Saving for the future can be a stressful and sometimes frustrating goal. These frustrations can be multiplied and exacerbated if you are trying to budget and save for two, with only a single income, or a single party focused on saving. Having only one financial contributor can make saving and retirement planning incredibly challenging.
The good news, however, is that it is possible to save when only one spouse contributes consistently. Though, while possible, it will take diligence, planning, controlled spending, and of course time. There’s no single winning strategy, so here are several tips for building savings when only one spouse contributes.
Even when one spouse isn’t saving, you may still be able to work toward becoming debt-free together. Without a pile of debt, joint or otherwise, having only one spouse saving can become much more effective. Consider leveraging debt consolidation so that debt can be cleared easier and with less potential interest. The single payment can make budgeting much simpler as well.
Talk to your spouse about visiting a financial planner. In many situations, a planner will be able to look at a particular set of incomes and expenses and give definitive input on what the most effective changes can be. This could be as simple as “save a little more and go out to eat half as often,” or it can be a far more rigid savings schedule.
This is a technique that is used to great effect in couples where there may be two incomes, but only one party is interested in or actively saving. If a third party brings up that spending or saving habits need adjustment, the one uninterested in saving may be more willing to listen.
Maximizing the yearly contributions to a retirement account can not only help you save but can reduce your taxable income as well, helping you pay fewer taxes or enjoy larger income tax refunds.
This is a powerful way to give your investment and saving dollars more impact even when there is only one income or one spouse saving. In an ideal situation, the employer-provided 401(k) would also feature robust contribution matching.
If you or your spouse are self-employed as a solopreneur, running a side hustle, or participating in the gig economy, it is an opportunity to open a solo 401(k) or SEP IRA account. By granting employment to a previously unemployed spouse, the contribution limits increase significantly.
Depending on the level of income the business generates, this can account for an extra $58k per year, per person that can be saved. The solo 401(k) will also facilitate a $6,500 catch-up contribution for older workers.
If the spouse not contributing is also not employed, a spousal IRA can be opened on their behalf. This way, the working spouse can save for the non-working spouse and can put up to $5,500 in the account. A traditional IRA can also help defer some income tax, for example, and the money you deposit in a Roth IRA can be withdrawn tax-free once retired.
For all levels of earnings, boosting pre-tax contributions to employer-provided plans is a powerful method for building savings. For high-earners, opening a spousal IRA or 401(k) account may be more effective. While it may seem like an uphill battle, there are many different ways to increase the saving ability or effectiveness of a couple, even if a single spouse is contributing.