My husband and I will celebrate nine years of marriage later this year, and while I’ve written previously about what a good financial decision that has been for us personally, partnering up really can have a larger financial impact than we give it credit for.
In my day job, I spend a lot of time looking at housing affordability numbers, and something that has struck me time and time again is the disparity between median income levels based on household size. When taken individually, my husband and I are both solidly below the median income for our county (which is even more extreme when you look at our city specifically, which has a median income almost 50% higher than the county as a whole). However, if you combine our incomes, we tick over the median income for a family of two, and this is true even when this expands out to our family of three.
While on its surface, it doesn’t seem right that an additional income should have such a significant impact on where a family lands on the affordability index considering that extra income comes with an extra person, who obviously also costs money.
To illustrate this dramatic difference, I’m using the King County income numbers for 2018, since that’s where I live. For a single person, 100% of the median income is $72,380. However, the median income for a two person household is $82,720, just $10,340 a year more. Partnered up, two earners who each make $41,360 are considered to be at 100% of the median. Individually, each of those people land at below 60% of the median, which is considered low income.
Example: $41,360 / $72,380 (median) = 57% of area median income
Of course, when you expand this out to a family of three or four to include children, which have plenty of other associated costs that make life more expensive (childcare, college, etc), but the calculation doesn’t look into that kind of detail. The biggest point here though is that this “doubling up” advantage is even more significant than child free relationships.
Housing
This disparity of what is considered a median income between single and dual households is explained a bit when you drill down and look at regular household costs, starting with housing. Again, using the area I live in, the cost for a studio apartment downtown is approximately $1,700 dollars. A single person, unless they choose to rent a room from a house or share an apartment with the roommate, has to cover 100% of that housing cost. Even if a couple chooses to upgrade to a one bedroom apartment, that average cost is just $500 a month more ($2,200), or $1,100 per person, a $600 a month savings over the single person renting a studio. The savings are even more extreme if the couple chooses to rent a studio apartment.
This isn’t just true in high cost of living areas either. Our first apartment together in South Carolina cost $525 a month for a one bedroom or $575 a month for a two bedroom. We rented the two bedroom, added a roommate, and saved even more. Even so, the single guy did pay more for his room than we did for each half of our share; when you share a bedroom, the costs are simply lower.
Other Costs
Housing is likely the best example of this partnership advantage, but there are plenty of other household costs that don’t break down equally based on the number of people. Groceries and utilities are both great examples where doubling the number of people in a household doesn’t double the overall cost of the expense. Other things like clothing and plane tickets are obviously priced per person, but most things aren’t. Simply put, it costs less to combine finances with another person. And that doesn’t have to mean combining bank accounts, just the sharing of housing and basic living costs by partnering up your lives.
Support beyond price
When we did first move in together in that apartment in South Carolina, I had just graduated from college and took a job as a naturalist on one of the nearby barrier islands. It paid very little, but because I had the support of my now-husband, I was able to accept a job that paid less but related to my chosen field (environmental science). While I made pennies, he paid for the groceries and I initially only had to worry about paying my half of the rent until I started paying back my student loans. That job gave me the experience that landed me my park ranger job that I kept for 6.5 years. If I’d had to pick a job for the money first, I wouldn’t have been qualified for that later job.
After my husband finished his military service, we moved back home to the Pacific Northwest where I started that park ranger job (and later began my career job in sustainable building). Because I had that stable job and a reasonable income, my husband was able to go to college and not worry about working a part time job at the same time. It was my turn to pick up the majority of our household expenses.
Time and time again, we’ve been able to make choices in our best interests because we had that second person (and second income) to lean on. While neither of us have any entrepreneurial endeavors at the moment, I can see what a huge difference it would make in striking out on your own while your partner continues with their more secure W-2 job and benefits.
Financial Independence
Within the financial independence, retire early (FIRE) community, there are so many people who make well above the median income for their area, and absolutely it is easier to make the numbers work when you’re working with a much bigger income shovel. Saving 70% of $160,000 after tax income means you still have $48,000 a year to live on. However smaller our incomes may be, financial independence is entirely in our reach within the next ten to fifteen years because of that compounding power of two incomes. Of course, Reaching For FI and others show us that FIRE can absolutely be achieved in a single moderate income, though it takes a bit more creativity to get there.
Disadvantages to a partnership
Of course, partnering up is not always going to work out in your favor financially. As Melanie at Partners In FIRE writes, getting involved with the wrong person can be the biggest financial mistake of your life. And even less dramatically, partnering up with someone who is a big spender can put a serious damper on your financial future. Ultimately, you can’t out-save a spender, and I’ve seen this play out personally where both people in a partnership have no future financial stability because of the spending habits of just one.
