How to Design a Budget For Dual-Income Families

Building Wealth

By: DadsMakingCents.com

The journey to financial independence always starts with a budget and on the surface that can seem very easy. Spend less than you earn or earn more than spend. Sounds good! Let’s pack up this blog thing and move on because this is easy. The reality is that most have a tough time either spending less or earning more.

My wife and I were both independently frugal before we met each other and after we got married both of us were working full time making a fairly sizeable income. I attributed mine to luck and she attributes hers to hard work and dedication but either way, we had a problem … how do we design a budget for dual-income families while avoiding the downfall of most high-income households … lifestyle creep?

System Design

My computer science background and my wife’s engineering mind love processes and systems to make you do the “right” thing. By framing your mind for money, you can design a process that will get you the same results 80% of the time and spend your time optimizing the remaining 20%. To design a good system you have to set parameters to guide the process … humans would call these goals.  We set up 3 goals or parameters for our budget design.

System Parameter / Goal #1 – Lifestyle Creep. A common issue with dual-income households is lifestyle creep and the keeping up with the Jones train that everybody gets stuck on with no exit strategy. We wanted to avoid that from day 1. We like nice things and comfortable living but don’t see the value in overindulgence so set some parameters or goals.

System Parameter / Goal #2 – My wife had a request or goal of her own … her personal financial independence. She devoted a lot of time, effort and money to her education and the last thing she wanted was to have a physician husband come in and take over the reigns. She also wanted to pay for all of her student loans with her personal income. Initially, I thought this was silly and felt like a weird prenup situation but goal #2 really did lay the foundation for our families collective financial independence.

System Parameter / Goal #3 – Automation.  Since both of us had full-time jobs and a desire to enjoy our free time, we needed to automate as much of our finances as possible.  Rather than worrying about the mortgage payment or late fees on credit cards we wanted to harness the power of technology and automation.

Framing A System

With our system parameters defined, we then worked on putting together the building blocks of our system with our goals in mind. Both of us had personal Schwab checking accounts because of the awesome ATM benefits and to start this we simply opened a joint checking account that would serve as an expense account.

Rather than letting the inflow be our full income from work, we came up with a predetermined amount that both of us would transfer into the joint account on a monthly basis. Initially, this was 3k per month from each of us but then when we had a kid and moved from our condo to a single family house we bumped it up to 5K.

This gave us a monthly budget of $10k and an annual budget of 120k. Now before I get attacked by either side saying that’s not enough or that’s way more than what the majority of the country makes, this ended up being the right number for us. We were able to cover our expenses, go on fun vacations and invest out of that amount. Think of this as pinching the hose or closing the opening with your finger to get a more powerful stream.

We then opened a joint Capital One Venture credit card that would handle the majority of our household expenses. The mortgage, utilities, credit card payments were linked to the joint checking. Eventually, we added a Costco credit card as well which was also linked to that checking account with auto-pay for all payments.

Vacations were a little tricky because they were not monthly expenditures (I wish) but they usually matched up nicely with the residual amount left from the 10k that built up over months. The expenses also get distributed over several months … books flights now, pay hotel / Airbnb at the end of the trip and all expenses go on credit cards which allow us a 30 day grace period. We would essentially build up a vacation fund from our monthly budget.

Finally, we budget for a fixed amount to be allocated for our joint Schwab Intelligent Portfolio creating a forced automated investing. This was added a couple of years ago after Schwab started their Intelligent portfolio system.  We both have our own personal investments and 401Ks but this is a joint account that is part of our budget and with the ease of automation we don’t really think about it and it just happens.  This minimizes our cash holdings in a checking account and keeps our money growing through investments.  Also, we move money into this account when we see too much cash built up over a couple of months.

Personal Finances

With the majority of our finances funneled through this system, this left each of us with a significant portion (more than half) of our incomes to invest or spend as we saw fit we had the makings of something pretty good. Surprise … two frugal people with a system that taps into the Loss Aversion part of their brain by leaving them with money in their personal account caused us to … wait for it … save more. We both max out our 401ks at work, my wife has the HSA account (used purely for investing not spending) and I do the dependent childcare account at work. We both have our own high yield savings and taxable investment accounts that we manage ourselves. Finally, personal credit cards for frivolous expenses that we don’t want to be scrutinized over.

Now, most will find this redundant and unnecessary but I would argue all personal finance decisions are unnecessary. Earn money … spend it. Why worry with arbitrary budgets or investment plans? Because we are human and our brain is programmed to work against our best interest. By designing systems we correct for these biases and avoid big mistakes like lifestyle creep and automate parts that we would get lazy about.

Alternative Bucket

Not all of our cash flows are contained within this 10k a month budget. Non-traditional investments like real estate and charitable giving all get allocated separately. If I see an enticing crowdfunding deal I will ask my wife if she wants in and depending on how much cash she has built up or her assessment of the deal she will go in or pass.  She recently read an amazing post about the storm brewing in crowdfunding and has been reluctant to jump in on deals.

The majority of our charitable giving is directed through our donor-advised fund. We built our giving avalanche over the years by donating cash and appreciated stocks. With the great stock market run over the past 10 Year’s, we will now only donate appreciated assets which rremove the need to budget for charitable giving. Also with a pool of funds to donate from we can skip years and take the standard deduction of 24K when it makes sense without disrupting our ability to support charities.

System Results

We have used this system for the past 6 years and made a couple of adjustments like increasing our individual contribution from 3K to 5K and adding the investing portion.  I don’t have an amazing detailed spreadsheet with fancy graphs to show you the results but I can share some major milestones that were accomplished via this system.  Now I’m working on setting up alternative streams of income to pay the mortgage (House Hack 2.0) which would offset the increased childcare expenses and still allow us to keep this system.

  • Vacations to India, Italy, Spain, Paris, London, Hawaii
  • 100K invested at Schwab Intelligent
  • No Credit Card Debt
  • 25K in a 529

This is not a fancy or complicated financial model. It is literally framing your personal finances in a way to take care of your needs and accomplish your goals.

What are your budget systems and how do you avoid lifestyle creep?

Republished with the permission of DadsMakingCents.com.

Steve handles the operational side of Rockstar by keeping the systems running smoothly, social media accounts active and curation buttery smooth. He also answers to the name “Do-It-All Boy”.

Steve is also the founder of ThinkSaveRetire.com – a site where he shares ideas and techniques on how to retire from your 9-5 job and start to enjoy the virtues that life has to offer outside of full-time work. Life is about more than fluorescent lights and gray cubicles!

Last modified: August 28, 2018

One Response to :
How to Design a Budget For Dual-Income Families

  1. gofi says:

    Behind every successful FIREEEE is a frugal wife said someone – I forget who. I’m not sure my own journey would be possible if not for my wife and I both not doing it together.

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