Financial Impacts of Being a Stay-at-Home Parent

When many couples have children, they fully expect to return to work after a few months off. However, when they see the costs of daycare, they re-evaluate leaving their child, or children, all day long to be raised by someone else. For some, the cost of not being with their kids all the time is more than just the money. So the decision is made to become a stay-at-home parent.

Before that goes into effect, however, there is a lot of planning that needs to be done. Your accountant in Billings, MT explains the financial impacts of being a stay-at-home parent.

Income of a Stay-at-Home Parent

It goes without saying that becoming a stay-at-home parent will cause one income to disappear. But there are other considerations as well. Let’s suppose that both you, and your spouse, were earning $3,000 per month take home pay. Your income won’t exactly be cut in half if one of you decides to stay home. After factoring in a reduction in expenses (like commuting, eating lunch at a restaurant, work clothes, etc.) you might only see a reduction in pay of about $2,500. But don’t expect expenses to drop.

Expenses as a Stay-at-Home Parent

When the kid, or kids, are still small (under about 10 months old) expenses are minimal. Most of the clothes are hand-me-downs, good is breast milk or formula, there are no special activities, play dates, or outside expenses.

But as the children get older, household expenses go up. Clothes and toys get more expensive as time goes on. Daytime activities that help both parent and child maintain their sanity accumulate bills. If you are going into being a stay-at-home parent, you can reasonably expect life to get more expensive instead of cheaper.

Investing as a Stay-at-Home Parent

Before you left your work to stay home and raise children, you were likely investing in a 401k (or something similar). Your retirement planning was based around the two of you working. Now that you’re home, those investments have ceased.

If you still want to retire on time, you still need to invest.

Fortunately there are ways for you to do so. As a stay-at-home parent, you could freelance, or earn money on the side. This will give you a taxable income, and allow you to contribute to your IRA (up to $5,500 in 2015). The alternative is that your spouse can contribute to a spousal IRA for you.

How to Overcome these Impacts

Having a baby brings about huge changes in your life; even if both parents continue to work. Making the commitment to being a stay-at-home parent brings even bigger changes. Fortunately, there are ways to make the transition easier.

Practice – Before the child comes, practice living off just one income. Take 100% of the money that the future stay-at-home spouse makes, and stash it away into a baby fund. This will help in two ways. First, you will see how much you need to cut back in order to make things work. And second, it will provide a nice buffer in case you have unexpected expenses pop up (by “in case you have” we mean “when they do come because they most certainly will come”).

Flex – Having a child is a time to practice flexibility. You have to be able to adjust to the baby’s schedule. Adjust to baby activities. Adjust to finding free activities that are fun, healthy, and enriching for the child. Sometimes a day at the park is worth far more than an expensive trip to a museum, aquarium, movie theater, or anywhere else.

Relax – Living on less is only temporary. When the child is older, and in school, you can go back to working (at least part time). This will help relieve the financial burden that you experience now. It’s only temporary, so take time to enjoy life as it happens.

Practical Taxes can Ease the Transition

Fortunately, the government does provide tax breaks when it comes to having children. In order to maximize those breaks, you need an accountant that understands them, and will work hard to make sure that you are getting the biggest refund possible.

Instead of trying to do your own taxes, let us do them for you! You can spend more time with your children, let a professional accountant handle your tax return, and get a larger refund than if you were to do everything yourself.

Call us at 406-894-2050 to schedule an appointment.