Splitting the cost of a house doesn’t actually save money if you buy twice the house you would on your own, and the same is true for cars, vacations, dinners out, etc. Being in a partnership can be a huge financial advantage, but it can equally be a liability.
How has your financial life been impacted by having/not having a partnership? Do you agree that the advantages can be as dramatic as I’ve suggested, or do you think I’m overstating it? I’d love to hear your stories!
Love this point, especially the one about being able to lean on the other in times of transition or just having the ability to chase that lower-paying job for the experience. Having two incomes definitely makes a big difference!
Absolutely! Obviously a good sized FU fund can do the same on the money side of things, but having money coming in from a completely separate source is really freeing.
Unfortunately the world has changed a great deal. Back in the 70’s after military and college I supported a family on a very modest income for a few years. When my wife went back to work it gave us the opportunity to chase financially better careers and start accumulating wealth. One of our sons makes good money (contract software) but living alone doesn’t give him any safety net between contracts. A dry spell will devastate his savings. Older son and his wife live also in a high cost area and it takes both working to keep their heads above water. Two of the big changes are the cost of housing (rent or mortgage) and car cost. My townhouse in 1972 cost $135 month. If you use depreciation numbers for the dollar (half every 20 years) that should make that rent in 2018 about $630 but current rent is $1,800 – $2,000. The first step to stabilizing house cost is to buy a house and stop renting and after that double and triple monthly payments against the mortgage. Owning a house outright frees up a lot of money. Keep up the good work – you are an example to others in your generation.
That is very true. We lucked out buying when we did, and it has been a huge boon to our overall financial health. If we were to try and buy today things would look a LOT different.
I can say that partnering up for us had a significant impact on my finance situation. Before my (now wife) moved in three years ago, housing costs accounted for 30% of my gross income! After She moved in, housing dropped to 15% of our total gross income. It became much easier to save. I got a raise last year that actually allowed my wife to quit her engineering job to take a lesser paying but more flexible hours job in retail while she goes back to school for a degree in occupational therapy. This definitely would not be possible if we were not together sharing finances. Obviously you don’t want to move in and couple up with just anyone like you said. Being with the wrong person could be more detrimental than being alone. Finances should be one of the top priority discussions before tying the knot.
Awesome that she was able to make that choice! You should obviously never get into / stay in a relationship for financial reasons, but once you’re there, it’s important to acknowledge how much of an impact it can have.
All good points! Another expense that is more affordable for partners can be health insurance. Family insurance plans are usually more affordable than two individual plans.
Excellent Point, my wife and I actually claimed domestic partnership over a year before we were married to take advantage of more cost effective family health insurance. We saved hundreds a month and had a deductible that was literally $10,000 less.
Wow. That’s an insane difference.
Oh very true! I can really think of very few things that aren’t cheaper per person once you partner up.
Girl, this is soooo true! We wouldn’t be in the great financial state we’re in today without getting married and combining finances.
It breaks down to us living on Mr. Picky Pincher’s income and using my income as our savings/debt payoff. If we were both on our own, there’s no way we could make such a dent in our debt. Even though we had the debt of two people, we crushed it quickly with our combined forces.
And you’re right–it’s also about having emotional support too!!
Funny how 2x debt and 2x incomes doesn’t equal 1x of each, isn’t it??
Really interesting perspective! Thank you for sharing. Looking back even though my partner and I don’t combine finances (we have separate budgets, FIRE numbers, time to FIRE etc) we have worked as a partnership financially to some extent. When we first started working I had a job and he had an unpaid internship at a start up for 6 months before he started making anything. We were living in Manhattan with a roommate and he was paying back his student loans. I loaned him money during that time and when he got a salary I offered to pay off his student loans to avoid the interest. He accepted the loan for rent, food etc but declined the loan offer. Since then I’ve been laid off 3 times and while I have a healthy emergency fund that could take me through 6 months without a job before selling investments I imagine if it went longer and I didn’t want to sell he would lend me money (and vice versa). It is nice to have that backup plan for your backup plan.
That’s a great way to put it – even if you don’t combine finances at any level, a partner can still be a great failsafe financially.
It’s just a lot more efficient with a partner. Doing things separately takes more time and effort. For example, cooking for one is pretty inefficient. Saving money is much easier too because the COL of 2 people is usually much less than 2 single people. Partnering up was great for us since the beginning until now. We had our bumps too, but it’s been good for the most part.
I wonder if more people would be more efficient. Like in a commune of 10 people.
