As the saying goes, more money means more problems. But it doesn't always have to be this way. Contrary to popular belief, the financial change can present some pitfalls for couples looking to transition from one-earner to two-income earners, including overspending when household income suddenly increases.
However, there are steps couples can take to avoid these issues.
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As Beyond Finance's Certified Client Financial Therapist Nathan Astle, CFT-I, LMFT, puts it, personal finance is a lifelong journey, and it's not something you “figure out” all at once.
“It's important to view the couple's financial journey through the same lens,” Astle says. “We can't solve everything at once, but we can practice honest, vulnerable, and safe communication, which will make it easier to make real money decisions in the new economic climate.” It will be like this.”
Here are some steps financial experts recommend when transitioning to a dual-income household.
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Manage lifestyle changes with a realistic budget
It's natural that when you move from a single-income household to a dual-income household, you'll have some increased discretionary spending.
“That said, be wary of lifestyle creep, the common habit of spending more money when you earn more,” said Steve Sexton, CEO of Sexton Advisory Group. That's important,” he said.
For people without a budget plan, she explained, lifestyle changes can easily get out of hand and monthly expenses can add up quickly. So, to prepare for this transition, review your finances and make a plan to allocate your new income.
“If you don't know where to start, use the 50/30/20 budget rule, which allocates your after-tax income into the following categories: needs (50%), wants (30%), and savings (20%). We understand that, and we need to create some structure to navigate the new cash flow for families,” Sexton said.
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continue to live as if there is only one income
Jay Zygmont, CFP, Ph.D., founder of Childfree Wealth, says the best plan for going from one income to two is to live as if you only had one income.
“You've been living on one income for a while and can probably continue without a second income,” he said.
Meanwhile, Zsigmont said you should try to save towards a goal rather than spending your second income.
“This could include any goal, such as housing, travel, or saving for retirement,” he added.
Set a budget and stick to it
Another tip for couples to avoid overspending when transitioning from a single-income household to a dual-income household is to simply track your spending and see where your extra money is going.
“If you budget to increase your savings and debt payments before increasing your living expenses, you can avoid deteriorating your life,” said Blake Witten, a financial advisor at Witten Retirement Solutions. “Just because you earn more doesn't mean you have to spend more on a bigger house, car, vacations, etc. Live below your means.”
Avoid big purchases
Avoid big impulse purchases and give yourself time to rationalize your big expenses.
“You should try to communicate openly. Discuss common financial goals and spending priorities. Create a joint budget and savings plan,” Witten said. “The key is to intentionally direct your increased funds towards your financial goals rather than inflating your lifestyle. Don't try to keep up with others or succumb to lifestyle inflation. . Stay disciplined and stay focused.”
Make the most of your retirement accounts and think about health benefits
Zygmont notes that if you have two incomes, you may be able to get the most out of both retirement accounts. If you do, you could quickly accumulate significant savings.
Additionally, if you can benefit from both, try to analyze what is the right combination, he said.
“You may be better off with separate health plans, or you may be better off with health plans together, but you need to weigh your options,” he added.
Clarify your “why”
The purpose of making more money is to improve your quality of life, and that definition differs for each couple and family.
Conversely, Sexton said it's important to align your “why” because it will help you and your partner decide what's important to spend your money on.
“This could be investing in childcare so both partners can focus on building their careers, or traveling as a family together to create core memories,” he says. “When you think about your 'why,' it becomes easier to determine what is worth paying for and, more importantly, what isn't.”
Finally, as Beyond Finance's Astle pointed out, when two people talk about money, “there's definitely some extra emotion.”
“One of the most important things to remember in money conversations with your partner is that you don't have to agree on everything to solve problems together,” he added.
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This article originally appeared on GOBankingRates.com: I'm a Financial Planner: How to go from one income to two without overspending
