How dual-income couples can save while living on one salary

So, you and your partner are working on building a solid game plan to reach your financial goals.

Maybe you’re planning for a down payment on a home, paying down credit card debt, or chipping away at those student loans. Figuring out how to maximize your savings while splitting expenses can be challenging.

While a joint bank account is a good start, an effective way to unlock your shared savings potential is to pretend like you’re living on one income. When you’re splitting the cheque, there’s little reason why you and your partner should be on separate financial plans.

When two become one

A recent survey found that Canadians aren’t great at saving: 56% of respondents said they had less than $10,000 in emergency funds. But what if you pretended one of your incomes didn’t exist? Here’s how it works: suppose one of you makes $55,000 annually and the other earns $45,000. By taking the larger of your incomes and using it towards your expenses, the lower income can then be put away as strictly savings.

Start by sitting down and making a budget out of the larger of your incomes. Include mostly needs and some key wants: housing costs, expenses, food, utilities, transportation, entertainment, and travel.

Once you’ve listed all your budgetary items under one income, you can now put the entirety of the other person’s salary into a savings account, an RRSP, or use it to slash your debt.

If you prefer to keep the extra savings into a joint account, have your bank do the work for you. Simply authorize to have either of your pay cheques automatically transferred to a separate savings account on a regular basis. Set it and forget it. You’ll be happy you did.

Think about it: even if you stick with this strategy for a year, you’ll have saved $45,000 (before taxes) to reach your financial goals faster.

Take it to the next level

For couples without dependents, the next step is to live on the lower of the two incomes.

When thinking about retirement or having kids (with the option of one partner staying at home), living on a lower income will get you ahead of the game. Leveling up on your savings early can certainly help prepare you for big lifestyle changes in the future.

Setting goals

As your savings start to pile up over the first few months, there might be temptation to use your funds on spending opportunities that pop up unannounced. Here’s some big savings goals to help keep you focused:

Your (dream) home: Average family house prices in Canada are continuing to rise so it’s best to plan ahead, especially if you’re a first-time homebuyer. Committing to a plan to be mortgage free sooner or to get into your dream neighbourhood is key.

A child’s education: Tuition prices are also rising, so if you plan on sending your kids to post-secondary, start saving now.

Vehicles: What if your next car was paid for in cash? With only a year’s worth of saving a single income, you could be driving a shiny new car, debt-free, in no time.

Emergency plan: Many financial advisors suggest having the equivalent of six months’ salary for emergencies on hand. To be on the safer side, plan to save for nine.