Comedian Jay Leno shared that he never spent any of his NBC salary while collecting two salaries - one from his Tonight Show hosting gig and one from his 150 annual comedy shows. The TV star told CNBC in 2016 that I d bank one, and I d spend one. I have never touched a dime of my Tonight Show money. You might be tempted to say that Leno is rich. This philosophy might be able to work for other families, because pros say that this one, save one philosophy might just be able to work for other families. This idea is a smart behavioral finance approach to handling income for a two-income family. Living off one income and saving or investing the other income helps a two-income family automates their investments and keeps lifestyle creep or lifestyle inflation to a minimum without having to fight each other over how much money each separate income can set aside or spend each month, according to certified financial planner Kaleb Paddock of Ten Talents Financial Planning.
In addition to saving 10% to 15% of your income for retirement, families should have somewhere between three and 12 months of savings in an emergency fund, preferably located in a very accessible location that pays interest, according to pros. There are some goals that could include saving for a down payment on a house, saving for retirement, saving for a family vacation or even saving for a rainy-day fund, according to Chanelle Bessette, banking specialist at NerdWallet.
This is easier said than done. Many two-income families are struggling to get by even with both partners bringing in money. Trying to save more money is a worthy goal even if you can't save the entire second income. How do families make the spend one, save one rule work? Paddock says couples should create separate checking accounts for the two incomes. All bill pay and credit cards would automatically be paid from the one income, while the other checking account can have an automatic transfer to a brokerage or retirement account on any pay day or once per month to sweep the income over to an investment or savings account. Paddock said that keeping accounts separate can help with tracking how much is invested over time and there is no confusion of mixing expenses with investing transfers.
Financial planner Don Grant advises against income by reviewing spending and netting it. You have to define your wants and needs. If there is a surplus, that assets can go toward more discretionary spending, says Grant. He recommends setting up two accounts that are specifically dedicated to each goal. Some may be short-term, and other goals, like retirement, will generally have a longer time horizon. You have a plan for how much money will be invested in each account and how much money will be invested according to your specific needs and risk profile. Grant says he will make adjustments as you reach your goals and monitor the account.
Because this process assumes that one partner's salary is enough for a household to live on while the other salary is saved, you might want to adjust the numbers to whatever makes you feel comfortable, like saving 50% of one partner's salary. It is important to make sure both partners have access to all household joint checking and savings accounts and that money decisions are made together, says Bessette.