I’m a Financial Planner: How To Transition From One Income to Two Without Overspending
Written by
Yaël Bizouati-Kennedy
Edited by
Molly Sullivan
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More money, more problems as the saying goes. But it doesn’t always have to be this way. Contrary to popular belief, for couples transitioning to two incomes from one, the financial changes can generate a few pitfalls, such as overspending when their household income suddenly increases.
Yet, there are steps couples can take to avoid these issues.
As Nathan Astle, CFT-I, LMFT, certified client financial therapist for Beyond Finance, said, personal finance is a lifelong journey — it isn’t something you have “figured out” all at once.
“Looking at your couple’s financial journey through the same lens is essential,” Astle said. “We will not have this all figured out at once, but we can practice honest, vulnerable, safe communication, which can make the actual money decisions much more accessible to approach in new financial situations.”
Here are some steps financial experts recommend when you transition to a two-income household.
Manage Lifestyle Creep With a Realistic Budget
When transitioning to a two-income household from one, some increased discretionary spending is natural.
“That said, it’s important to be mindful of lifestyle creep, the common habit of spending more money as you earn more money,” said Steve Sexton, CEO of Sexton Advisory Group.
For those without a budget plan, lifestyle creep can easily get out of hand and result in your monthly expenses ballooning quickly, he explained. So, to prepare for this transition, take stock of your finances and have a plan to allocate your new income.
“If you don’t know where to start, the 50/30/20 budget rule — which allocates your after-tax income into needs (50%), wants (30%), and savings (20%) categories — can provide some structure as you navigate your family’s new cash flow,” Sexton said.
Continue To Live as If You Had Only One Income
According to Jay Zigmont, PhD, CFP, founder of Childfree Wealth, the best plan he’s ever seen for moving from one income to two is to live as if you only have one.
“You have been living on one income for a while, and likely can continue without the second income,” he said.
In turn, Zigmont said that instead of spending the second income, work on saving it toward your goals.
“This may include saving for a house, travel, retirement, or whatever your goals are,” he added.
Set a Budget and Stick To It
Another tip for couples to avoid overspending when going from a single to dual income household is to simply track their spending to see where the extra money is going.
“Budget for increased savings and debt repayment before increasing lifestyle expenses this helps to avoid lifestyle creep,” said Blake Whitten, financial advisor at Whitten Retirement Solutions. “Just because you have more income doesn’t mean you have to spend more on things like a bigger house, car, vacations. Live below your means.”
Hold Off on Major Purchases
Avoid big-ticket impulse purchases and give yourself time to consider large expenses rationally.
“You should make sure to communicate openly. Discuss your shared financial goals and spending priorities. Make a joint budget and savings plan,” Whitten said. “The key is to channel the increased funds intentionally toward your financial goals rather than inflating your lifestyle. Avoid keeping up with others or succumbing to lifestyle inflation. Stay disciplined and focused.”
Max Out Your Retirement Accounts and Think of Your Healthcare Benefits
Keep in mind that with two incomes you may be able to max out both of your retirement accounts, which can result in considerable savings quickly, Zigmont said.
In addition, he said that if you both are getting benefits, be sure to do an analysis to look at what the right combination is.
“It may be that you are better off being on separate healthcare plans, or together, but you need to weigh the options,” he added.
Get Clear on Your ‘Why’
The purpose of making more money is to enhance your quality of life, which every couple or family defines differently.
In turn, Sexton said that aligning on your “why” is important because it helps you and your partner decide what is important to spend money on.
“This could be investing in child care so both partners can focus on building their careers, or traveling together as a family to build core memories,” he said. “When you align on your ‘why,’ it’s easy to make decisions on what is worth your money, and more importantly, what isn’t.”
Finally, as Beyond Finance’s Astle pointed out, when two people talk about money, “you can bet there will be extra emotions.”
“One of the most important things to remember about money conversations with a partner is that you don’t have to agree on everything to be able to problem-solve together,” he added.
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