Could you afford to be a stay-at-home parent?

Could you afford to be a stay-at-home parent?

02/11/2015 – When she was 29 years old, Debra Cohen left a successful career at an aviation magazine to look after her first daughter.

“It was the best decision I ever made,” said Cohen, who is now 48 and lives in New York. She was thrilled to be a stay-at-home parent, even though managing a family on just her husband’s teaching salary was difficult. “My husband took on extra jobs — coaching, tutoring — and we lived lean,” Cohen said. “One car, no dinners out, no extras.”

Eventually, to supplement the family’s income, Cohen started a business that she runs from home — a referral service for home improvement (DIY) contractors. “Being able to stay (at) home with my daughter was my motivation,” she said. Cohen later had a second daughter. “I’m so grateful that I didn’t miss a day of my children’s lives.”

Being able to stay at home full-time with children is a dream for many parents — but difficult to achieve in a world of dual-income expenses. “It’s a double whammy for your finances, because not only are you potentially reducing your household income, you’re also increasing your expenses — kids are not free,” said Wes Brown, a financial advisor with Rather & Kittrell in Tennessee in the US.

In the UK, one in ten women stays at home with her children, according to the Office for National Statistics, in the US its three in ten according to data from the Pew Research Center. Stay-at-home dads are still not the norm — only 16% of all US at-home parents are men — although the numbers are slowly climbing.

If you’re tempted to hand in your resignation letter and focus full-time on the smallest members of your household, here are a few tips on making it happen.

What it will take: You’ll need a working partner who can cover the family finances and maintain emergency and retirement savings for both of you. In addition, if you have plans to re-enter the job market at some point, be sure you know how to keep your qualifications up to date. Consider whether your skills will remain up to date while you’re off work. You might need additional training to return, so factor that in.

“The person who wouldn’t benefit from [staying at home] would have a career that not only requires extensive training or qualifications to obtain their job, but also to maintain his or her qualifications,” said Brett Evans, executive director of Atlas Wealth Management in Southport, Australia.

Be practical. If losing a salary means extreme budget living, it’s probably not the right choice for your family.

“A household that cannot break even or has to be on the tightest budget ever should think twice,” Shannon Lee Simmons, a financial planner with Simmons Financial Planning in Toronto. “We can’t be on our best behaviour (constantly) for five to 10 years.”

How long you need to prepare: The more time you have to save, the better. Plus, by strategising ahead of time, you can make sure you have a workable plan. “At least six months and ideally 12 months before you leave your job, try and live on one income and save the other,” Evans said.

Do it now: Make sure it’s feasible. “Families should run through a cash-flow projection and full retirement plan to ensure that they can pay their bills, have a life and save for retirement,” Simmons said. “The years where one family member steps out of the workforce can affect short-term finances, but also long-term.”

Additionally, consider what costs you’ll incur being a stay-at-home parent that you were not incurring before. Higher utility bills? Higher petrol costs because your parents live an hour away and you like to visit often with the kids? Factor those into your numbers as well.

Curb your spending. You’ll need to rein-in your outgoings to reflect your new circumstances — family living on one salary. That means finding ways to cut back. “Things like reduced holidays, functioning with one car, and reduced child care costs are big ways that families can shrink their overhead,” Simmons said.

Add to your emergency fund. What happens if your bread-winning spouse loses his or her bread-winning job? The loss of your only family income can be disastrous. “Be very clear what your plan is [if this happens],” said Hilary Hendershott, a financial planner in California. “The rule of thumb is to have six months of expenses in a savings account for this type of event. Your number should depend on an educated guess of how long it would take to get another job.”

Don’t ditch your life insurance. Just because you aren’t earning, it doesn’t mean you shouldn’t have insurance in case the unthinkable happens. Consider how much it would take to cover child care and school costs — among other things — if you weren’t in the picture. “Most couples grossly underestimate their life insurance needs and unfortunately once it’s too late, it’s really too late,” Hendershott said. Aim for term life insurance which will pay out around 10 to 12 times your most recent salary if you die within the period of the policy, for example, between one and thirty years.

Do it later: Keep your hand in. If it’s possible to do occasional contract or freelance work in your field, go for it. You’ll maintain networking contacts (and make new ones) and keep your skills fresh — not to mention bring in some extra cash. “This is always recommended where possible, should the person have an interest in continuing in that role or career in the future,” Evans said.

Do it smarter: Consider all the angles. If it isn’t feasible to stay at home with your children full-time, perhaps there’s some middle ground — working part-time or flexi-time or telecommuting — could that net you the best of both worlds? “It’s important to carefully consider if you need to maintain the momentum you have in your career in order to reach your long-term goals,” Brown said. “It’s always going to be a balancing act between short-term wants and long-term needs.”

This article originally appeared in a interview with BBC Capital.

Brett Evans is the Managing Director and a Financial Planner with Atlas Wealth Management which is the first financial services firm in Australia to specialise in providing financial advice to Australian expatriates. With over 20 years of experience in the finance and investments industry, Brett has worked for blue chip companies which include the Australian Stock Exchange (ASX), HSBC, Suncorp and Citi Smith Barney.

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