Whether you're becoming a mom or dad for the first time or already parents to three kids, transitioning to a lifestyle with one full-time earner and a stay-at-home parent requires some serious adjustments. Not only do you change your approach to finances, you have to be prepared for the shift in family dynamics.
Having a family with a stay-at-home parent has numerous benefits, but it's not a decision to make quickly or carelessly. To help you navigate the financial and emotional challenges families face in these situations, here are three ways to prepare.
|Assess Your Current Situation|
Without knowing how you're faring right now, you likely can't make an informed decision about how best to handle the future. If you're not already tracking your spending and progress toward financial goals, you need to get in the habit of doing so before making a drastic change to your income status.
Tracking your spending allows you to see where your money is going and where it will be easiest to save. For example, food tends to be a common budget-killer, and by looking at your transaction history, you'll see the occasional dinners out soaking up tons of disposable income. Shopping trends deserve a good look, too, as do subscription services and entertainment expenses. But it's not just the fun stuff: By reaching out to insurance providers and utility suppliers, you can learn about more ways to save on necessities.
"Just seeing those numbers is going to influence your spending," said Kendra Hudson, a financial planner in Chapel Hill, N.C. "There’s sort of a feedback loop going on there."
After streamlining your budget, make a list of additional expenses you anticipate in your new situation. If you're going to be adding a child to the mix, account for those costs as best you can. If the person who will stay home with the kids has insurance through his or her employer, figure out how much it will cost to change coverage. Likewise, consider expenses you'll no longer have as a stay-at-home parent, such as child care (if you already have kids), commuting costs, lunches out or a professional wardrobe.
Benefits like life insurance and health care coverage are too often overlooked when people are thinking about becoming stay-at-home parents, Hudson and other financial planners said. Financial goals for the future are also easy to push off the priority list, but sacrificing retirement to make today affordable isn't a sustainable solution.
"Make sure on all fronts you’re not railroading your future," said Lauren Lindsay, a financial planner in Louisiana. She said to look into the working spouse's benefits to see if the stay-at-home parent can take advantage of a spousal IRA or family health insurance, in addition to researching supplemental insurance. She also recommended life insurance on both spouses, because even if one isn't earning an income, he or she is contributing a great deal to the family that would be expensive to replace if something happened to the stay-at-home parent.
|Do a Trial Period|
Before flipping the switch on your two-income family, try to test-drive the single-income life. It's not a strategy that works for everyone, but trying a new budget and saving the surplus earnings allows you more flexibility as you figure out the best structure for your family.
"While both people are working, putting away as much money as possible to build up your emergency fund is going to be really important," Hudson said. "People need to think in terms of job security," she said, because if the single earner loses his or her job, there's no secondary income to fall back on. "Having that financial cushion is really important."
Maternity or paternity leave presents a good opportunity to test waters of being a stay-at-home parent without committing to a permanent change.
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"If you’re having a child, try to take advantage of whatever maternity or paternity leave you can," said Matt Becker, a financial adviser who focuses on parental finances on his site Mom and Dad Money. "You can use that time to get used to the dynamic of one person working -- it's as much a lifestyle question as a financial one."
|Keep an Open Mind|
Because finances and emotions are often very tangled, choosing to revolutionize your family's financial structure has the potential to cause some tension.
Although one person won't be contributing a paycheck, that shouldn't change the balance of making family decisions. Whether you're talking to a financial adviser, someone with personal experience or both, there's a consensus that frequent communication and some sense of financial independence go a long way in making a new family structure work, financially and emotionally.
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"I do think it’s important for the non-working parent to have some 'funny money,'" Lindsay said, "that’s money for the person to spend however they want. When there’s not as much income you can’t do as much impulse spending, and it does become more important to have a budget and try to adhere to it. Again, the communication is going to be really important."
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Becker used his own experience as an example, saying he and his wife set aside more time to touch base on finances once they had a child and she decided to stay home. http://cms.abcnews.go.com/SiteEditor/index.htm "Have times where you can talk about how things are going, how you feel about it. Try to be open, honest and supportive," Becker said. "It’s important for both people to be involved in the decision-making and influence the direction you’re heading. However you make the logistics of it work isn't all that important, as long as you have a joint goal on where you're headed."
Keep in mind there are lot of different ways to distribute working and parenting responsibilities, and how your stay-at-home neighbor structures his family may not work for you. As long as you're both in agreement on your strategy and keeping up with your personal contributions to the family -- including things like checking your own credit reports and credit scores (you can see two scores and get a personalized analysis of the factors influencing them free from Credit.com) -- you should be able to figure out a financial strategy that works for you, your spouse and your kids.