Can You Afford to Stay Home?

Sponsored By: A+FCU

Is one parent planning to stay home after the baby arrives? This is a discussion you and your partner need to have way before the baby arrives.

Austin Moms Blog | Can You Afford to Stay at Home?

Planning to live off one income isn’t something that you can adjust to overnight. It requires thought and planning. Parents need to take a good, hard look at the numbers to evaluate and justify the pros and cons.

Obviously this isn’t a decision that will solely be based on financial considerations. There are many factors that go into the decision. We’ll focus on the financial ones.

Income

When a parent decides to stay home that most likely means leaving a job and the income that comes with it. Sometimes, a stay-at-home parent may decide to work part time from home or take on freelance work to bring in some income.

When looking at the numbers, it’s best to first determine how much the total income loss will be. In the next section, where we look at expenses, you need to make sure your monthly expenses do not exceed the monthly income.

Expenses, Part 1

Your first step is to get an accurate picture of everything you are currently spending money on. This includes your mortgage/rent, groceries, clothing, transportation, etc. Make a list of everything you spend money on and then track your expenses for 1-2 months to verify your numbers. 

Once you have all your expenses, identify the ones that will remain the same no matter if a parent stays home or continues working. For example, your mortgage or rent payment is likely to stay the same.

Once you know where you are currently spending money and what expenses you need to consider, it’s now time to examine how your expenses are going to change when you have a baby.

Expenses, Part 2

When it comes to making the decision to stay home, you need to take into consideration how your expenses will change. While certain expenses will decrease, some will go up. You also have to look at the long-term costs of not working.

Expenses that could decrease/disappear:

  • Child Care: with one parent staying home, the need to pay for regular child care disappears. This isn’t to say that you’ll never need a babysitter, but rather that you won’t have to worry about paying as much as $1,000 every month.
  • Transportation: one less person commuting to work could equal savings in gas, repairs, and insurance. If the car is no longer being used to commute, call your insurance company to see if your rate will go down. Another possibility is going down to one vehicle to save even more. 
  • Work Related: with one parent staying home, there may no longer be the same work-related expenses that existed before. Things like going out to lunch regularly, buying work clothes, picking up food on the way home, etc. You may still have these expenses, but they will likely decrease.
  • Taxes: one less income may push you into a lower tax bracket which could reduce your overall tax burden. 

Expenses that could increase:

  • Utilities: staying at home during the day means the air conditioner/heat needs to run regularly throughout the day. You’ll also use water and electricity more frequently.
  • Groceries: eating and cooking at home more means paying extra for groceries, but this will likely lead to lower eating out expenses.
  • Child related: you now have an additional person in your household that requires very different food, clothing, and items to survive. Things like diapers, formula, clothing, toys, and more are all new expenses that you need to make sure to add into your new budget.

Long-Term Costs and Considerations:

  • Retirement: not working for a long period of time can have a significant impact on your ability to save money for retirement. Without a job, you no longer get employer contributions or 401(k) or other tax-deferred employer-sponsored accounts. You also need to be aware of how many credits you have earned in order to remain qualified for Social Security benefits. 
  • Employability: if the parent staying home does eventually plan to go back to work, you also need to consider the potential loss in employability when they return to the job market. Many parents re-entering the work force have to start at a lower paying job or even in a different industry than where they were before.
  • Divorce: while no one wants to think that they will get divorced, it does happen. If the partners decide to divorce, it can be much harder financially on the one who stayed home with the kids.

Putting it Together

Once you’ve looked at how your incomes and expenses will change, you need to see if the numbers match up on paper and in real life. On paper, can you make it work? Can you and your partner pay all your bills, expenses, savings, debt, etc. on one income? 

If it looks alright on paper, put it into action. Try to live on one income for as many months as possible before your baby arrives. 

Instead of spending both paychecks, save the entire paycheck of the partner that is considering staying home in your emergency savings account or use it to reduce debt. Then use the remaining paycheck to live. See what works and what doesn’t. Look at the areas that you know you’ll need to work on – maybe going out to dinner or buying a daily coffee.

Even if you find that you are able to live off one income, make sure you have enough cushion in your budget to handle the increased expenses that come with having a baby.

Living on one income isn’t impossible, but it does require a lot of planning and a lot of discipline.

For questions or more information, contact the A+FCU Financial Education team at [email protected].

:: So the question is… Can you afford to stay at home? :: 


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