The Income Gap and 3 ways you can fix it!

What happens when your significant other has a higher income than you? What if you are the one whom make less? This article will attempt to demonstrate the income gap problem and possible solutions to it. You owe it to your relationship to read this. The income gap problem happens when a couple maintains separate bank accounts. This issue is less prevalent when the bank accounts are combined. I am not here to suggest one way is better versus another, as this is a very personal and private decision. Both choices pose their pros and cons. The symptoms arise when the lower income spouse attempts to keep up with the higher income spouse. We shall consider the following scenario.

Person “A” makes 80 000$ gross per year while Person “B” makes 40 000$. During the courtship or dating stage you both the decision to go Dutch. So far so good, right? Wrong! The effect is already starting. Person A has 55% more net income than Person B. Going Dutch may seem fair, however it costs 55% more for Person B. The issue is amplified by the luxuries Person A can afford versus the affordability of Person B. Person A can afford more expensive outings such as better restaurants, better wine, nicer vacations etc. What I have seen happen in many cases is Person B has no choice but to begin depleting their savings and eventually take on some debt.

The more successful your relationship is the more depleted savings or debt Person B takes on. Things get a little more complicated for Person B as you decide to move in together. You both maintain your separate accounts and have decided that each one of you will take on certain expenses such as Person A will take on the rent/mortgage, the telecommunications and some other small bill. Person B usually takes on the groceries and some other small bill. Everything will even out, right? Not so fast. There is a big difference in a fixed expense, such as rent and a variable expense such as groceries. Fixed expenses are the same for a certain period, such as the length of your lease. Groceries on the other hand vary depending on many factors such as how much food you need that week, special occasions, and many more. I have worked with many people in this situation as the plan or start looking for a house. This is where the major disappointment starts happening as it is time to open the books. The compounding of the Income Gap problem can no longer be ignored.

There is no silver bullet or magic formula however I do have a few ideas to fix or alleviate this strain on your relationship.

1.  Open a joint account. Before you get all antsy this is where your “common” expenses should be taken from. You should establish a budget or at the very least project your expenses and tabulate this based on each other’s pay cycle and deposit and equal amount into this account and add an amount for savings or raining days, you will need it.

a.  This will ensure the fixed and variable expenses are handled as fair as possible. Furthermore, it will help keep the outings budget in check a little better as this demonstrates your spending ability as a couple.

2.  Pay for your significant other for some of the luxuries YOU really want. If you love travelling and make double your girlfriend’s or boyfriend’s salary, guess what, you should help them pay the trip. Realize the person you are with cannot keep up with you. If you feel this is the person you want to have a long-term relationship, it will pay off later.

a.  You can apply a “frugal” lifestyle and follow the lead of the person with less income. It isn’t always about how much you earn, but rather, how much you keep!

3.  Communication. Being married myself I cannot stress how important this is. I still am learning today how to be a more effective communicator with my family. There should be an open and frank discussion about money once the relationship gets serious. If this is the long-term relationship you have been searching for you owe it to yourself and your loved one.

I am hopeful this article can help you address this issue whether you were aware of this effect or not. I trust this has sparked some open, friendly, and safe conversions with your significant other. I rely on you to look at your participation in this problem and fix it. The financial health and success of your relationship depends on it.