Two high incomes don
It is a modern two-income-family tale:
Two well-paid people get married. They are too busy to cook and therefore often dine out. They spend the remainder of their money on vacations and shopping.
They buy a house. After they have children, they upgrade to a larger house with another bedroom or two. Their debt load increases.
What remains constant throughout all this is the upscale lifestyle to which they’ve grown accustomed.
"I don’t know if you’d always call it a blessing to have two incomes, because people often don’t know how to manage it," said Mary Sullivan, a chartered financial consultant with Protected Investors of America of San Francisco. "I tell people when they get married that they should live on one income and save the other."
Her first step with client couples is to have them fill out a budget sheet and examine it. They immediately realize the danger of living beyond their means. They’d just never thought it through before.
"I suggest to two-income families that they look at the family as a business," said Evelyn Zohlen, certified financial planner and president of Inspired Financial in Huntington Beach, Calif.
Put one spouse in charge of the checkbook because trying to divide the act of writing checks increases the chances of something slipping through the cracks, Zohlen said. Sit at a table and pay bills while the other person completes other household tasks.
Changes in society have altered the psychology of two-income families.
"People are getting married later, so they know better how to manage their own money and may not be comfortable turning that over to someone else," Zohlen said. "Also, sometimes after divorce people feel as though they didn’t have a good enough grip on what was going on with their money, so they vow never to let that happen again."
Financial decision-making must take into account the personalities of both spouses.
An emergency fund is important for a two-income family, as it is for one income free credit report without a credit card. But the two-income household can make do with a smaller emergency fund. Using the guideline of three to six months of expenses set aside for a rainy day, having two steady incomes means you can be comfortable on the shorter end of that range, he said.
Calculate how far you’d get with all your fixed costs if one paycheck was lost.
More financial advice for the two-income couple:
•Avoid overlap in employee benefits that could be costing you money.
•If one spouse’s company offers a 401(k) matching amount and the other’s doesn’t, load up on the plan offering matching funds first.
•Don’t assume that your spouse is covering any long-term financial goals, such as retirement planning or taking care of college savings for children. That may not be happening.
While coaching clients in setting lifetime goals, Sullivan asks how they’d live their life if they had all the money in the world, how they’d live their life if they had five years to live, and what they’d regret not having done if they were 85 years old and looking back on their life.
"Couples who had considered money the most important really open up when answering those questions and realize it isn’t most important after all," Sullivan said, noting money merely represents the means to accomplishing goals. "Instead, it is family and friends and having time to do things."
andrewinv@aol.com
2008, TRIBUNE MEDIA SERVICES INC.
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