Right?? At one point does it become less efficient, you have to wonder.
Their many advantages of having two incomes like you mentioned on here especially with housing since it’s probably the biggest purchase for anyone. Maybe another advantage of partnering up is helping out that person who is a spender and figuring out if their spending is worth it. Communicating about that will hopefully help that spender realize that not all their purchases are worth it and see a cut in spending.
Not just someone who’s a spender, but like my husband, who’s naturally frugal but not focused on investing / building wealth beyond simply living below his means.
If it’s with the right person, partnering up can be amazing. For PiC, I have been a HUGE boon. I helped him change from a mindless spender to a careful conscious spender and saver and he’s even on board with the idea of FIRE now. I’ve also managed both our incomes, investments, and savings to multiply their values many ties. He got lucky 😉
I also got lucky. He’s an absolute equal partner in just about all things: parenting, household management and maintenance, working, etc.
That means I’ve stopped having to carry the whole household myself, I don’t have to parent an adult, I don’t have to always be in defensive-money mode. I can take risks with my career and with our investments. We both got very lucky.
My husband was a great saver, but that’s where it ended. Which means it didn’t take much to get him on board with being more intentional with our savings, though getting him into the idea of FIRE took a bit longer until he realized all that meant was control over our long term options.
Yep, having a partner can definitely hold you back financially (to be ruthlessly honest this has definitely been the case for us). We’re now working together to move forward, but as you point out one person cannot do it all!
It can definitely go either way. Two can be doubly good, or doubly trouble for sure.
Having a partner has actually slowed my journey to FI down. Before I had just my income and my expenses. Now with a young family with a stay at home mum, we still have one income but now expenses for 2 adults and a mini me. We wouldn’t have it any other way though, and that is obviously our choice to only have one partner working. The
Still, you’re a heck of a lot farther ahead than a single parent going at it – there’s a lot of (financial and other) gain for having someone holding down the fort at home.
I saw this in action several years ago when my parents separated. Together they were pretty comfortable financially and on track with where they wanted to be. But after separating and living on their own, each of them has really struggled on a single income.
If you read Tanja’s blog over at Our Next Life, she has a great post about reaching financial independence that includes them being financially independent even if separated. I’d like us to be there eventually, because then finances are never a reason to stay in a relationship.
Great stuff Angela. I must have missed that your husband was a vet, being in South Carolina I’d guess he was a Marine?
Thank you for both of your service!
By looking at pure numbers, my life has been negatively impacted by “partnering up”. My wife and I have been married for 12 years this upcoming December and she has only worked a W-2 job for 18 months of this time. This has been an intentional choice by us with 4 little ones running around (and not a decision that we judge others on)! So the math has been “bad” for us, but neither of us would go back and do it differently. We’ve learned to live frugally on one income and enjoy the opportunities it has provided our family.
However, now that 3 of the 4 our in school my wife has begun looking outside our home to see about work. So the math aspect may improve for us.
The great thing about personal finance is how “personal” it is. It has never been about the the math and partnering up with her in marriage and our family has created more tangible benefits then I’d care to trade for a few extra $$$.
Yep, I married a Marine 🙂 And I wouldn’t say that the math has been “bad” for you, when you look at the difference between your situation and a single adult household, not a single income earner. Those are two very different things, though you could come out ahead with daycare for 4 kids if you both had high income jobs. Again, like you said, not all choices are just financial.
You are correct. Thank you again for both of your service. I understand the life of a military spouse and what you have had to endure. Well done!
Thanks. Now we just get the vet perks like a VA loan and USAA insurance 😉
Ahahahaha am I showing it can be done, or just HOPING it can be done? 😅
Sometimes I think about how splitting rent with a partner would make a HUGE tangible difference in my finances—most of my thinking about that tends to be about the numbers themselves. But you’re so right about how much of a difference it makes to have that support there, even if you’re not 100% combining your finances!
SHOWING it can be done. Your savings rate is epic when you consider your current life circumstances.
even if you just have roommates it makes i huge difference. 9 years is a nice run so far, so congrat’s on being happy after that. mrs. smidlap paid for most stuff when i first got here and looked for a good job and years later it was my turn. it afforded her the luxury of waiting for the right work. she just got a little college teaching job because of the flexibility to say yes rather than “needing” to take some crappy thing in a cubicle. my favorite part of partnering up is the division of tasks. i’ve always said even if somebody makes me a tuna sandwich it tastes so much better if i didn’t have to do it. laundry, errands, etc. take half the combined time.
Awesome that you two also took turns when it came to be the major breadwinner/support for the household. Having that flexibility makes a huge difference to what you can pursue over time.
