For nearly everyone, parenting is a life-changing and exhilarating experience. But it always requires making some fundamental decisions about how life is to be lived. One of the primary examples is the two-income couple. They will have to consider the pros and cons of one parent staying home to raise their child or children.
The decision to become parents almost pales in comparison to the decisions looming large about how to care for them. You’ll consider whether your house is big enough, whether the local schools are good enough, and whether your parents or others you trust are near enough to help.
If you’re in a two-income household, child care decisions can be fraught with emotion. Among the factors driving consideration of a stay-at-home-parent includes each parent’s career ambitions, their incomes, and the cost of local child care.
While finances are a significant component, it’s an entirely personal choice—one that brings meaningful short-and long-term consequences for the entire family. Here are some considerations to support you in making the right decision for your family.
Start by aligning your values and goals
At BWM, we suggest focused discussions about your individual and shared career and financial goals. Major lifestyle changes can greatly impact your finances, making a strong financial plan essential for achieving your objectives.
Set aside ample time to work through your feelings and desires, and be mindful of addressing them carefully, lovingly, and honestly:
- How many years should you commit to one parent being at home with the kids? Until kindergarten, or until you see them off to college?
- If one parent takes 5-18 years out of the workforce, how does the time at home impact the difficulty of re-entry?
- Will either of you regret not pursuing your career dreams?
- How will you address the inevitable pressure that this lifestyle puts on the income-generating parent? Maybe you could tag-team, with 5+ years each at home?
- How will this change impact your short-term and long-term financial goals ? Do you have a solid retirement plan in place and how might that change?
- Are you both on the same page?
- Whatever you decide, are you being clear about what both sides are willing to compromise without feeling they are shouldering the bigger sacrifice? (Sacrificing can lead to resentment, never a healthy thing for a long-term relationship.)
Crunch your numbers
The bottom line here is whether you can arrange your lives so that your annual expenses are less than total household income.
Many couples move to a less expensive state or town to prioritize a stay-at-home parent lifestyle. We recommend aligning your top priorities and building your lifestyle around them.
Some financial questions to consider:
- Can your income plan really support a one-income household?
- Crunch your numbers to determine whether or not your family can reasonably afford to have one parent stay at home and what lifestyle shifts, if any, would be needed to accommodate this change.
- What would it look like to move from a two-income household to one? What would your new monthly income be?
- Could you refinance your house to get a lower interest rate to offset some of the income loss?
- How will your child increase your monthly budget?
- Your expenses will likely rise to pay for diapers, formula, toys, and medical care, but could be offset by what you’ll save in childcare costs, commuting and professional costs, etc.
- Does your new budget scenario feel uncomfortably tight?
- Take ample time to estimate actual costs and savings.
- What might you lose from one of your employee benefits packages?
- Even if one parent’s salary is lower than the other’s, a benefits package for a two-income household can add up significantly. Consider whose health insurance and 401(k) match are better, for example.
Where there’s a will, there’s often a way. Some couples spend years saving and planning for their baby to create more financial flexibility. If raising a child is a key part of your plan, enhance your financial knowledge, and cut unnecessary expenses where possible.
Ideally, before starting a family, test your new budget in advance. If you’re concerned about transitioning from two incomes to one, try living on a single income temporarily. This way you will be able to see what works, what doesn’t, and shifts that may be needed to make the transition easier.
Run scenarios with your financial team
If you’ve already decided that one parent will stay home, validate your assumptions with the ‘crunch the numbers’ mindset above, and sit down with your financial team to run some scenarios.
Your CFP® professional can determine the long-term impact of 5-18 years with only one parent contributing to an IRA or 401k, for example. Seeing the numbers clearly can help you determine how many years a one-income household is feasible.
If you’ve already decided that a parent will stay home, if s/he has an existing 401(k) plan, it may make sense to move those funds elsewhere in your portfolio.
Other savings accounts or goals impacted by a one-income budget include:
- Emergency fund
- Vacation/travel fund
- Upgrading to a larger home
- Home renovations and maintenance
Make a decision together
As with any major life decision, there are pros and cons no matter the path you take. Be sure to have open, honest, and ongoing discussions about this with your spouse.
Remember, nothing is set in stone—you can always adjust your plan if needed. Just as you adjusted to have a parent stay at home, you can make the adjustment to have them reenter the workforce.
Consider all these important factors from a financial as well as a personal perspective. The ability to intentionally balance financial facts with your preferences and emotions will help you make the decision that is right for your family.
We are always here to help and support you. Contact us today to learn how we’ve supported other families in our community.
Disclaimer: This information does not constitute an offer to sell or a solicitation of an offer to buy any securities or investment strategy and is intended for informational purposes only. Investments are subject to market risk, including the loss of principal, and the investment strategies described may not be suitable for all investors. Equities are subject to market risk meaning that stock prices, in general, may decline over short or extended periods. The information contained does not take into account any investor’s specific individual investment objectives, particular needs, or financial situation. Nothing in this material constitutes investment, legal, accounting, or tax advice, or a representation that any investment or strategy is suitable or appropriate. Information in this report has been obtained from sources deemed to be reliable, and is not guaranteed. The above information is subject to change without notice.
By: Kelly Jennings, CFP®, CDAA
The post Making the Choice: Should One Parent Stay at Home? appeared first on Branning Wealth Management.