Financial independence for single vs double income households

I am very fortunate to be in an arrangement where both myself and my wife earn decent salaries. There is no denying the fact that this situation is one of the contributing factors to our high savings rate. Lately, some conversations have got me thinking about how much more difficult working towards financial independence is for singles vs couples. To get an idea of this situation lets take some statistics for average household income from the ABS.

	Single person household	2-person household
Average weekly pre-tax earnings	$1,771.20 (ABS 2020)	$3,542.40
Average weekly post-tax earnings 2020-2021 resident tax rates (ATO 2020)	$1,378.89	$2,757.78
Average yearly post-tax earnings	$69,860.23	$139,720.46
Yearly cost of living* (HomeLoan Experts 2020)	$39,698	$59,364

For the 2-person household I’ve assumed that both income earners have an “average salary” so the total household income is obtained by doubling that of the single person household. The cost of living has been obtained using Household Expenditure Method (HEM).

What is immediately apparent from the table above is that even though the 2-person household has double the income, household expenditure has only increased by $19,666 (49.54%). This can be attributed to certain shared costs such as accommodation and utilities. As a result the double income household will have higher savings rate. Using the 4% rule and a 7% portfolio growth rate, I’ve calculated the required portfolio size and approximate time taken to reach financial independence; this data is summarized in the following table:

	Single person household	2-person household
Savings rate	45%	58%
Required portfolio size	$992,450	$1,484,100
Years to reach FI	~18	~13

As we can see, using these numbers the 2 double income household will reach financial independence about 5 years faster than the single person household.

2-person working households have multiple advantages
It’s clear that living in a situation where both parties work has multiple advantages over living alone, namely, increased total household earning potential; reduced taxation; shared living and utility costs. There can also be other advantages such as reduced transportation costs through only owning 1 vehicle. If the 2 income streams come from different industries there is also income diversification which decreases risk since there is a lower chance that both industries experience hardship simultaneously. Further to this both parties can keep each other accountable for achieving financial goals and assist in moderating tendencies that may be counterproductive to building wealth. As an example, it is thought that women help to moderate overconfidence in men, so married heterosexual men tend to be less overconfident than single men. As a result, they trade less frequently which results in smaller portfolio losses (Barber and Odean 1998).

Where the double income household falls short
With that being said, it’s not all sunshine and roses for double income households. There are plenty of cases where one party negatively affects the other’s financial goals. Or together, both parties fail to moderate each other’s behaviour, leading to compounding of poor financial decisions. Given that 1 in 3 Australian marriages end in divorce (Mccrindle 2020), separation is huge risk for a couple’s financial success. If the separation is messy, after costs, it’s likely that each party will end up with less than half of the total wealth accrued. So, while there is certainly a much higher potential for couples to achieve financial independence it is not a the be all end all.

In addition to this, if a couple wants to have children, we see their expected living costs rise to $76,277 (HomeLoan Experts 2020) which will then put their savings rate in line with that of the single-person household (45%).

How can a single person household bridge the gap?

Given all the advantages that a couple arrangement has, what can a single person do to increase their savings rate?

Take opportunities
Single people only have themselves as decision makers which means that they can move more decisively on income earning opportunities. For example, if you work in the mining or construction industry you can seek out longer rosters. Try maintaining a marriage whilst working 3 weeks on 1 week off! It’s also much easier to relocate domestically/internationally for work as the only person that needs to be happy with the new location is yourself.

Being single means that you don’t really need to devote time to your significant other which means you won’t cop any flak for working longer hours/weekends. This presents an opportunity to earn extra cash or become a high performer at work and use the extra hours to leverage pay increases, promotions or move companies for better pay.

Live in a smaller accommodation
If you’re single you don’t need a lot of space, so you could live small house or even a in 1-bedroom apartment. This will greatly reduce your upkeep costs, when compared with a large house, and if you combine this with living near your work (this is very difficult to do for couples that have differing work locations), you’d likely save on transportation costs. If that sounds ridiculous, I urge you to remember the fact that Australians live in some of the largest houses in the world (Wilson 2013).

Share accommodation costs
Continuing on the topic of housing, if you already own a house that has multiple unused rooms, consider renting them out; or consider living a share house. Once again, because you’re single you don’t need to convince your significant other to give up their privacy.

Hustle, hustle, hustle
Side hustles can be time consuming, for example, I spend about 4 hours a week working on this blog (I probably underestimate this because I enjoy it) and my wife is already somewhat displeased. I’m repeating, myself, but if you’re single, this represents an opportunity.

Don’t couple up for the sake of it
This should be obvious but you should find a partner because they are the person you want to spend your life with, not because you need their income and want to share living costs to get to your goal. I’m no relationship expert but I’m guessing such action will lead to unhappiness and probably separation which could set you back even further than if you just stayed single.

Concluding thoughts
As with all things worth doing, achieving financial independence is difficult. Further to this it can be more difficult for singles than it is for couples. While living in a couple arrangement where both parties earn an income has numerous benefits; such as increased income, decreased taxes and shared living costs, it is not without financial risks. Couples often have differing goals and perspectives; can be slower to make decisions and face the risk of separation.

Engineer your freedom

References

ABS, 2020, Average Weekly Earnings, Australia, Australian Bureau of Statistics, available from: <https://www.abs.gov.au/statistics/labour/earnings-and-work-hours/average-weekly-earnings-australia/latest-release>

ATO, 2020, Individual income tax rates, ATO, available from: <https://www.ato.gov.au/rates/individual-income-tax-rates/>

HomeLoan Experts ,2020, Living Expenses Calculator, HomeLoan Experts, available from: <https://www.homeloanexperts.com.au/mortgage-calculators/living-expenses-calculator/#lciaCalcForm>

Wilson, L, 2013, How big is a house? Average house size by country, Renew Economy, available from: <https://reneweconomy.com.au/how-big-is-a-house-average-house-size-by-country-78685/>

Barber, B and Odean T, 1998, Boys Will Be Boys: Gender Overconfidence, and Common Stock Investment, SSRN, available from: <https://ssrn.com/abstract=139415>

Mccrindle 2020, Fast facts on marriages in Australia, Mccrindle research, available from: <https://mccrindle.com.au/insights/blog/fast-facts-marriages-australia/>