The word itself can be offensive to many; however the acronym DINK means Double Income No Kids. In today’s economy, DINKs have the most flexibility to accumulate wealth, but also may be the most vulnerable if their finances are not allocated properly.
There are variations of DINKs including DINKY (Double Income No Kids Yet) and DINKWAD (Double Income No Kids With a Dog). They are comical terms but they are widely used in the personal finance industry.
If you are a DINK, what do you need to know about your financial situation?
The Advantages of Being a DINK
In a situation where there is consumer debt with either one or both individuals who are DINK, debt elimination can be accomplished in a timely manner. Depending on the dynamics of the relationship, pooling funds together has unlimited benefits; however, it may not be as simple if both individuals keep separate accounts and are fiscally responsible for their own financial endeavors.
The world is your oyster, especially if you are not a DINKY or DINKWAD, the responsibility of being a soon to be parent or having a pet(s) frees up both your time and income. DINKs can effectively minimize their monthly expenses through sharing/ splitting the bills (two people paying rent > one person paying rent). Also, DINKs can create a lifestyle they enjoy, especially if both individuals share similar interests and life goals.
With regards to long-term savings, DINKs can reap the benefits of saving more today to grow their life savings. There may be significant tax breaks in income splitting if there is a substantial difference in income generated between the individuals who are DINKs. Therefore, retirement planning may be easier to achieve in the long run.
A potential plan to consider for DINKs would be a mini-retirement during their 30s and 40s, to further develop their relationship and to achieve their life’s goals while they are still young enough to complete them. Mini-retirements are starting to become more popular, as individuals who are either not interested in retiring completely, or simply doesn’t believe they will ever have enough to retire. Mini-retirements can be as short as 6 months to potentially a decade. Definitely the road less traveled but DINKs have the best opportunity to partake in this activity.
The Disadvantages of Being a DINK
As great as it sounds, DINKs may also be vulnerable to bankruptcy if they do not plan their finances effectively. The greatest misunderstanding of DINKs is that they build their financial plan with both incomes and they do not assess the risk if either individual loses their job. This becomes a major concern when DINKs buy a home based on their total household income that exceeds 50% of their take home pay (a realistic average can be between 60 – 75%). If there is a major difference in income between the individuals in a couple, the risk of losing everything is high. Why? If the individual who generates more income loses their job, the pair may find themselves not being able to pay the mortgage.
To illustrate this transaction, let’s assume there is a couple that earns a total household income of $60,000 per year. One individual has a take home pay of $40,000 ($3,333/ month) and the other earns $20,000 ($1,667/ month). Now, they have a $3,000 per month mortgage (after all fees and property tax allocated), and the higher income earner loses their job. Can they afford to pay the mortgage?
Assuming they get compensated for being laid off at 45% their income, that should equal to approximately $1,500 plus the income from the individual who is still working equals to $1,667. Therefore, they could continue to make the payments (barely), but they have very little to survive on. Realistically a DINK may not require a large place thus reducing the risk of ever financing a home that is equal to 60% of their take home pay. However, it does not mean the risk is gone altogether.
In situations were both individuals who are DINK are financially responsible for their past obligations (paying off pre-relationship consumer debt), this might be a setback in contributing towards their current obligations within the relationship. Furthermore, an individual who constantly saves who is now in a relationship with an individual who constantly spends may discover friction in the relationship. Some individuals who love to spend might feel they have more disposable income because of their significant other; or both individuals might not truly know how much they bring in, as a couple, each month and assume all is well. This misconception may be elevated because of the benefits they reap from sharing their monthly bills where they once paid all on their own.
If you are a DINK, create a budget together and lay out a detailed plan for your joint fixed expenditures. Be aware of the risks, especially planning the possibility if one loses their job in the future; give yourself some flexibility to create an emergency account to cover the rainy days and seasons. It doesn’t have to be a painful task; in fact it can help improve the relationship by sharing ideas of long-term goals. Also, by being honest with one another, a joint budget may assist in discovering any unknown consumer debt; therefore, it would be beneficial to address these issues and create a plan to rid the debt forever.
Knowing your numbers is half the battle; sharing the responsibility and growing together with a unified plan will help win the race.
Rafael loves to travel and devotes his time working with individuals making the leap from employee to employer. As CEO of Reis Financial Solutions Inc, he provides management accounting services for small to medium sized businesses, balancing wealth strategies that are favorable for both the business owners and the business itself. Twitter @ReisFinancial