Financial Factors Couples Should Consider Before Adding a Second Income

Financial factors couples should consider before adding a second home may be a surprise to some, a reality to others and not an issue for still more. In other words, second incomes can have correlated debt management issues if not considered carefully. It is easy to think of a second income as a good thing as it usually means more money. However, more money doesn't necessarily equate to a better life or even an improved financial situation. This article will outline some of the financial considerations that couples may face before adding a second income. It will do so in terms of 1) the couples pre-second income financial profile, 2) the affects of second incomes, and 3) financial management of the second income.

The couple's financial profile:

A second income usually comes in addition to the couple's pre-existing financial conditions such as monthly expenses, budget, financial plan, fiscal know how, life-style costs etc. This financial profile can influence how the new money is to be used, perceived, managed etc. The reason why these pre-conditions and financial profile are important, is because they are partly responsible for how well the new income will be utilized. The following list indicates some of the financial factors that a couple might want to consider when contemplating a second income.

• Full or part time work
• Amount of income
• Number of members in household
• Existing budget and financial plan
• Financial expectations and know how

If the couple is in good financial shape, additional income may be put to good use, and planned for with logical financial objectives. Otherwise, the second income may be abused and simply proliferate existing negative financial habits to a new level. The impact of the new income is thus determined by some of the aforementioned financial factors.

The affects of a second income on couples:

A higher income can mean higher costs in some cases. This is because higher income households may be taxed higher if either the married filing single or married filing jointly tax bracket minimums are surpassed. The same would hold true for a non-married couple as a higher income could mean a higher tax bracket.

If the couple are both working full time for the two incomes, and have children, the question of day care becomes an issue if the children are young. Also, housecleaning may become too difficult to keep up with requiring potentially higher housekeeping fees, and if the couple are too tired to make dinner after work, they may get into the habit of eating out which adds additional expense. Also, if stress is a factor related to the new income, medical or psychological therapy may become an added issue requiring additional financing along with higher spending due to increased discretionary income.

These and other costs can eat away at a second income and in some cases make the income redundant or not worthwhile. For example, if the couple's income increases by $35,000/year, and the additional taxes and costs associated with the higher income add up to $19,000 not including intangible costs, then the net financial gain is only $16, 000 which may not be worth the effort in terms of stress, time and effort. Listed below are some of the potential added costs that may come with a second income and/or financial decisions associated with such.

• Tax bracket
• Child care costs
• Food expenses
• New mortgage
• Housekeeping fees
• Stress related therapy co-pays
• Higher cost of living
• Increased debt

Higher net household income can lead some couples to believe they can afford to carry more debt. This in actuality is taking on more risk because if one of the two lose an income, the debt remains thereby increasing financial risk even if the debt to income ratio is the same as when the household income was lower. It is for these reasons managing a second income can be important.

Managing the second income:

Second incomes don't have to mean more spending; rather they could mean more saving, better investing, less debt and increased financial security. When a second income is managed well, it isn't redundant, meets financial objectives and can improve the couple's financial profile. For example, less reliance on debt could lead to a higher credit score, or increased savings could mean more financial opportunities later on. Below are a few of the variables that managing a second income may encompass.

• Investment choices
• Savings adjustments
• Debt payoff
• Retirement planning
• Future financial opportunities
• Credit building

Managing a second income is financially relevant because it can help optimize the use of that income so it is more beneficial to the couple and hence more worthwhile. An un-optimized second income is financially inefficient and financial inefficiency can lead to financial stasis and even financial disadvantage. If the affects of a second income don't outweigh the advantages, then the couple is better positioned to make good use of the money. And good use of money is less likely to occur if the couple's financial profile is not suited to such, in which case the couple may benefit from an alteration in their financial profile and/or planning.