You Need Two Things To Create Wealth

Debunking the two-earner income myth

"Konzeptbild zum Thema Haushaltsplanung mit einem Notizbuch und der Aufschrift Budget, neben einem Taschenrechner, Geld und einer Pflanze" by verchmarco is licensed under CC BY 2.0.

To build wealth, you must master two things: maximizing income, and minimizing costs. For a young family where both parents are working outside the home, it is a category error to assume that just because you have two income streams, you will have more wealth. It is very easy, in fact, to actually lose wealth in that scenario.

"But we can't afford to live on one income!"

Technically, that's only partly true. What you can't afford to live on is income alone. You absolutely can live on one person working full-time to generate income, plus one person working full-time to generate "sweat equity" in the form of cost savings.  

In fact, if you are in a cash crunch, it is far faster to cut expenses than it is to increase income. Increasing income will almost always come with added out of pocket expenses, and has lag time, since it depends on collecting money from others. Cutting costs, however, trades time and talent for money, and the effects are immediate.

Economizing is actual, valuable work every bit as much as earning income. It takes skill, labor, and planning to extend the life of things, to keep them maintained, to do the research to choose the best value, to build and create. The easy road is to (over) pay someone else to do this for you, and to live with their choices and selections.

If you think of a family as a small business, I think all these points become much clearer. You need income, yes, but also you need to control costs. You need people to attend to the administration of the business, to track, report, analyze, and make decisions. You can't just live on the sales pipeline, you've also got to collect.

It is unfortunate that our current culture so strongly values income, and not cost savings. That is a big mistake, financially. Every successful business recognizes the value of good administration, it's a shame we don't apply that to our family lives as we ought.


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