Couples & Money: Avoiding the Two-Income Trap

by Sophia Bera on October 2, 2013

About half of my clients are couples.  They often ask me what they could improve with their finances.  My suggestion: view “your money” as “our money” and start planning as a couple.  I realize that you may have spent the last 10 years of your adult life as a single lady (cue: Beyoncé), and you didn’t have to take into account anyone else’s money problems habits.  But once you are married and have two incomes supporting one household, it’s time to shift your thinking.  You can accomplish your goals faster, save more money, and work towards opportunities together.  They key is to live off of one income instead of two.

The Benefits of Living on One Income

When you first get married and are a DINK (Dual Income No Kids) it’s the perfect time to ramp up your retirement contributions, pay down debt with gusto, and build that emergency fund like you’re Scrooge McDuck (the richest duck in the world from the DuckTales cartoon).  You might also be thinking about starting a family in a few years.  If possible, try to set up your budget so that one spouse’s income goes towards bills and monthly living expenses.  Then you can use the other income to allocate towards your financial priorities (i.e. paying down debt, building up savings, and investing money for retirement).  This shift in mindset will force you to figure out how much of that second income you need to pay for your lifestyle.

Throwing Kids Into the Mix

If you are able to spend a few years as a couple living off of one income, you may find that you’re able to pay down a significant amount of debt and build up savings before you start a family.  This allows you to have options and flexibility once you breed (yes, I use the term “breed” for humans procreating as well as animals. I’m hoping for a litter of poodles someday).  You might decide to have one parent stay home, take an extended maternity leave, or only go back to work part time.  Many of these options are impossible if you’re living off of 100% of both of your incomes to make ends meet.  (Disability insurance is even more crucial if this is the case.  Read: The Most Overlooked Insurance for Gen Y).  Since the cost of daycare keeps going up, it might not make sense to have both parents work full time.

It Starts With Planning

If having a family would change how much time you’d like to spend at work, then it’s important to start talking about this with your spouse now, so you can start planning as a couple.  Ask each other:

  • How will things change once we have a baby?
  • What is our ideal scenario?
  • How can we move one step closer to our ideal scenario?

For example: if you have student loans that are weighing on you emotionally, then sit down and figure out how much more you can allocate towards your student loans each month.

Don’t Forget About Retirement

If you decide that having a stay at home parent is the priority, then focus on saving for retirement now so that your retirement assets can grow while one parent isn’t working.  Also, don’t forget about spousal IRAs.  As long as one spouse has earned income, he or she can contribute up to $5,500 per year (for 2013) to the other spouse’s IRA or Roth IRA.  This is really important and easy to overlook!  (Write it down if you have to!)

More Flexibility and Less Stress

The couples that I’ve known who are able to live off of one income experience less stress because they have more flexibility with their budget.   They have created options and opportunities for their family situation.  If both parents decide to work, they have freed up cash flow to pay for daycare costs.  If one parent decides to stay at home, they’ve been preparing for it, so it’s not jarring to the family budget.  By taking the time to plan they’ve created peace of mind.  So sit down with your spouse this week and ask each other: What’s the first step we can take to move closer to living off of one income?