The decision to leave work and stay home with your children is a challenging one. Some parents move permanently to be more present in their families’ lives, while others do so temporarily to raise young children or to support a partner’s career goals. While the reasons for doing so vary, and the choice is an individual one, there are many considerations that stay-at-home parents need to make before taking this step to ensure they can afford to stay home and protect their family’s financial future.
Budgeting for Stay-at-Home Parents
Whether you are the primary breadwinner for your family or supplementing your partner’s income, when you lose one income, you will have less money to pay the same number of bills. This means you need to allocate your monthly income more efficiently as a stay-at-home parent. Creating a budget – a monthly plan for how to spend your money – will help you determine if you have enough to cover your expenses.
To start, write down your total monthly income. Then, create a list of necessary expenses. Include fixed expenses that do not change each month – like rent or mortgage payments – and variable expenses that change from month to month, like utility bills. Subtract your expenses from your income to determine the amount available for discretionary spending – whether “wants” like dining out and long-term savings, or paying off debt. Next, set a budget to designate where your money should go that month. For example, under the 50/30/20 budget framework, 50% of your net income should go to needs, 30% should go to wants, and 20% should go to savings or debt repayment.
As you formulate your budget, keep in mind that there may be some expenses you had while working that you can eliminate from your budget as a stay-at-home parent. For instance, stay-at-home parents can 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. Reducing your food budget by cooking at home is another way to save a significant amount of money. Similarly, you can save money at home by shopping at discount stores or repairing clothes yourself.
Once you adopt your budget, test it out for a few months to determine how well your family can live on one income.
Retirement Planning for Stay-at-Home Parents
It is very important for stay-at-home parents to build a substantial retirement fund, as they often rely on one income to fund their retirement. While it may be tempting to not save for retirement when you have only one income, the opportunity cost of staying at home without saving is that you will miss out on tax-deferred growth on contributions to a 401(k) or an individual retirement account (IRA) or other retirement accounts during your time at home.
Often the plan for stay-at-home parents is to live off the partner’s retirement portfolio. However, this approach can be detrimental if you later separate or if a disaster occurs that threatens your partner’s ability to continue contributing to and growing their retirement portfolio.
When you leave the workforce, you will not be able to contribute to the associated 401(k) or employer-sponsored retirement plan. Similarly, you will not be able to contribute to a traditional IRA or Roth IRA without taxable compensation.
A way
One way to protect your future and increase the amount you save for retirement is by setting up a Spousal IRA. This type of account allows the non-working spouse to contribute to their own account if the working spouse is earning and contributing more than either spouse’s contributions to any IRA accounts while filing a joint tax return.
Asset Protection
Another important point to consider is whether to hold assets such as the home, car, and financial accounts in your name. This decision can determine whether creditors can collect money from you on behalf of your partner and how assets are divided in the event of a divorce.
For example, if you have a poor credit history or a judgment pertaining to a lien that could attach to any current or future property, you and your partner may choose to put the deed of the home in the other spouse’s name. However, going this route could jeopardize your ownership rights in the asset in the event of a divorce and asset division. If you both have a poor financial history and will play a role in purchasing and maintaining the home, a joint ownership arrangement where both of you hold a proportional share of the home might help ensure a fairer distribution of assets if the marriage ends. This arrangement may allow you to transfer your share of the property to someone else or even pass it on to your heirs.
But be fully aware of the risks involved with joint ownership of assets. For instance, let’s say you have a joint bank account. While this choice may provide convenience and daily transparency, if your partner entered the marriage with debts, some of your income could be garnished to pay them off. Your partner could also claim half of the account if the marriage ends.
Every relationship is slightly different, so there’s no one-size-fits-all financial strategy. However, it’s important that you come to a decision about the ownership of your assets together. You’re an integral contributor to the family. The work you do as a stay-at-home parent has value. Don’t allow yourself to feel like a victim just because you don’t receive a paycheck.
Getting Insurance
If you and your partner are currently using health insurance provided by an employer, the opportunity cost of staying home is that you will lose access to that plan. You will need to shop for new health insurance for your family, which can end up costing you a lot. Compare the costs of switching to your partner’s health care plan, if available, with other family coverage options like those offered through a health insurance exchange. While the plan you choose should fit within your budget, it’s also essential to compare any potential plan against the old plan to ensure that you don’t lose vital benefits.
On the flip side, if you depend on your partner for income, be aware of purchasing life insurance, which is an agreement you make with a life insurance company to pay premiums in exchange for receiving a payout upon the death of the insured. Life insurance can help protect you from an unexpected hit to your income and standard of living that you have become accustomed to if your income-earning partner were to pass away.
Gaining Work Skills
When starting a new family, you may not think about your career and how the decision to stay at home might affect it. But there may come a day when you want to return to the workforce – after your children start school or college, for example.
It can be more difficult to find a job after taking a long professional break than it was after you graduated from college, which is why it’s essential to keep your skills sharp if you even have the inkling that you might return to work in the future.
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Your profession required a license, so check the website of the state board related to your profession and take the necessary steps to maintain the validity of the license. You may need to attend continuing education courses or renew your certification. Even if your profession does not require a license, you can take courses at a local community college or university to gain the skills and education necessary to return to work quickly if needed.
Getting a Job from Home or a Part-Time Job
If you find that you cannot afford to stay at home, consider obtaining a full-time job that allows for remote work, or a part-time job that helps you meet your needs while also allowing you to stay home at times. Another option for working from home is starting a business and working as a freelancer, which may give you the flexibility to work from anywhere according to your own schedule.
Working from home may come at the opportunity cost of missing out on workplace conversations and extra income, but it can provide you with something more valuable: the opportunity to spend more quality time with your family.
Conclusion
When evaluating the possibility of becoming a stay-at-home parent, consider how this shift will affect your family both personally and financially. Although the opportunity cost of staying at home is the loss of income from your career, stay-at-home parents can put themselves in a stronger financial position through careful planning and open discussions with their partners. Creating a strong financial plan that takes into account expenses, retirement, assets, and income assurance will allow you to provide for your family as a stay-at-home parent while keeping the door open to return to the workforce.
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Source: https://www.thebalancemoney.com/your-financial-future-as-a-stay-at-home-mom-2385590
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