Are you in a dual-income household, working from necessity, rather than from choice? This is the case in many homes in the UK. Read on with Personal loans Now to find out more about succeeding financially in a dual-income household.
- What the statistics tell us about dual-income household
- Emergency funds for a dual-income household
- Why an emergency fund is important
- How dual-income households can build up an emergency fund
In this article, we look at the situation of couples who live together and are financially dependent on a joint income to pay all their necessary expenditure. We see what the statistics tell us about their situation and what would happen if one of them lost their job. We explain the importance of budgeting and show how an emergency fund can help you to weather any financial shock. Finally, we give an easy three-step guide to putting a rainy day fund in place.
What do the Statistics Tell us about Dual-Income Households?
In a survey carried out by the Insurer LV in December 2017, they found that an estimated 3.2 million working couples in the UK are financially dependent on a joint income to get by each month. The survey also discovered that nearly a quarter (23%) felt that their financial situation had got worse in the past 2 years. 1 in 4 of couples questioned said that a dual income didn’t go as far as it did this time last year.
When asked what would happen if they lost one of the incomes because of, for example, illness or injury, most said that they would have to make significant cuts to their outgoings to cope. 31% (nearly 1 in 3) said that they would have to apply for government benefits while 1 in 5 (17%) said that they’d have to downsize. What about savings to help them get through a rough patch until they were on their feet again? The vast majority had no emergency fund to fall back on. Let’s look at this in more depth.
Emergency Funds for a Dual-Income Household
The same insurance company released a report in September 2017, entitled ‘LV Income Roulette Report’ and concentrated on the finances of ‘Middle Britain’. One surprising discovery was that 75% struggled to pay their bills every month despite their higher salaries (and compared to a national average of 56% who admitted problems making ends meet). Part of this was due to the size of their household debt. They were more likely to have a mortgage, credit cards and personal loans UK.
They also found that 6 in 10 (59%) in the ‘Middle Britain’ group didn’t have enough savings to see them through a financial crisis. This is compared to a national average of 37%. Of the self-employed, 4 out of 10 said that they couldn’t afford to save.
Why is an Emergency Fund Important?
Without an emergency fund, the situation is quite serious. Things happen to us all and some are quite impossible to predict. In the long-term, an emergency fund, saving one month at a time can save us all money as it means we won’t have to rely on high-cost credit facilities when we need cash fast.
In the case of a longer-term financial shock such as an inability to work because of illness or injury, our rainy day fund will help with household expenses until the situation improves. Ideally, the emergency fund should cover 3-6 months of household expenditure. This would give you the chance to get through the temporary reduction in income until you’re better. There’s nothing worse than worrying about money when you’re already in pain and feeling psychologically down.
How a Dual-Income Household can Build up an Emergency Fund
You can’t build up a rainy day fund overnight as it’s a gradual process. There are a many steps which you should follow to make it possible.
Preparing to Budget
Before you draw up a budget, both of you should spend a week writing down everything you spend money on, even the smallest amounts such as money for takeaway coffees. This isn’t to apportion blame or start an argument but to see where your salaries go. You might get a big surprise when you see what you spend your hard-earned cash on and how small daily amounts build up over the month.
Drawing up a Budget
Once you know where your salaries go, you’ve probably already thought of ways you can cut down on your monthly expenditure. When drawing up your household budget, it’s vital that it’s something that you do together. If one of you does all the work, it can lead to resentment and then you have no chance of sticking to your budget.
Start with your priority bills (such as housing costs and utility bills) and go through them carefully. Make no assumptions but for each one see if you can cut the costs. Changing energy provider, paying by direct debit and conserving energy are just some of the many ways you can cut your bills. For optional expenditure, you must be willing to compromise. If the gym membership is your one luxury and it’s something you regularly use, be prepared to cut down in another area as a trade-off.
When the Budget is in Place
Once you’ve set down a budget, you can see how much you can both afford to put by in a separate bank account as your emergency fund. It might not be a huge amount, but regular deposits will soon build up into a sizeable sum. Initially, make it small and then build it up as the economies you’ve set out for household expenditure begin to take effect. You should arrange for this amount to be transferred as soon as you’re both paid. In that way, you won’t be tempted to spend it before the end of the month.
What Can We Conclude about Succeeding in a Dual-Income Household?
With rising costs and disappointing wage increases, it comes as no surprise that both adults in many households are forced to work and therefore are financially dependent on this dual income to get by. This co-dependency, however, means that it’s vital that you manage your finances well so you’re able to put money by in a rainy day fund. Nobody knows what the future will be. However, with an emergency fund in place, you know you’ll be able to get through it without having to take a quick loan online with Personal Loans Now.