For the past year, millions of parents have transitioned to a work-from-home schedule. Now, some parents may be ready to be a full-time, stay-at-home mom or dad.
But making this switch is not always easy. Aside from the emotional aspects of the decision, you’ll need to consider both the immediate budget impacts and long-term financial consequences. There are steps you can take to prepare your family and protect your finances, though.
Here’s what to know before becoming a stay-at-home parent.
Prepare your budget for the transition
When you lose one parent’s income, you’ll have less money to pay the same number of bills, so you’ll need to figure out whether the working spouse’s income can cover the family budget.
Start by reviewing financial statements from the past six months or going over your budget if you track your spending regularly.
“Once you know where you spend your money, you’ll be better positioned to determine where you might cut back to fit your new lifestyle,” said Tara Alderete, the director of enterprise learning at Money Management International.
Calculate how much your family spends on personal expenses, such as dining out, and monthly bills such as housing expenses, internet and utilities, groceries, and transportation. Then, check your spouse’s take-home pay and determine whether it’s enough to cover those expenses. Is there enough wiggle room in your budget, or will you need to cut costs?
Fortunately, certain expenses will be eliminated when you quit your job. Child care, commuting costs, daily lunches and coffees, and business attire might disappear from your credit card bills entirely.
“You also might find that because you’ll have more time at home to plan and prepare meals, shop with lists and coupons, and find creative and cost effective entertainment ideas, your entertainment and grocery expenses will go down,” Alderete said.
She suggested testing your revised budget temporarily to get a feel for your new situation and identify where other adjustments might be needed.
Consider whether you’ll lose work benefits
Many employers provide benefits such as health insurance, retirement contributions, child care reimbursement, and more.
You’ll need to figure out whether you need to make up for any lost perks. For example, you might need to enroll in your spouse’s employer’s health care plan or buy one on the health insurance marketplace.
With retirement savings, “consider increasing contributions to your spouse’s employer-sponsored plan or investing in a spousal IRA,” Alderete said.
Consider buying term life insurance
Term life insurance is a type of coverage that guarantees payment if the policyholder dies within a defined term, usually 10 to 30 years. Although it’s not something anyone likes to think about, life insurance allows the surviving spouse to handle immediate expenses and continue their regular standard of living, Alderete said.
Consider having both spouses apply for coverage. If the working spouse passes away, the insurance would cover their income. And if the stay-at-home spouse dies, the insurance can pay for child care. You can talk with an insurance professional to gauge the right terms for your policy.
Consider the long-term impact
When a parent leaves the workforce, they lose more than just their salary and benefits. The move also has long-term consequences on the stay-at-home partner’s career and finances.
Before transitioning to stay-at-home status, you can project your long-term income loss by using the Center for American Progress’ online calculator.
To minimize the impact, “you might consider part-time or occasional freelance work,” Alderete said. “And if you’re anticipating a future return to the workforce, take steps to keep your skill set up-to-date and maintain any professional licenses you might need.”
Read more information and tips in our Planning section