With some couples, there might be a time after having children when one person – usually (but not always) the female – wants to quit working in order to stay at home with the kids. While this is often an emotion-driven decision, it clearly has practical implications as well. As in, going from two incomes to one income.
That notion of dropping from two incomes to one can be quite stressful, particularly to the person who then becomes the primary breadwinner by default. Lifestyles are often based on what we are used to, and dropping one income out of the equation can wreak havoc on the budget and what kinds of things can be afforded.
The thing is, when people get married and have joint finances, they need to make decisions together. The concept of unilateral decisions is one that might not work so well in a relationship. Here are some possibilities on how to handle this topic from a financial point of view:
- Communicate well early on. I really think that many problems people have in different aspects of life could be alleviated to at least some extent through better communication. In this case, the idea of going to one income from two should be discussed well ahead of time. This doesn’t make a difference whether it’s a potential stay-at-home mom, or a stay-at-home dad we are talking about. The bottom line is that we need to talk about what our wishes and even expectations will be once a family is started. Nobody should be blindsided.
- Realize that circumstances and feelings may change. Now, this might run counter to what I noted above. However, no matter how well people plan things out, different feelings may emerge later. A new parent might look at that bundle of joy and really want to be at home more than anything in the world. Now, that doesn’t mean practicality and rational decision-making need to go out the window. However, it does mean that we need to consider changes. Those changes could also be the opposite way, where the expected “breadwinner” has job troubles, or the household has large unexpected expenses, etc. In those cases, circumstances might dictate two working parents instead of one. Bottom line is to have some flexibility.
- Live on ONE income before having kids. This is very tough for a lot of people, and might seem silly and boring to others who really want to enjoy their earnings when young. However, it might be a good idea to follow both tips above – by planning for flexibility. In this case, live on one income, so your lifestyle won’t have to change much if you end up going on one income later. And while you’re living on that one income though both are working, simply save the money from that 2nd income. That can help you big time in the long run regardless.
- Consider “Incremental Income”. By this, I mean subtract out the cost of daycare from the 2nd income, and see what the true incremental income is of that job. For example, let’s say somebody earns $60,000 per year, and nets $45,000 after taxes. Let’s also assume that the person has 2 kids in day care, at $1,000 per kid per month – or $24,000 per year. In that case, the incremental after-tax income is $21,000 per year. So, that’s the tradeoff between having a parent at home and income. One can do the math, calculate an hourly rate, and determine the true value to working vs staying at home. Many times, it can make more sense than meets the eye to have a parent at home from a financial perspective.
My Questions for You
Do you consider the notion of staying at home a joint decision, or one that’s more personal and unilateral?
How have you (or have seen others) handle the topic?
What tips would you have for people who are trying to decide on how to make such decisions?