The Easiest Way to Build Wealth as a Couple

The Easiest Way to Build Wealth as a Couple

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Hello all! Andy Hill here …  We have a new guest post from personal finance author Elle Martinez from Jumpstart Your Marriage and Your Money. Elle’s mission of helping couples improve their money-smart ways is right up my alley. Her article below gives you the skinny on how couples can truly take advantage of a dual income household. Enjoy!

Two incomes are better than one, right?

Marriage can be a beautiful partnership when spouses combine their gifts, talents, and support. Two incomes for a couple can also be a blessing – if used wisely. Let me explain.

The Biggest Trap for Couples Looking to Retire Early

Since 2014, I’ve been interviewing couples who’ve done extraordinary things with their money – paying off six figures of debt, traveling the country (or world) together, and retiring early.

Though there were so many different dreams and paths each couple took, certain patterns kept coming up. For those who retired early (talking about 30s and 40s!), one key to their success was avoiding the two-income trap. Think about it, when you and your spouse got married you probably saved some money by sharing expenses.

What did you do with the money saved?

If you’re like most couples, you ‘upgraded’ some things. Maybe you found a nicer place, got some beautiful furniture to decorate, and went out to eat more. It’s not wrong or bad to take things up a notch, but if you’re looking to become financially independent, one of the best things you can do is learn to budget and live on one income.

I know there are some areas of the country where that seems impossible, but even if you make that your goal and work towards it, you can reap huge benefits. It can shave decades off your retirement date and it will help reduce financial stress in your marriage.

The Math Behind Retirement

Let’s say there’s two couples who are trying to retire early. Chris and Melissa take home about $55,000 and their buddies Mike and Alyssa earn $80,000.

All of them worked hard, paid their way through school, and made sure that they had no credit card debts or car loans. They want to maintain a similar lifestyle when they retire so they are saving from day one. They’re both using low-cost index funds. Financially speaking they’re all ahead of the curve.

Here’s where they differ, Mike and Alyssa have set aside 15% of their paychecks to go towards retirement. That’s better than average and means they contribute $12,000 per year. Chris and Melissa decided they’d live off one income ($30,000) while socking away the rest, leaving a healthy amount of $25,000 for retirement. How soon do you think they can retire?

Chris and melissa saving 46 percent
Chris and Melissa saving 46%

For Chris and Melissa, they can retire in just under 19 years. And their friends with the bigger income? They’re looking at over 42 years – almost three decades of difference between the two of them!

Mike and Alyssa Saving 15 percent
Mike and Alyssa Saving 15%

Okay, let’s say Alyssa and Mike step it up. They too put $25,000 into their accounts each year. How soon can they retire? Did you guess 26 1/2 years?

Mike and Alyssa Saving 25k
Mike and Alyssa Saving $25k

Wait, why didn’t they get 15 years like their friends?

It’s because it’s not just about how much you earn or even the amount you contribute. The key factor to retiring early is the percentage of your income compared to your expenses.

Want to become financially independent faster? Grow that gap between what you earn and what you save and for couples learning to live on one income can be a game changer.

How to Grow That Gap, Fast

If you’re like most couples, though, it’s going to take some time to get up to that level of savings. The good news is that even if you focus on improving one expense each time, you’ll shave off time for retirement.

The question for most is, where do we begin?

There are so many approaches you can take. Some couples like to go for big wins – they look for their biggest expenses and slash them. Others like to knock them down little by little. They feel it is a more sustainable path.

Either approach works, but even before you start on your plan, I want you to do two things:

1. Discuss What Matters Most to You

Sit down one afternoon or evening and talk about what you truly want to do. If money weren’t a concern, what would you like to do? Where would you want to go? The more you can describe it, the better off you’ll be.

2. Review Your Monthly Expenses for Value

On another day, look at last month’s expenses and go through it line by line. We’re not trying to find ways to save just yet. Instead, as you go through them, ask yourselves, how important is this? Does this bring us closer to our dream? Once you two have an idea of where you want to go, it becomes easier to move your money in that direction.

Make money dates (or budget parties as Andy calls them 🙂 ) a part of your routine. Use them to not only take care of the finances but keep each other motivated and encouraged.

You two are an awesome team that can achieve some great things when you work together!


Elle Martinez is the founder and host of Couple Money. Her new book, Jumpstart Your Marriage and Your Money, is designed as a four-week guide to help couples build their wealth together!


How do you take financial advantage of your two-income household?


 

Author: Andy Hill

Andy Hill, a mid-30’s father of two living in the metro Detroit area, pens the MarriageKidsandMoney.com (MKM) blog taking you through the trials and tribulations of being a young parent and husband who is planning for his family’s future and winning with money.

8 thoughts on “The Easiest Way to Build Wealth as a Couple”

  1. We aren’t a dual income couple and we certainly wouldn’t be a poster couple for being on the same page with money, but I think focusing on the amazing things you can do with your money (like achieving financial independence, being able to travel, becoming debt-free) is essential.
    There’s generally a saver (me) and a spender (my husband) and it really is important to run those numbers and be clear on mutual financial goals together to make it work!

    1. It’s fantastic you two are working together!

      Hahaha, poster boys (or couples) are overrated. I find it fascinating to see how spouses find a system that works for them and allow them to play to their strengths. Glad you guys are running the numbers and have clarity on your goals. 🙂

  2. I couldn’t agree more about discussing what matters most. It took Mr. Adventure Rich and I many long walks, conversations over a beer/wine/whiskey and much friendly banter to finally realize that we both did want to pursue financial independence. So much of our initial concerns, questions or seeming “disconnects” were really solvable, it just took a conscious effort on our end to sit down and discuss at length (not just sit down and watch Netflix or always head out with friends). Once the priorities are more aligned, so many other things in life seem to just fall into place!

    1. Yeah, many times it takes several conversations to really build a plan/dream together. (I like the whiskey idea, we may use that next money date! 🙂 )

      Figuring out priorities can be tricky as we think have an idea, but sometimes it turns out to be something else. There’s something to talking about it out loud that can help solidify things.

  3. It does seem easier to build wealth with a partner and having dual incomes. Higher pay could equal more to be saved and invested for retirement. But you’re right, it all comes down to that ratio and being able to still save and live frugally even when you can afford not to.

    1. Yeah, I think sometimes personal finance community focuses on the big incomes or how much (dollar amount wise) people contribute for retirement. Some couples have a great income and kudos for that.

      The good news is that early retirement/financial independence can be doable for many couples. However, it does take a commitment. Not as newsworthy for some, but definitely respected by me 🙂

  4. Big indexer here =) it’s worked out tremendously for us. Averaged 15%+ annual returns over the past decade. Obviously from the historic bull run we’re still currently in. But we stick mostly with the basics. I’ve started tilting a lot more towards emerging markets though and that’s proven to be a great move as well the past year and half =) Thanks for sharing!

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