Many families
reach a point with the number of children at home that one spouse would like to
stay home to look after children or other dependents, including aging parents.
If you are in that boat and trying to figure out how to make it work, consider
the following:
Balance of Income: If you and your spouse earn similar amounts and
one of you wants to quit, it will be difficult to make that work. Where you are
sharing the financial load equally, it may be impossible for you to create an
acceptable budget without both incomes. In order to enable it works, the spouse
who comes home may need to find a work-from-home opportunity to close the
budget gaps. If one of you earns less than half of the other, less than
one-third of the total household income, you can turn it into work more easily
than you might think.
Natural Helps: There are a few natural helps that will emerge. The
obvious genuine help is likely motivating your desire to make the change—day
care costs will be removed. In addition, the taxes on the income that goes away
will likely be larger than you expect. The marginal tax rate on that income is
likely higher than the effective tax rate on your combined income, meaning that
you’ll pay less tax on the income you keep than you may be expecting.
Cutting Back on Cars: You’ll need to make some additional decisions
to make your situation work. With two jobs, you have likely maintained two
cars. Perhaps two nice cars. You may be obliged to sell one of the cars. Cars
eat up more money than you realize. Especially newer cars. Because they get
good gas mileage and don’t have to go to the shop very often, you may consider
the newer car as the cheap one. The depreciation is silently eating you out of
house and home. Insurance on the newer car is more than the insurance on an
older car—it would cost more to be replaced. Look carefully at your cars to
determine if one can go, and if so, which one should go. If you can do away with
a car payment, that will be a significant contribution toward closing your
budget gap.
Discretionary Spending: Look at your discretionary spending
patterns. If you have been living right up against it every month, there may be
a lot there to cut, but if you just think you’ve been frugal, a thorough review
may reveal opportunities to reduce spending.
College Savings: It may seem ironic to stay home with the kids and
have to decide to reduce your college savings each month, but in the long run
your kids may be much happier to have a parent at home than to have a bigger
college fund. The difference between a local college experience and going to an
elite private school is primarily tuition and secondarily the fun of being away
from home. There may be little surprisingly little difference in the value of
the education.
Retirement Savings: If you’ve been saving well for retirement, the
money you have in savings will continue to compound. If you are obliged to cut
back on retirement savings, do your best not to stop altogether. A little
something will compound over the years much more than nothing!
Your Home: Moving is an expensive adjustment to make and should only
be considered in extreme circumstances. If you really were struggling to make
ends met before because you are “house poor. ” that is your budget is tight
because you bought a home you could barely afford. It may be the only way to
make things work with one income. You can raise a healthy family just as well
in 2,000 square feet as you can in 4,000 square feet. The kids may even thank
you for not having so many chores to do on the weekends. However, don’t move
unless you are really going to downsize significantly—otherwise the cost of the
move will overwhelm the monetary benefits from a smaller home and mortgage.
If you work at it seriously, you can almost certainly find a way of
making life work on one income. Almost certainly, someone you know is living
the lifestyle you want with one parent at home and one at work, living on the
exact income you’ll have. Watch and learn.
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