Can I afford to be a stay-at-home parent? It’s a question I get again and again, and a hard one to answer as an outsider. The only way to truly know if you can afford to stay home after having a baby is by dusting off the calculator and doing some number crunching. But first, you need to know what to consider. Here’s a run down:
* Your finances, of course. It sounds obvious, I know, but if you have a lot of debt – not a mortgage but high interest rate credit card debt – or you don’t have an adequate emergency fund of at least six to nine months worth of expenses, you’re probably going to have to continue working, at least part time, until you’re standing on firmer ground.
* Income vs. expenses. You’ve heard that weight loss is a simple formula – calories in must be less than calories out. The key to being financially comfortable is taking a similar, but opposite, approach – what is coming in, your income, must be more than what is going out. Keep in mind, though, that the equation will change drastically once the baby is here. Your fixed expenses – the mortgage or rent, car payments, insurance, utilities, savings and debt repayment – will likely stay close to the same, but flexible expenses – groceries, entertainment, childcare, gas – will need to be adjusted, sometimes considerably. In some cases, staying home will save you money – on business clothes, gas, and certainly childcare – but it will clearly cost you as well, in the form of your salary.
To sort it all out, print and fill out this worksheet, from my latest book, Money 911 (follow the link, then click on on “Stay At Home Worksheet”). At the end, if you’re in the red, you know you need to do some adjusting if you want to make staying at home work. If you’re too far in the red, it may be time to scrap your plan altogether, or at least consider a part-time job.
* Benefits. If your job is a significant source of benefits for the family – the company supplies your health insurance, a flexible spending account, contributes significantly toward your retirement – then this is an issue above and beyond the math of your finances. All is not lost, though – see if your partner or spouse’s company offers similar insurance benefits, at relatively the same price point. (Be sure to factor any increase into the aforementioned worksheet.) As far as that retirement plan, you can still save for retirement as a stay-at-home parent by opening a Spousal IRA, as long as you file a joint return and your spouse has earned income that is more than your contribution.
* The future. Kids grow up – trust me, I know. And when they do, you’ll very likely want to get back to work. So staying active in the fields you’re interested in is important for both your future employment and, quite frankly, your mental health. Go to networking events, lunch with former colleagues, take college classes to keep your skills up to date. Anything you can do to keep your resume and mind fresh will benefit you down the road.