At this point, you and your spouse feel like you’ve got a grip on the whole budgeting thing. (You’ve got at least three months set aside in your emergency fund, not to mention regular money dates on the calendar—go you.)
Enter the “Two-Income Trap,” the idea that, when you get married, you suddenly base your spending on two incomes versus one. We caught up with Talat McNeely, financial expert and founder of His & Her Money, to learn more about the concept—and how he and his wife Tai successfully sidestepped it.
First things first: What is the “Two-Income Trap”? “It’s actually a term originally coined by presidential candidate Elizabeth Warren. A professor at the time, she wrote a book with her daughter that identified the concept: It’s when two people get married and they both have careers and they both have income and they build a lifestyle where both incomes are required. The trap occurs when life situations happen—say, a job layoff, a desire to be a stay-at-home parent—and they’re in a tricky spot because their budget is based on having a dual income vs. one.”
How did you and your wife avoid the trap? “We found out about the concept during our engagement and before we built a co-financial life together. That meant we could look at our lifestyle and make adjustments ahead of time. We bought a house based on one income. We even got rid of every single piece of debt we had using one income. It gave us so much more flexibility, long-term.”
But what if you’re already married? “Maybe you can’t get to living off one income exclusively, but that doesn’t mean you can’t move from spending 100 percent of both incomes to spending 90 or 85 percent. Small changes to your lifestyle are all it takes: Maybe it’s more ‘Netflix and chill’ versus movies at the theater; or reducing costs like cable or the fact that you pay for both Apple Music and Spotify when you only need one streaming service. Small adjustments do make a difference. The goal is to prepare yourself for the unexpected. For example, my wife was working in corporate America, but when our first son was born, she wanted to be a stay-at-home mom—something that surprised even her. Bottom line: You need to have a margin in your finances for your own life evolution. And that starts by trying to chop off a 5 percent margin at a time.”
And when you do find a place to cut, what should you do with the surplus? “My best advice is to automate it. That way you get accustomed to not having that money to begin with.”