A financial survey from 2015 showed that 46% of U.S. households are dual-income. The key reason this is becoming the norm is obvious: we think we ‘need’ more money. With a higher cost of living, a questionable economy, and an uncertain stock market, it’s no wonder many couples believe two full-time incomes are necessary these days.
If we took a closer look at an average family’s income, bills, and spending habits, we’d frequently find that the way these incomes are being used isn’t necessary or financially advantageous. Instead of increasing our financial security, additional income often becomes an excuse to increase our standard of living – a sneaky phenomenon called lifestyle inflation. Americans are particularly bad at saving money — about 25% of us don’t have any savings at all, and roughly half of us haven’t saved anything for retirement.
You might think you can’t afford to if you’re living off two incomes and still can’t seem to save money. You would be wrong in most cases, though. Many families are finding new financial freedom by constraining their budget to just one of their incomes. The transition may be hard, but the financial pay-off can be tremendous. Here are five reasons dual-income families should live off one income and ‘bank’ the second.
#1: It’s an unparalleled savings opportunity.
If you can manage to pay all your bills and household expenses with one income, the second can be the key to achieving previously elusive savings goals: building an emergency fund, saving for a down payment on a home, maxing out 401K or IRA contributions, investing in stocks/bonds/CDs or money market funds, setting aside money in a 529 account for education expenses, saving for a big vacation, and much, much more. Even if you can only afford to do so for one year, it could forever improve your financial future. For instance, making the maximum 401K contribution of $18,000 at the age of 30 could mean having over $266,000 by the time you reach 65.
#2: It’s a way to channel funds into faster debt repayment.
Some people don’t think they can save money because they’re overwhelmed with debt, but a second income can be used to overcome this hurdle, as well. Dedicating the second income to debt repayment will relieve the burden that much faster, trimming monthly bills and money wasted on interest.
#3: Having a financial cushion relieves stress due to emergencies and unexpected expenses.
Living paycheck to paycheck or just having a tight budget can be stressful when someone gets sick, the car breaks down, or a major appliance dies. Having a savings cushion created by banking one of your monthly incomes means being able to roll with the punches with fewer ‘black eyes’ and sleepless nights. After all, having money doesn’t mean you have to spend it.
#4: It means greater security through job losses and smoother lifestyle transitions.
Even in two household incomes, many couples would experience an instant financial crisis if one of them got laid off. Things might be a little tight even if your household budget is based off of just one income, but you’ll still be able to pay your bills with fewer adjustments. Additionally, if one parent decides to stay at home after having a child, the loss in income is much easier to accommodate. Living as if you only have one income leads to greater security and easier adjustments to actual income fluctuations.
#5: Monthly budgeting gets easier.
With only one income stream to allocate for household expenses – and, if you’re using the second income for savings, fewer budget categories – budgeting gets way easier. A simpler budget means being able to quickly track and fine-tune your income and expenditures, leading to even greater financial health.
Spending just one household income and using the second to achieve financial goals isn’t easy, and it’s not for everyone at every stage of life. It is something to consider though, and there are plenty of success stories to prove it can be done.
Do you think this strategy might be feasible for you?