This article will ruffle some feathers, but it is a topic we must discuss. Most of us never had the option to leave one parent at home, so the question is irrelevant. However, what can we do to give our children this option in the future?
I recently finished the fantastic book “The Two-Income Trap” by Elizabeth Warren and her daughter Amelia Warren Tyagi. It opened my eyes to how the race to the suburbs formed two-income households.
Today, having two parents in the workforce is a recipe for disaster—bankruptcy, divorce, or strained financial positions. To overcome this economic adversity, we need to take drastic measures, at least for 5-7 years.
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My objectives today are to give my background, explain how the two-income household formed, and offer solutions for ourselves and our children. With that, let’s get into my marriage.
My marriage explained. I began in the Marines in 1999, and my wife started working in 2008. We lived mainly on my salary. When my wife stopped working between duty stations, we survived.
However, we still fell into debt. We aren’t materialistic people, nor do we overconsume. Yet, somehow, we reached $77,000 in debt via cars, house maintenance, personal loans, and credit cards.
I thought we were handling our finances correctly, but that was not the case. I never understood how we got into so much debt without living an outlandish lifestyle—until I read “The Two-Income Trap.” The world set us up for failure.
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How did the “Two-Income” household start? Until the 1970s, homemakers were still a vital part of the economy and family. The family would use them as required to support the children or if dad lost a job.
Most importantly, the family lived on one income. Everyone lived within their means because personal credit cards and massive home mortgages weren’t a thing.
However, as national news grew in popularity, the world started to feel less secure. The news reported school shootings and neighborhood crime across the entire country, leaving everyone in fear.
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The solution was to move to the suburbs away from crime—this had the added benefit of putting kids in stellar schools. But, here comes the pain.
As fearful parents rushed to the suburbs, housing prices skyrocketed. We competed against each other for safer neighborhoods and better school districts.
Two-income families had much better options finding safer neighborhoods and highly-rated schools. Everyone’s solution was to send mom to work. Of course, all of this was in tandem with the women’s movement.
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Since most moms would go to work, this became the standard, and prices soon reflected this dynamic. Now, if mom didn’t work, your family was at a disadvantage because you would doom your kids to inner-city school districts.
How do we spend mom’s income? Instead of mom adding money to the discretionary fund, it went to kindergarten, private schools, and school activities. But the lion’s share went to that gigantic mortgage.
You would think having two working parents would put you in a better financial position, but sadly, it is the exact opposite. Now that we live on two maxed-out incomes, we are SOL (crap out of luck) when a job loss or medical emergency happens.
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The resulting lifestyle has led to a considerable spike in divorces and bankruptcies. Right from the start, we didn’t stand a chance. The success rate of two-income families is meager. Even if the family survives, they will never be able to retire by age 66.
The bottom line. Our parents set us up for failure. This isn’t the blame game, but they knew what a horrible idea it was to send both parents into the workforce. However, they were helpless because they didn’t have their finances together either.
Juggling work, school, and home life were not easy for them, but they did nothing to prepare the kids (us) financially or intellectually for this lifestyle. It’s a recipe for disaster, and it is getting worse today.
Housing prices are increasing by over 10% year on year. There is almost no way to get into a house without selling your soul or kidneys. Parents are still recovering financially, so they are of little help to us. We must take matters into our own hands.
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How do we save ourselves? The good news is that we can save ourselves from the two-income trap. The only way to get ahead is to get smarter and grind harder.
We have to build streams of passive income that flow throughout the household—we call this “cash flow.” When we have additional income streams, one parent can slowly remove themselves from the workforce.
Eventually, one or both parents can entirely quit working—we call this “financial independence.” The problem is that creating passive income is not in our programming.
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School programs us to work for money, but we need to work for assets. Assets produce income without requiring much time from us. We can create assets (royalties), build assets (businesses), or buy assets (dividend stocks, real estate). We want to do all three to get the best results.
Seven years to freedom. Since we started with zero and built a family, we have to catch up. It will take roughly seven years to get out of debt and build a collection of assets. Your children may be leaving home by then, but it is still worth the work.
For these 5-7 years, we must live below our means, pay off all debt, and create cash flow from real estate, stocks, royalties, and business. Yes, we will be putting in some massive hours during the night, but there is a goal—financial freedom.
My wife and I bought ourselves out of debt in two years and created a dividend portfolio of over $200,000 by the third year. A few more years and we will be free from work—both of us.
We went from zero to negative to stress-free over our 16 years of marriage. I will retire at age 48, and my wife at 45. That’s an amazing story, but it starts with financial education.
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Do it for the children. Everything we build will play into our children’s future. They won’t have to start at zero as we did. That’s the magic of passive income; you create assets you can transfer to your children.
Even better than hard assets like real estate and dividends is the financial education you acquired along the way. You can help your children navigate tough decisions like home-schooling, private school, and down payments for homes.
Our children will need financial assistance throughout their lives, not just until age 18 or 22. If we allow our kids to attempt to buy a home at these prices, they won’t recover financially. At these prices, a house would consume 50-60% of their two-income household budget.
Conclusion. That was a quick rundown of how the two-income household started. Don’t get me wrong; we still need a lot of money; however, it doesn’t have to come from a parent working.
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We can avoid the two-income trap by creating passive income, keeping one parent in the home with a business, or living below our means on one income.
Parents (us), it is our responsibility to get our financial shit together and start leading from the front. No longer can we cover our eyes to avoid seeing what is happening.
Our kids will be competing in the housing market with overseas investors and Real Estate Investment Trusts—in their neighborhoods. It’s not even a fair fight anymore. Our kids are outgunned and outnumbered. We must save them.
If you don’t know where to start, and you are serious about learning about passive income, read my two enormous books, “The Biggest Book on Passive Income Ever! (Amazon)” and “The Biggest Book on Passive Income Ever 2! (Amazon).” Good Luck!
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