Quitting your job to stay at home with your growing family can have both positive and negative impacts on your finances. If you and your spouse or partner are considering stay-at-home parenthood as an option for your family, it can be tough to know whether or not you can afford it. Let’s go over how to determine whether or not staying home is financially feasible for your family.
Know Your Consistent Expenses
The first step to knowing whether or not having one parent stay home is affordable is to list your current consistent expenses. These should include (but might not be limited to):
- Rent or mortgage
- Car payments
- Insurance premiums
- Monthly bills
- Monthly debt payments
- Contributions to retirement accounts or education savings accounts (outside of contributions made through your employer)
- Emergency fund contributions
You should also list predictable expenses that may happen less frequently, but are still consistent. These might be:
- New clothing for growing kids
- Date nights or family entertainment
- Family vacations or trips
- Holiday and birthday gift or travel expenses
It’s also a good idea to take a few weeks or months to track your spending to make sure the list of expenses you’ve made is actually realistic. You may be spending more on a daily trip to the coffee shop, or on weekly date nights, then you realize. It’s important to have an honest idea of your expenses – even if they’re bigger than you originally thought they were!
Once you know what you’re spending monthly (or annually) on things that are consistent and recurring, you have a better idea of what type of income you need to cover these expenses.
Struggling to put together a list of your expenses? Using a stay at home parent calculator like this one might help.
What Expenses Will Go Away?
Now that you have a solid understanding of your family’s current expenses, you can start to map out what expenses might look like if one parent stays home. Anytime there’s a change in jobs or a lifestyle shift for your family, expenses are going to change – and having one parent stay home is no different! First, you might have a few expenses that go away when one of you starts to stay home full-time. These might be:
- Commute-related expenses
- Lunches out with coworkers
- Childcare expenses that you’re currently paying for
- Cost of work clothes or dry cleaning
You may also have a few unexpected expenses that are added to the mix when one parent decides to stay home. These might be:
- A gym membership if theirs was previously covered by an employer
- Increased grocery expenses
- Increased utility expenses
- Additional lifestyle expenses – like coffee out with friends to keep in touch
Figuring out your baseline expenses, and how those might change when you have one parent start staying home full time, can help you start to determine exactly how much income your family will need to thrive financially.
Living on One Income
After you’ve looked at your current expenses, and what your expenses might be after one parent starts staying home full-time, you’ll have a better idea of what your family needs to cover those expenses. Unfortunately, for many parents, the numbers don’t add up. Too often, when we’re used to living on a dual-income, paring expenses down to fit under one income can be a challenge. If you’re working to cut expenses to make stay-at-home parenthood a possibility for your family, I encourage you to look at the process in two different ways:
1. You can cut small expenses.
2. You can limit large, recurring expenses.
Cutting small expenses, like your daily latte from the local coffee shop, or a monthly cable bill can be helpful. However, figuring out how to limit your big, recurring expenses will have the biggest impact on your new budget. Take a look at your family’s list of expenses – which of these are eating up the biggest chunk of your monthly cash flow?
Usually, the culprits are your mortgage (or rent) and debt payments. To make a big impact on your family’s budget, and to make staying home a reality, you might need to prioritize cutting down these expenses before taking the leap to full-time stay-at-home parenthood. This might look like downsizing, or moving to a less expensive neighborhood. It might also look like focusing on paying down your debt, or refinancing, to eliminate or minimize monthly debt payments before you have one parent stay home.
The other way that you and your family can successfully live on one income is by finding ways to increase your cash flow. This is a great option if you’ve gone through the process of limiting expenses, and still aren’t going to be able to make it work on the current single income that a full-time employed parent is bringing in. If the employed parent in this scenario hasn’t recently talked to their boss about a raise, now’s the time to start negotiating.
Before going into that conversation, have a clear idea of how much of a salary increase you’ll need to make it possible for one parent to stay home, and outline what that salary increase will do for you and your family. Employers are generally more flexible when they understand how a pay increase will impact you. It’s also a good idea to outline why performance merits a raise. Gather up some data about how recent initiatives have positively impacted the company, and ways that future projects will continue to do so.
Not sure if a raise is feasible in a working parent’s near future in their current role? It may be time to start looking for a higher-paying position or to look for promotion opportunities within their own organization.
You can also look at ways a stay-at-home parent might be able to contribute financially. For example, many stay at home parents continue to take on freelance work from their field or industry to bring in a small additional income. This can be especially helpful if the “gap” between the income you need and your expected expenses is relatively small.
Remember Your Benefits
If one parent is quitting their job to stay home full time, it’s possible that your family will lose several benefits that you need. Health care coverage, life and disability insurance, and other perks like gym memberships or auto insurance discounts might be benefits that you take for granted right now as a full-time member of the workforce. Make sure that you know exactly what benefits you lose by switching to being a stay-at-home parent, and how you plan to recover some of those benefits in a financially responsible way.
A few easy options would be to check the employed parent’s insurance coverage to make sure a comparable option is available, to have the employed parent increase their life and disability insurance coverage, and to research affordable life and disability insurance options for stay at home parents. If you’re going to lose any other benefits that you regularly take advantage of, you’ll need to decide whether you want to find an affordable replacement, or if your family is comfortable foregoing that particular benefit.
Understand the Impact on Retirement Saving
It’s easy to forget one of the biggest benefits you have as a full-time employee – your workplace retirement savings account. If one parent stays home, you’re giving up the opportunity to save for retirement with a dual-income household. In 2019, the maximum contribution is $19,000 to a Traditional 401(k), while a Traditional IRA’s maximum contribution is $6,000 (if you’re under 50 years old). Even if you aren’t contributing up to the maximum in your 401(k) right now, many employers offer an employee match program, which helps you to boost your savings over time. It’s also important to remember that the retirement savings you’re giving up isn’t just the annual amount you and your partner were putting away in your respective workplace retirement accounts – you’re also giving up years of compound interest added to ongoing contributions.
Let’s Look at an Example:
You are considering becoming a full-time stay-at-home parent at 35 years old. You currently make $60,000 at your job as a marketing manager, and you contribute 6% of your salary to your 401(k) each year. To keep things simple, we won’t take into account any employer match program – just the 6% you’re saving.
You have $10,000 in your account right now. Assuming you leave your job without making any more contributions, and you roll that $10,000 over to an IRA to grow while you’re a stay-at-home parent, you will have close to $76,122 in 30 years (assuming a 7% growth compounded annually).
If you stayed at your job and continued to contribute 6% of your $60,000 salary each year on top of your current $10,000 savings, earned 7% interest, and retired in 30 years, you would have had close to $416,181 saved.
Compound interest and the value of that interest on top of ongoing contributions can’t be overlooked. That’s not to say that one parent can’t stay home if that’s what’s best for your family right now, but it’s important to reevaluate your retirement savings strategy before taking the leap.
You and your partner might look at increasing the contributions you make as a team to either the 401(k) you’re left with when one of you stays home or opening separate retirement savings account to continue contributing outside of the workplace. This might mean your budget adjusts, as well, because any “extra” contributions are coming out of the single salary you and your family are using to live.
Make a Plan
Deciding to be a stay-at-home parent can be a big lifestyle shift for your entire family, so it’s important to plan ahead. Creating a financial plan that helps move you toward your family’s goal of having one parent stay home full-time, and carries you through the years ahead can be incredibly helpful.
Not sure whether financial planning is a fit for you in this new phase of your life? Reach out! I’d love to talk to you about how a fee-only financial planner can help you build a strategy for making stay-at-home parenthood an option for your family without sacrificing education or retirement savings, or long-term financial and lifestyle goals.