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Do you have plans to live on one income while you or your spouse stays home with the kid(s)?
This used to be commonplace, but now many households include two working parents. Interestingly though, stay-at-home parenting is no longer mainly women’s work.
We talked to Bethany and Scott Palmer, founders of The Money Couple and co-authors of books including “The Five Money Personalities,” to get their tips on financially preparing to be a stay-at-home parent.
Shifting to one income not only reduces cash flow for discretionary spending but also changes the family dynamic. “Set expectations when it comes to money, and set expectations around the home and time,” Scott recommends.
While you may have shared household responsibilities 50/50 before one spouse left the workforce, you may need to revisit that division of labor going forward. “Assumptions can wreak havoc on your relationship,” Bethany says.
She suggests starting the conversation by saying, “let’s sit down and talk about the different categories of things that need to be covered.” Then you could discuss where there’s room to make budget cuts and how you’ll divide up household chores.
Practice living on one salary
Before one spouse leaves the workforce, try living on the other spouse’s salary and saving the rest.
That will get you accustomed to living on less income (and build up your savings) before you actually make the shift, a process that usually takes around three months, according to Bethany.
If that arrangement isn’t comfortable, consider alternatives such as time shifting. When the Palmers started a family, the couple created a schedule where one parent worked mornings and the other worked afternoons.
Budget for fun too
Initially, you might think staying home with a baby wouldn’t have many extra costs attached. After all, no dry cleaning bills, no commuting costs, no lattes on the way to work. But Scott says that’s often not the case because stay-at-parents still need to get out of the house.
“Don’t assume things are going to get cheaper,” he says. “You might want to assume that things are going to get more expensive.”
Play groups, daytime movies, baby and parent music or yoga classes add structure to the week and keep parent and child entertained. Of course, many options like story time at the library or visits to parks and playgrounds can be a budget-minded parent’s best friend.
Continue saving for retirement
When one parent leaves the workforce, he or she doesn’t have the expense of 401(k) withdrawals anymore. But that doesn’t lessen the need for retirement savings later in life.
In 2022, the person with earned income can contribute up to $6,000 per year (or $7,000 for those over 50) to a spousal IRA for the non-working spouse. That said, sometimes “it makes sense for that one spouse to increase the amount they’re putting in versus setting up a separate account,” Bethany says.
Either way, make sure that you are continuing to save for retirement as a couple even when one person stops working.
Think through estate planning
Even if you don’t have a huge estate for someone to inherit, the Palmers encourage new parents to do some estate planning and designate a guardian for the children should something happen to both parents.
Also consider buying life insurance coverage for both parents, a step that’s often overlooked for the non-working spouse.
However, losing a stay-at-home parent “could be just as expensive [as losing the income earner] because now you’ve got childcare and the activities that the person was taking care of that will need to be funded,” Bethany says.