I don’t think you’ve overstated at all and completely agree that being part of a couple can significantly impact your finances.
I’ve been with my partner for 13 years. We started dating when I was only 19 and so neither of us came into the relationship with much. I was still living at home and he was living in a house with 8 other guys. We didn’t start out being great with money but grew together and were able to build a stable life together. If I look at what we have there is almost no way I could have done that on my own. We pooled our savings and were able to buy a house together 8 years ago. It would have taken me twice as long to do that by myself and by that time house prices would have gone up and I would likely still be renting at this point.
Yeah, there is absolutely no way either of us would have been able to buy a home at 23, and prices have DOUBLED here since then. It’s nuts. Partnering up early like you and I did definitely makes for a different situation as well – either you learn how to grow up together, or you grow apart. But it is nice learning to be adults together 🙂
It’s nice to have that double income advantage straight out of college. I married my high school sweet heart. It didn’t last a lifetime but while our financial styles were different (we could have done better), there was some benefit.
It’s great when getting married that young works out, but realistically you change so much in your 20’s, the cost of the wrong partnership and a divorce can outweigh the initial benefits. The good news is, even if it’s not quite as advantageous, you can get similar benefits with room mates!
Oh that is very true – that boost only exists if that partnership lasts (in terms of marriage). But you’re right. You can get quite a few of the same perks with an awesome roommate 😊
I think the housing part is key. When two individuals are paying for housing on their own it almost always is more than if you were to combine! (Paying for two rooms instead of one basically). Since housing is typically the biggest expense for people this is a huge advantage to being partnered up!
Absolutely. I have a hard time coming up with another example (beyond moral support and an extra fall back plan of a second income) where partnering up makes a bigger difference.
My wife and I have observed the same benefits to partnering up. The economies of scale make the per unit costs decrease and place a lot more options at your disposal. Not to mention, this compounds the amount of income and saving capacity we have. It’s a win-win: spend less money per person while making more in aggregate.
Housing is the best example of the partnering benefit because it represents the largest expense in a budget. Once you go beyond the minimum threshold price for housing (i.e., studio apartment) the incremental cost for more square footage increases at a decreasing rate. Jumping up to the next size increases the cost but becomes more palatable when viewed through the partner lens (lower cost per person).
One other thing to observe with our situation: my wife has student loans set to begin repayment next year when she finishes her residency. Having more disposable income due to the benefits of partnering up will help repay her loans quicker.
Thanks for sharing. I really enjoyed reading your thoughts!
Yes, having my husband around made my student loan payoff way faster than I could have done on my own, even with him being in school at the time (though through the GI bill so no student loans for him).
Partnering up definitely makes sense financially as long as two conditions are met: You never break up and you have the same financial goals in life.
So the difficult part is finding someone who is compatible with you in all ways, including financially.
For people who have had success in this department, how did you go about finding your financially compatible true love? It’s so difficult to meet frugal people in real life, let alone ones to fall in love with.
I wish I had a great answer on how to find that person! I really just got lucky because it was certainly not something I was looking for in particular at 21 years old.
I dont recall the source, it some years ago I read a study that found the average costs were reduced for each household member. I believe it was just looking at adults.(not sure it applies to children) The factor they found dividing by the square root of the household size.
So if a house hold of one had a cost of 1
A household of two would be 1 ÷ 1.41 = 0.7
A household of three would be 1 ÷ 1.73 = 0.58
A household of four would be 1 ÷ 2 = 0.5
…….
As you described, you only need one of many things. Appliances, lawn equipment, cable, … Shared costs…
I think it also showed that the standard of living also went up as you had access to resources/items that you otherwise wouldn’t.
That makes sense to me. Obviously it’s hard to nail down to an exact science because each situation is so different, but the general concept is solid.
In general, society offers advantages to couples and discriminates against singles, the travel industry in particular. I have been married and am now single but happy with that status. I think I have saved enough to last another 30 years or so, so at 68 I am content. The key for me is owning my home outright with only a condo fee and taxes to pay — the equivalent of $300 per month.
Owning your home outright is HUGE! Goes to show that if you get the big expenses right that the rest falls into place easier, regardless of household size or anything else really.
Forgot to mention that women should plan on being alone later in life whether due to death or divorce. Women on average live a few more years than men and typically marry a man a few years older than themselves. If you are partnered, but sure you understand your household’s expenses and your combined assets. Learn how to budget and manage money wisely. Prepare to be alone if you make it to old age. Not trying to be a pessimistic here, just realistic.
Totally realistic, and spot on. The percentages of senior women living below the poverty line are sobering.