Practical tips and strategies when moving from dual to single income
It's not easy but it can be done.
Hi, I’m Renée, a finance and business journalist, writer, and content strategist. The Budgette is a chill newsletter about single finances and lifestyle and is published twice a month to more than 2,000 subscribers, some paid - thank you as that supports my ability to take time to interview experts. I prefer to write when I have something to say and when I’m not here, I work on content strategy and execution for Canadian and U.S. publications and brands. If you want to work together, message me or you can find me on LinkedIn.
This week, we have a guest post from my friend, Caitlin McCormack. Thank you, Caitlin!
Transitioning from a dual-income household to a single-income one can be a daunting process, filled with financial uncertainties and lifestyle adjustments. However, with careful planning and strategic considerations, this transition can be managed smoothly.
While the complexities and specific strategies may vary depending on the reason you’re transitioning from one income to two – one partner leaving the workforce, divorce, the death of a partner – many of the same principles apply no matter the situation.
Knowledge is power
One of the first and most crucial steps in transitioning to a single income is to start with a complete understanding of where you stand financially, says Meghan MacPherson, qualified associate financial planner at Impact Financial Group Inc.
“A lot of times in a partnership there's usually one partner who maybe will make more of the financial decisions or has more of a grasp on the finances. So if we're dealing with the partner who doesn't, it can cause concerns with them not feeling empowered or confident to really even know where to start,” says MacPherson.
While you can certainly sit down on your own and take stock of your finances, engaging with a financial professional, such as a financial planner, can help ensure you’re covering all aspects of the transition. Additionally, a trusted financial advisor can provide impartial guidance, support, and expertise in navigating the complexities of adjusting to a single income.
Create or reassess your budget
Creating or reassessing your budget is fundamental when transitioning to a single income. Start by evaluating all possible income sources post-transition and determining your fixed and variable expenses.
Fixed expenses are those that remain consistent each month, such as mortgage or rent payments, utilities, and insurance premiums. Variable expenses, on the other hand, include discretionary spending items like dining out, entertainment, and leisure activities.
“When looking at those categories, a lot of people will think, ‘What should I be spending in this category or what should I be looking at in this area?’ And I think the key when people are going through this exercise is that it has to be individualized,” says MacPherson. “What one person may see as important or would prioritize in their budget could be totally different from what someone else would.”
MacPherson advises individuals to approach budgeting with a realistic mindset, acknowledging that priorities and spending habits may need to change. It's essential to identify areas where expenses can be trimmed without sacrificing essential needs or quality of life. She notes that every little adjustment counts, and it's better to make gradual changes than to impose drastic cuts that are unsustainable in the long run.
Incorporate savings into your budget
Despite the transition to a single income, MacPherson says it's still important to prioritize savings as part of your budget.
“Even if you can't find the amount that you're hoping for right away or you need to take baby steps to get there, having a buffer in place is important,” says MacPherson.
Saving for both short-term needs, such as emergency funds, and long-term financial goals, like retirement, should be integrated into your financial plan. MacPherson suggests treating savings as a fixed expense, emphasizing the importance of making regular contributions to build financial resilience and security.
“As soon as you stop doing it, it's going to be that much more difficult to reincorporate it back into your budget.”
Utilize government benefits and tax credits
A reduction in your household income may make you eligible for various government benefits and tax credits at both the provincial and federal levels. These could include child benefits, tax deductions, or credits for specific expenses. By maximizing these opportunities, individuals can alleviate some financial strain and improve their overall financial situation.
The good news is, it’s as simple as filing your taxes each year and updating your relationship status with the Canada Revenue Agency, if applicable.
Seek additional income opportunities
Exploring supplemental income opportunities, such as part-time work or freelancing, can provide an additional financial cushion during the transition from two incomes to one. While finding time for side hustles may be challenging, even small additional income streams can make a difference in bolstering your financial stability.
“That'll just help you and build up financial security even further,” says MacPherson, though she underscores the importance of balancing additional work commitments with other priorities and responsibilities.
Focus on financial independence
Finally, transitioning to a single income presents an opportunity to focus on building financial independence. MacPherson emphasizes the significance of taking small steps toward financial empowerment, even amidst the challenges of adjusting to a change in household income or family situation.
“It’s important to acknowledge that it's a huge transitional period, and one that's going to take time to actually get to where you want to be with things. Taking those small steps is key, and engaging that professional that you can trust.”
Transitioning from a dual to a single income household can be a significant life change that requires careful planning and strategic decision-making. By engaging with financial professionals, creating a realistic budget, prioritizing savings, maximizing government benefits, exploring supplemental income opportunities, and focusing on financial independence, individuals can navigate this transition successfully and pave the way for a secure financial future.
Related: Financial prepping if you’re going to be single
This week’s readings:
“For example, she said landlords could make bad-faith reports if they disagree with a tenant on the cost of repairing damage, or threaten to hurt a tenant’s credit score if they break a one-year lease.” - this, exactly. Ottawa’s plan to count rent payments toward credit scores needs safeguards, tenant advocates say (Globe and Mail)
I cannot tell you how many friends sent me this article. Being Single? In This Economy? Quite frankly I’d have told Natalie to go to hell over her cluelessness.(Bustle)
How much does a single person need to retire? It’s less than you think. Here are the numbers (The Toronto Star)
By me: ‘Don’t stress,’ Gen-X: It’s not too late to set yourself up for a comfortable retirement (The Toronto Star)
Is money making you sick? (Time)
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