The decision to leave a job and stay home with your children is a difficult one. Some parents make the transition permanently to be more present in their family's lives. Others do so temporarily to nurture children early in life or support the career goals of a spouse. While the reasons for doing so vary, and the choice is an individual one, there are several considerations that stay-at-home parents need to make before they take the plunge, to ensure that they can really afford to be home and protect the financial future of their family.
Budgeting for the Stay-at-Home Parent
Whether you're the primary breadwinner or supplementing the income of your partner, when you lose one income, you'll have less money to pay the same number of bills. This means you have to allocate your monthly income more efficiently as a stay-at-home parent. Establishing a budget—a monthly plan for how to spend your money—will help you determine whether you will have enough to cover your expenses.
To start, write down your total monthly income. Then, make a list of necessary expenses. Include both fixed expenses that do not change each month—such as rent or mortgage payments—and variable expenses that fluctuate from month to month, like utilities. Subtract your expenses from your income to determine what amount is available for discretionary spending—both "wants," such as restaurant costs and long-term savings, and debt repayment. Then, draft a budget to determine where your dollars should go that month. For example, under the 50/30/20 budget, 50% of your take-home pay should go to needs, 30% should go to wants, and another 20% should go toward savings or debt repayment.
As you craft your budget, remember that there are certain expenses you may have had while working that you may be able to eliminate from your budget as a stay-at-home parent. For example, stay-at-home parents can often avoid the cost of professional childcare. If you need occasional help with childcare, you may be able to rely on family or friends instead of spending money on babysitters or nannies. Reducing your food budget by cooking at home is another way to save substantially. Likewise, save money around the house by shopping at discount retailers or mending clothes yourself.
Once you adopt a budget, try it out for a few months to determine how viable and comfortable it is for your household to live on a single income.
Retirement Planning for Stay-at-Home Parents
Growing a sizeable nest egg for your golden years is all the more important for stay-at-home parents, who often rely on a single income to fund their retirement. While it may be tempting not to save for retirement when you're down to one income, the opportunity cost of staying home and not saving is that you will lose out on tax-deferred growth on contributions to a 401(k), Individual Retirement Account (IRA), or another retirement account for the period of time you stay at home.
Often, the plan for stay-at-home parents is simply to live off of a spouse's retirement portfolio. However, this approach can backfire if you later get divorced or a catastrophe strikes and jeopardizes your partner's ability to keep contributing to and growing their retirement portfolio.
When you leave a job, you will no longer be able to contribute to the associated 401(k) or employer-sponsored retirement plan. Similarly, you can't contribute to a traditional or Roth IRA without taxable compensation.
One way to protect your future and increase the amount you save for retirement is to set up a spousal IRA. This type of IRA allows a spouse who doesn't earn wages to contribute to their own IRA if their spouse works, earns more than the contributions of both spouses to any IRAs, and files a joint tax return.
Another important point to consider is whether or not to put assets such as the house, car, or financial accounts in your name. The decision can dictate whether creditors can collect money from you on behalf of your spouse and how assets get divided in the event that you get divorced.
For example, if you have poor credit or you have a judgment for a lien that can be attached to any current or future property, you and your spouse may choose to have the deed to the house put in the other spouse's name. But going that route can compromise your right to the asset in the event of a divorce and the subsequent division of assets. If, however, neither of you has a spotty financial history, and you will both play a role in the purchase and upkeep of the home, a co-ownership arrangement where you both hold a fractional interest in the home may help ensure a more equitable division of assets if the marriage dissolves. That may allow you to transfer your stake in the property to someone else or even transfer it to your heirs.
But be equally mindful of the risks inherent in the joint ownership of assets. For example, suppose that you have a joint bank account. The choice may afford convenience and transparency from day to day, but if your spouse entered the marriage with debt, some of your income could be garnished to pay it off. Your spouse could even lay claim to half the account if your marriage ends.
Each relationship is slightly different, so there's no one-size-fits-all financial strategy. However, it's important that you both arrive at the decision about the ownership of your assets together. You are a contributing member of the family. The work you do as a stay-at-home parent is valuable. Don't allow yourself to be shortchanged just because you don't bring in a paycheck.
If you and your spouse currently use the healthcare insurance offered by your employer, the opportunity cost of staying home is that you will lose access to that plan. You'll need to shop for new health insurance for your family, which can be costly. Compare the costs of switching to your spouse's health care plan, if available, with other plans for family coverage, such as those available from the health insurance exchanges. While the plan you choose should suit your budget, it's also important to weigh any potential plan against your old plan to ensure that you don't lose out on vital benefits.
The average premium for family coverage was $20,576 per year in 2019, according to a survey by the Kaiser Family Foundation.
On the flip side, if you depend on your partner for income, consider buying life insurance, which is an agreement you make with a life insurance company to pay premiums in exchange for receiving compensation upon the death of the insured. Life insurance can help you avoid taking an unexpected hit to your income and the standard of living you are accustomed to if your income-earning spouse were to pass away.
Acquiring Job Skills
When you first start a family, you may not think about your career and how the decision to stay home will impact it. But there may come a point where you want to re-enter the workforce—after your children start school or college, for example.
It may be more difficult to find a job after taking an extended career break than it was after you graduated from college, which is why it's important to keep your skills sharp if you have even an inkling that you will go back to work in the future.
If your profession requires licensure, consult the website of the state board for your profession, and take the actions needed to keep the license active. You may need to take continuing education courses or renew certification. Even if your profession doesn't require a license, you can take courses at a local community college or university to gain the skills and education needed to go back to work quickly if needed.
Getting a Work-from-Home or Part-Time Job
If you find that you cannot afford to stay home, consider getting a full-time job that allows for telecommuting, or working a part-time job that helps you make ends meet but still allows you to be at home at times. Another option for working from home is to start a business and become self-employed, which may give you the flexibility to work from anywhere on your own schedule.
Working from home may come with the opportunity cost of missed water-cooler conversations and another stream of income, but it can give you something even more valuable: the chance to spend more time with your family.
The Bottom Line
When evaluating the viability of becoming a stay-at-home parent, consider how the arrangement will impact your family both personally and financially. Although the opportunity cost of staying home is lost income from a profession, stay-at-home parents can put themselves on firmer financial footing with proper planning and open discussions with their partners. Establishing a solid financial plan that accounts for expenses, retirement, assets, and income security, will allow you to provide for your family as a stay-at-home parent while leaving the door open to rejoin the workforce.