Are two household incomes really better than one?
As authors Elizabeth Warren and Amelia Tyagi note in their book, The Two-Income Trap: Why Middle-Class Mothers & Fathers Are Going Broke, the single best predictor of bankruptcy is having a child.
While two-income families make more money today than a one income family did a generation ago, the basics — housing, groceries, taxes, entertainment, and transportation — leave more and more families with less money at the end of the month, they maintain.
More importantly, with both parents in the workforce the chances of someone getting laid off or getting too sick to work doubles.
That's a problem for couples that put themselves at risk by spending to their household income level, rather than taking advantage of that second pay cheque to boost their retirement savings or kids’ college funds.
When considering whether two paycheques will pay off, you have to figure out how much of the lower earner's salary will be eaten by dual-income expenses. And that can be a tricky exercise.
For instance, the "working tax" on a second income includes childcare costs, work-related expenses, lost perks, and additional household costs. You may also find yourself in a higher tax bracket where you end up giving the government a bigger percentage of your overall family income.
As well, regardless of which parent is the one waving goodbye, the-stay-at-home decision often morphs into a second vehicle for errands and transporting those kids.
If you need help getting a sense of your familiy's real bottom line, try this calculator.
But even those numbers don't tell the whole story, maintains Scott Behson, a professor of business management at Fairleigh Dickinson University. He points out that this second job doesn’t have to be equally lucrative or demanding to bring these benefits. A 20-hour a week part-time job brings extra income and psychic benefits to both partners.
"In fact, balancing one high-income, demanding career job, with a second job that is more family- and lifestyle-friendly, seems to be the best match, especially if the secondary income has health insurance, he maintains.
Do the benefits of two incomes outweigh the potential drawbacks? What's your experience?
By Gordon Powers, MSN Money