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.
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.
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.
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!