Becoming a stay-at-home parent provides you the opportunity to watch your children grow up and give them early education. Unfortunately, the decision to quit your job and stay home with your children isn't always an easy one. There are pros and cons and you don't want to make the wrong decision. Here are seven financial moves before becoming a stay-at-home parent.
1. Be Realistic
Becoming a stay-at-home parent might have been your goal from the time you found out that you were expecting. However, before you quit your job, make sure you calculate the cost and be realistic about your income. In a perfect world, many mothers (and fathers) would stay home with their children. But we live in the real world, and in the real world there are bills. For that matter, sit down with your partner to determine whether becoming a stay-at-home parent is doable.
2. Pay off Debt
To prepare for stay-at-home life, you and your partner should work together to pay off as many debts as possible. This includes credit card debt, auto loans, student loans and any other debt. The fewer bills you have, the easier it will be to go from two incomes to one.
3. Save Your Money
In addition to paying off debt, work with your spouse or partner to create a sizable cash cushion before becoming a stay-at-home parent. Since you're going from two incomes to one income, your spouse or partner's income may not be enough to cover extra expenses that pop up, such as a car repair or a home repair. With a cash cushion, you can dip into your account to cover unexpected expenses, thus reducing financial worries.
4. Transfer Your 401(k)
Becoming a stay-at-home parent doesn't mean that you should stop planning for your retirement. Work with a financial planner or your bank, and transfer funds from your 401(k) into an IRA or a Roth IRA. If possible, continue to contribute a small amount to this account each month.
5. Get a Life Insurance Policy
Life insurance policies are not only for the breadwinner. It is important for a working spouse or partner to have a policy that's adequate to provide the family with support in the event of his or her untimely death. However, as a stay-at-home parent, you also need a life insurance policy. This policy can cover your funeral and burial, plus pay off any debts, such as a mortgage loan or an auto loan. In addition, your spouse can use this money to hire a nanny (if needed) to help care for the children.
6. Look for Ways to Earn Money
As a stay-at-home parent, you can also generate extra income on the side. Even if you’re only able to work two or three hours a week, extra income can pay for clothes, doctor appointments and other miscellaneous items that your family needs. Consider your passions and think about ways to turn your hobby into a money generating business. For example, if you enjoy writing, you might become a freelance writer and share your knowledge on a particular subject. Or if you’ve mastered an instrument, maybe you can give music lessons in your home.
After running the numbers, becoming a stay-at-home parent may not work — at least not with your current expenses. If you’re adamant about staying home with your children, talk with your partner about downsizing your lifestyle. This might involve moving into a smaller, cheaper home, or selling your automobile for a cheaper one.
It’s important that you plan for this transition. The truth is, this might be the only way to spend quality time with your youngsters. What other tips can you offer parents looking to stay home?