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Financial Planning for Dual-Income Families

Financial planning for dual-income families (also called two-income households) obviously consists of all the normal financial planning. However, there are some challenges and opportunities unique to two-income families.

The specific challenges and opportunities will depend on the life-stage of the family. For example, Generation X financial planning may revolve around paying for college or ramping up retirement savings. Financial planning for Generation Y (Millennials) may revolve around saving for college and making sure they have the right type of life insurance.

With this in mind, read on to learn what types of financial planning topics are specific to dual-income families.  

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Tax Considerations

There are various rules in the tax code that can adversely affect married filing joint taxpayers vs. single taxpayers. It can get worse when there is a big income difference between the two spouses.  

Married Filing Separately usually isn’t a good option, but can make sense in limited circumstances like IBR (Income-based repayment) for student loans or if one of you has a ton of medical expenses. 

Most planning will revolve around utilizing itemized deduction planning and doing what you can to get various phaseouts, which are not always double the phaseouts for single filers. 

Paying for childcare is usually a necessity for a dual-income family, and it isn’t cheap no matter how you approach it. There are some tax benefits available for child care, including the child and dependent care tax credit.  

Benefits Optimization

Speaking of tax benefits for child care, you can take advantage of Dependent Care Flexible Spending Accounts (FSA) if one of your employers offers one and you otherwise qualify.

Since you and your spouse are both working, you may have two options for nearly every benefit depending on your employers.  Health insurance is a big one.  It is always a good idea to do the analysis each year to determine the best way to get health insurance for the whole family.

You and your spouse can also compare 401k providers to determine which has the best match, lowest fees, best investment options and best features.  

Debt

Sometimes it can make sense to keep debt separate, like some student loans.  Other times it can make sense to have joint debt, potentially with better terms.

A neat trick my wife and I use is to each get credit cards separately with the other as an authorized user. This allows us to each participate in bonuses, doubling the points for our family!

Of course it goes without saying you need to make sure you’re paying off your credit cards in full each month. You’ll also want to be sure you aren’t harming your credit score with this strategy if you have larger purchases coming up that will require you to obtain credit.

Savings and Investment

Depending on your jobs, you may have the ability to save more money into retirement (tax-favored) accounts.  For example, an employer plan allows you to save up to $19,000 ($25,000 if you’re age 50 and over) per year.  Two employer plans means your family can contribute $19,000 more into a tax -favored account than a single income family.  

You also may not need as large of an emergency fund if you have two incomes, all other things being equal.

You should also coordinate your investment allocations. If you plan to spend the money together one day, it usually makes sense to invest it together. This requires you to discuss with each other how the money will be used and how much stock exposure you are willing to take on as a couple.

Insurance

Insurance may be the biggest area of personal finance impacted by two incomes.  For example, some families may need more liability coverage. Other families may need less life or disability coverage.  

Obviously this is unique to your own relationship and circumstances. Speaking of which, have you discussed what each of you would do from a work perspective if the worst happened to the other? That can drastically impact your insurance decisions.

Your financial life is too important to rely on rules of thumb.

Values/Goals

If you have any sort of excess income beyond the essentials for living and savings, you get to choose how to spend it.  Do you know each other’s values and goals when it comes to spending?

One of my favorite pieces of advice for couples, dual-income or not, is to make sure you have a category in your spending plan for your relationship (hello date nights!).

These examples cover just some of the challenges and opportunities faced by dual-income families, not to mention all the “normal” financial planning topics everyone must address. 

Use this checklist to track your progress.

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