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Losing your second income? 4 Ways to prepare

So every month, we have dinner with some good friends that we’ve been trying to convince to jump on the bandwagon and have a baby. Well, I just found out that she is eight weeks along and we couldn’t be more excited. However, they are a two income family and are now faced with losing the second income.

Couple Kissing BabyMany couples find themselves in the same situation. Both spouses work for several years until junior comes along and then mom decides to stay home. Unfortunately, they’ve become accustomed to living on two incomes. So how do you adapt to a one income family and not go broke?

First of all, let me dispel the myth that you must have two incomes to be financially viable in this day and age. Maybe you’ll call me a chauvinist, or a romantic, but I firmly believe that the male gender has a responsibility to get as much education as possible and then work hard. I know too many men that are not willing to work hard and provide for their family. Now, please do not assume that I am opposed to an educated, successful woman. I am proud to say that my wife is a college graduate and business owner. We also have two lovely little girls. The oldest turned three just yesterday.

1) Plan to lose your second income years in advance

Do you realize that many of the financial woes that we are experiencing in this nation would probably not exist if companies and families would have sufficient planned before spending way too much money? For example, if new homeowners had asked themselves, “Do I have enough money in the bank to cover my mortgage for 3-6 months if I lose my job?” then maybe a lot of Americans would have taken out smaller loans.

The point is that if you know that in the next few years you may lose one of your incomes for a variety of reasons (it doesn’t have to be a new baby), then do not put yourself in a financial situation that makes it impossible to lose the second income and stay out of bankruptcy.

2) Reduce your monthly expenses through good budgeting

The second step to prepare to live on one income is to reduce your monthly expenses to the point where one income can cover all expenses. This should seem fairly obvious to you. However, reducing your monthly expenses (and that includes investments) by $1500 to $3000 may be very difficult. Though, if you’ve planned ahead as in Step #1, then you hopefully aren’t locked into any financial commitments and simply need to make a lifestyle change.

You should be using a budgeting tool like Mint.com anyways, but if you aren’t, making this type of change will almost necessitate that you become an excellent budgeter. Basically, create a new budget based one just one income several months before losing your second income and start making all of the lifestyle changes. I say months in advance because it will take you several months to figure out how to consistently stay within a new, reduced budget.

For more information bout budgeting, read Stop Lying, 5 Ways to Stop Overspending and 6 More ways to stop overspending and save money.

3) Save money in a dedicated savings account

If you are reducing your expenses as in step #2, then you will have extra income. PUT IT IN THE BANK AND DON’T TOUCH IT. Open a dedicated savings account that is just for this income. Hopefully, you will build up a nice emergency fund that you can use to ease your transition if hiccups arise. Please be realistic though about what expenses are and are not emergencies.

This account should be in addition to your normal savings since it is coming as a result of reducing your expenses. So don’t think you get to go buy something all shiny and new with it if you are already saving month.

Once you’ve transitioned to a single income, then decide how to best invest the money in this savings account. Maybe it remains an emergency fund or maybe you can invest it in a Roth IRA account or open a 529b account for the new baby.

4) Celebrate your accomplishment

Any good or true goal should have a reward at the end. So plan some way to celebrate a successful transition to income. Maybe it is a nice evening out or other small indulgence. Don’t go too extravagant but you’ve done something amazing and it’s important to recognize that.

Conclusion – The real secret to success

I probably haven’t said anything that you haven’t already considered. The reality is that what I’ve described are simply the mechanics of change. For any successful change to occur in life, you need a change motivator. You need a reason inside of you that says not only do I need to do this, but I can do this. So find your change motivator (I hope it isn’t job loss, which can be a powerful motivator). Write your motivator down and stick it on your mirror or put a picture of it somewhere that you will see everyday. Then the mechanics of change have a living force behind them driving you to make the right decisions.

Do you have experience of going from two incomes to one? If so, please share below.

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