between the two of us. This includes everything from dog walking to dry cleaning to less money spent on food, since home cooking is more economical than eating out. List out all the goods and services you spend money on now, and see where there might be some opportunities to save. This is additional cash you may not have planned on having.
The information in this article is provided for education and informational purposes only, without any express or implied warranty of any kind, including warranties of accuracy, completeness or fitness for any particular purpose. The information in this article is not intended to be and does not constitute financial or any other advice. The information in this article is general in nature and is not specific to you the user or anyone else.