Many parents may have, at some point, considered the pros and cons of having one parent take a career break to care for their children full-time. The thought of switching from a family where both parents bring home salaries to a single-income family can be intimidating to many parents. The reality is that the move to one income will impact a family and the household budget in numerous ways.
If you or your spouse or partner are weighing whether you can manage the transition to a one-income family for any length of time, you may want to first consider several important issues.
Review Your Family Budget
Go over your family budget carefully and separate essential spending items and nonessential or discretionary items. Essential items include:
- Housing (don’t overlook homeowners/renters insurance and utilities)
- Food
- Health care
- Child care
- Transportation
- Debt repayment (include student loans, credit card debt, and other consumer debt)
Create a budget to see if it might be possible to live on only one salary while still meeting your essential expense obligations. During this trial run, you may be able to identify areas in which you can reduce your spending. For instance, you may be able to cut back on your food expenses or renegotiate some loans at a lower rate of interest. You may be able to reduce your heating and cooling expenses by adjusting your thermostat. And remember to deduct the cost of child care since it won’t be a day-to-day expense if one parent stays at home.
Take a Look at Housing Costs
If you currently carry a mortgage, see if you can refinance at a lower interest rate and free up some cash. Even then, it may be a stretch to cover a mortgage and other essentials on one salary. If you are renting and hope to buy a home, consider applying for a mortgage based on one income. Doing so will give you a more realistic view of what type of home you can afford.
Evaluate Your Health Care Coverage
Health care coverage is essential. If you currently obtain your health care coverage through your spouse and that spouse intends to continue working, you need to assess whether you can continue paying the same amount. Living on one salary may require you to switch to a less expensive plan. It’s important to compare your current plan with other plans to see what you might have to pay in total for premiums, copays, and out-of-pocket expenses.
Don’t Ignore Your Retirement Security
Giving up one salary can place a strain on most budgets and may tempt some couples to stop saving for retirement. That can be a mistake. You do not want to do anything that could threaten your future retirement security. If money will be tight while living on one salary, consider scaling back but not eliminating your retirement plan contributions. You can always consider using some or all of a tax refund or a bonus to add to your retirement savings.
Maintain Life Insurance
Another budget item that may seem ripe for cutting when cash flow is tight is life insurance premiums for the spouse who remains at home. However, the death of a stay-at-home parent could place financial pressure on the surviving parent and potentially impact his or her ability to continue working full-time. You want to be sure that were the unthinkable to happen, your family would be financially protected. Maintaining life insurance coverage for both the stay-at-home parent and the working parent should be an essential budget item when trying to decide if you can live on one salary.
Consult With a Financial Professional
Before making a life-altering decision like exiting the work world to care for your children full-time, it might be helpful to consult with a financial professional. Together, you can run some numbers and examine various scenarios to determine whether what you and your spouse or partner plan to do is feasible from a financial standpoint.
We are here to help you create a personalized financial plan so you and your family can stay on track to meet your goals. Book an appointment or give us a call at 833-637-5360.
