How (and Why) to Live on One Income in a Two-Income Household

Understand the benefits.

The advantages of living beneath your means can yield significant benefits. "Living on one income in a two-income household gives you tremendous flexibility in your everyday life," explains lifestyle budgeting expert Andrea Woroch. "You will have more money to build savings, pay down debt, and achieve other major goals you set for yourself and your family. It ultimately gives you more options which can bring peace to your life."

She says when you live on one income even with a second one coming in, you will have more opportunity to invest and build wealth or even have an opportunity to start your own business or retire early. "With restricted budgets, people often get tied down to a job they may not like because they can't afford to lose the income or associated benefits like health insurance," Woroch adds.

Start the process slowly.

Like quitting a bad habit, a cold-turkey approach seldom works effectively. Instead, take it slow and have a plan in place.

"To begin weaning yourself off the second salary, take stock of your expenses," says Snigdha Kumar, personal finance expert and head of product operations at Digit. Kumar recommends assigning your monthly obligations into categories to help you prioritize your spending. "Identify the 'must-haves' and eliminate some of the 'nice-to-haves' and consider paying the 'must-have' expenses with the higher salary," she advises.

For instance, if you earn $50,000 and your partner earns $35,000, consider using the higher salary ($50k) to pay for living expenses and save the other towards retirement, emergency funds or investing for a mortgage down payment, Kumar says.

"Many dual-income families take on expenses based on the money both partners earn. There is nothing wrong with this approach, but if couples want to turbo charge their finances and gain some form of financial independence, make sure a single salary can cover basic living expenses," she adds.

Approach the shift with enthusiasm.

Even though you're tightening your belt, and are cutting back extras like dining out, meal-delivery or auto-pay subscription services, the end result will work in your favor. And once you have the commitment to stash one income, spin the sacrifices as securing long-term financial goals rather than reluctantly forgoing short-term conveniences and luxuries.

"By doing this, you get the flexibility of saving the other salary, investing it, and letting it grow into a big retirement nest egg," says Kumar. Another bonus of living a bit more modestly is that you can use the savings as a reward. "You can even save for a vacation or that car you wanted," continues Kumar.

Plus, living on just one salary when you actually have access to two is a smart way to ensure family stability and resilience, says Kumar, especially in these uncertain pandemic times. "Living below your means on just one salary for your monthly costs will help protect you from any future, unexpected shocks," she says. For example, if you depend on both incomes for supporting your household and one of you suddenly loses a job or is unable to work due to health issues, you are in a better position because of your existing one-income approach.

Put the plan in motion.

The reason for pivoting to a one-income household affords you a savings strategy to plan for the future, but implementing your plan takes some commitment. Here's an action plan on how to get started.

Define your "why."

Lauren Bringle, an accredited financial counselor at Self Financial, a fintech company, says to consider these questions as you're starting the one-income dive. Why do you want to live on one income? What's your goal? What are you working towards together that living on one income could help you achieve? "Maybe you want to retire early to travel the world, pay for your kid's college so they don't have to take on student debt, buy your dream home sooner, or something else," she says. "Pick a reason that will keep you motivated and focused when you're tempted to stray from your goal."

Pull together a list of everything you spend money on.

Bringle suggests creating your list of what you spend on: bills, insurance, transportation, food, subscriptions, eating out, travel, fun money, and everything else. It can also help to pull your bank statements and credit card statements from the last 30 days, but don't forget to account for any expenses that only come up once a year or less frequently than once a month too, she advises.

"Once you have a clear picture of everything you spend money on, it can be easier to see where you want and need to cut back on spending," says Bringle.

Start the cutbacks.

Think about what you can easily cut back on—and cut out those expenses ruthlessly, says Bringle. Next, decide what you feel comfortable slightly cutting back on.

"For example, maybe you look at your spending list and are surprised by how much money you spend on subscriptions you never use," says Bringle. Then, choose categories to spend some money on, but reduce. "Maybe you could replace two meals out with two meals made at home each week, if you eat out several times a week," says Bringle. "The right balance for you will vary depending on your hobbies, needs, and goals."

Designate a "no-go" category for each earner.

By "no-go," Bringle means this is the category you just don't want to cut back on (or cut back past a certain point on) because it's something you absolutely love that brings you joy.

"And the same goes for your partner," she stresses. "If you get too restrictive with your budgeting, it can be just like a crash diet you can fall off the wagon pretty quickly."

Instead, pick a budget that's sustainable for both of you over the long run. According to Bringle, an example might be that you absolutely love going to yoga, and you go all the time, so your monthly yoga studio subscription is a "no-go" when it comes to finding places to slash in the budget.

Resist the urge to live larger.

Embracing a one-income household, shifting your priorities, and reevaluating your money choices won't be easy and may come with regrets. If you put some safeguards in place, you can resist the urge to give up.

"If you think you will be tempted to use the second salary, I recommend creating artificial guardrails to 'hide' the money from yourself," states Kumar. For instance, she suggests to max out your 401K contributions for the year, set-up a recurring payment from your salary towards your emergency savings account or use "robo advisors" such as Digit, Wealthfront, and Betterment to set aside money every month towards investment goals such as your mortgage or child's education.

But, she cautions, don't be too hard on yourself if you have to occasionally dip into portions of your household's second salary. "Life happens, and it may not be easy to completely wean yourself off the second salary at first, but you should aim to use less of it as you progress on your journey," says Kumar. "Remember: Slow and steady wins the race."