If there are two income earners in your household, you have an increased earning capacity which is awesome. But do you know if you're stuck in the double income trap?
If one of you quits their job, you no longer will be able to meet your expenses.
This depends on who you're looking at, especially when someone makes much more than the other like in our case. For example, we fall into the double income trap if I quit (which I did). My wife doesn't make enough to cover all our fixed expenses. If she had quit, we would not be in the trap because I made more than enough to cover everything and then some. This means when I quit I had to have a clear income target to hit to cover the gap.
If you really want to optimize for building up F U Money, the strategy would be to adjust your lifestyle so it fits under the smallest income.
Understanding if you're stuck in the double income trap has a couple implications:
- It helps you plan ways to cover that gap if one of you quits and you can't cover all your expenses
- It helps you pick which income you want to track against to adjust your lifestyle
For example, one strategy we could have used would be to say that my wife's income should be the bread-winning one, not mine. In order to do that, we would need to cut expenses until her income would cover them fully. Practically speaking, for us that would mean taking the kids out of daycare ($25-30k) as well as cutting some nice-to-haves like big trips ($10k).
This wouldn't work for us, not without a huge impact – if we took the two youngest out of daycare and my wife still worked, I would need to care for them (taking up time) which would limit the choices I have to work.
When planning a transition (or even in case of being laid off), it will force you to ask some questions like...
- What would we cut if we had to?
- What could we live without?
- Do we have a fallback plan if this doesn't work out?
- How likely is it to replace that missing income if one of us quits?
- And, are we willing to do that?
Just being aware the trap exists will at least let you cast Dispel Magic to deal with it, if you so choose.
Where Will Future Me Be IRL?
Automate Building Wealth Using the ESI Framework – Connectaha 2023, April 24. (Omaha, NE)