- It takes a lot of planning to switch from a two-income household to a one-income household, but there are several steps you can take today to get financially prepared.
- In addition to talking to your partner about money, paying down debts, tracking expenses, and getting quotes for what childcare could cost are all good ideas to get started.
- Read more personal finance coverage.
There’s a lot to consider financially in this situation, from the costs of losing one salary to the costs of childcare. You and your partner will need to have some frank money conversations before you get too far into the process, and decide on your goals and priorities.
If being a stay-at-home parent is your future plans, start doing these seven things today to make sure your family is ready to go one-income when the time is right.
1. Start talking to your partner about money
If you’re going to go from two incomes to one, you and your partner will have to be on the same page about all of your finances.
Even though you’ll only have one income, it will take two people to make sure that everything goes smoothly. Start by having a conversation about your money, talking about how you’d like to live and the changes you’ll have to make to support your new lifestyle.
It might be a good idea to sit down with your partner and make a spreadsheet, as one financial planner suggests. Take an evening to go through all of your income, savings, expenses, and debt to make sure that you’ll be ready to make this jump, and to make sure that you’re both feeling the same way about it.
2. Track your expenses
To know how much you’ll need to earn, where you’ll need to cut back, and how much you’ll need to save in your emergency fund, figure out how much you spend in a month. This is one of the first things most financial planners recommend to people who want to take controle of their money – you might be surprised by how much you’re actually spending.
With a spreadsheet, app, or even a pen and paper if you prfeer, track every dollar you spend in a month. After a few months, you can start to get an idea of just how much you’ll need in income to make stay-at-home parenthood work for your family, and you’ll have to change to continue living within your means.
3. Start bulking up your emergency fund
An emergency fund is a non-negotiable for any family, but when you’re relying on one income, it’s even more essential.
Financial planner John Pak of Otium Advisory Group in Los Angeles explains that it’s all about the “what-ifs,” and being prepared to handle them without taking on debt. “What if you get sick? What if you get terminated? What if your company fires you because they’re downsizing? I think that’s a legitimate fear,” says Pak. “To squash that fear, you need to have a good, hefty savings account that’s just reserved for emergency situations.”
Business Insider’s Tanza Loudenback reports that a single-earner household should generally have about six months of expenses saved, double the recommended amount for dual-income family.
You want to keep that money somewhere safe, but liquid, like a high-yield savings account. A savings account at a traditional bank earns about .1% interest, while a high-yield savings account earns 15 to 20 times that much. It’s not hard for six months of expenses to add to up to five figures, so every dollar counts.
4. Figure out how you’d get health insurance coverage
“Healthcare in the year 2019 is just off the charts in a negative way. It’s almost becoming unaffordable,” says Pak.
Many families spend large amounts of their income on healthcare. It’s not easy to budget for, especially if the working partner won’t have access to traditional employer health insurance.
You’ll want to factor the health insurance discussion into your money talks with your partner, and look into how you’ll pay for it with one income. If you lose coverage through an employer, it will likely cost you more to get coverage on your own.
5. And calculate how you’ll continue to save for retirement
Just because one partner might lose their employer match and potentially access to a 401(k) doesn’t mean that it’s time to stop saving for retirement all together.
Instead, you’ll have to factor that into your cost of living each month, and you’ll need to find ways to continue to save.
Even if you’re losing your 401(k), Pak says an IRA is a good place to keep saving. “There’s a rule that says that as long as one of the spouses is working, the stay-at-home spouse can create a traditional IRA, regardless of whether they’re making money or not,” he says.
6. Get a quote for childcare, just in case
Looking into the price of childcare can make or break your decision. But, even if you’re sure one partner can stay home, it’s always good to have that number in mind.
Having estimates from your local childcare options on hand will help you better weigh the costs and benefits of staying at home versus working and paying for childcare, and will help you to determine the best fit for your budget and your family.
7. Work on reducing your debt
If you have excessive levels of debt, you might not be ready to be a one-income family. But, if you know that you or your partner would like to be a stay-at-home parent eventually, start working towards paying down debt now to reduce your monthly living costs when you’re operating on one income.
Whether it’s a car payment, credit card debt, or student loans you’d like to pay off, it’s time to get started. Consider strategies like the debt snowball, where you focus on your smallest debts first to cross them off the list, or the debt avalanche, where you focus on your highest-interest debts first to reduce your overall payments over time.
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