Many families that have both parents working would like to be able to have one parent stay at home when their children are young, but are not sure if they can afford it financially. Below are some tips to see if living on one income might be the right choice for your family. For additional information, visit the web site Always Frugal for an article on tips for living on one income.
Make a One Income and a Two Income Budget
If you don’t already have a home budget, make one based your current two incomes now. Then make a second budget based on only one income and see if living on one income is feasible. In some cases you may actually come out ahead. Many families with two incomes are surprised to find out how little the second income actually brings in after deducting for expenses such as child care, taxes, work clothes and commute costs.
Listed below are some adjustments to consider when making a budget for one income.
Automatic reductions in expenditures
1. Federal, state and social security taxes will most likely be less than you are paying now. In the U.S., the more money you make, the higher rate you pay for federal income taxes. If your family income goes down by one half, your tax bill may go down by more than half as your household may end up in a lower tax bracket. Make sure when you do your one income budget you estimate your federal and any state tax expenses based on your new tax bracket. See your accountant for help if you need assistance in estimating taxes you would need to pay with only one income.
2. Not needing day care anymore will reduce childcare costs. The more children you have in day or after school care, the more cost effective it usually becomes for one parent to stay home. With more children the second spouse’s income stays fixed while child care expenses rise. Children not in day care also tend to get sick less often; so medical costs may be less with one parent staying home.
3. The stay at home parent won’t need to eat out for lunch, will not have commute costs, and will not have to spend money on work clothes so these expenses may be able to be reduced.
Trade time for money
4. If both parents are working now and have help such as a housekeeping service or a gardener, these services can be discontinued if the tasks can be taken over by the stay at home parent.
5. Two working parents are usually short on time, so more money is often spent on convenience foods and restaurants. With one parent at home, more foods can be made from scratch, there is more time to utilize coupons, more time to shop the sales and buy in bulk at warehouse clubs.
6. Cars are a significant expense for many families. Often in two income families a large part of one spouse’s income may go towards car payments. If you currently spend a lot on cars now, think about if you could live with less of a status car if it meant the chance to stay home with your kids. When buying a new car, a novel way to compare car costs is to divide the car price by the number of passengers the car or van can hold giving a price per passenger cost. Using this methodology, a slightly used minivan that seats seven is a much more cost effective purchase than a new BMW that seats five. The book The Millionaire Next Door has a clever chart that compares how much different car models cost per pound.
7. Two income families can often afford expensive vacations, but this is one expense that for most people is completely optional. As in the car example, ask yourself if you would be willing to cut back on vacations if it meant being able to stay home with your children. Children can have a lot of fun just going camping or staying at an inexpensive hotel near a beach, lake or amusement park. Additionally, sometimes with small children driving vacations to local resort spots may be less of a hassle and more relaxing than dealing with airports and flying to some exotic locale.
Calculate the cost of lost benefits and perks
8. If the parent who is working now and would like to stay home has benefits with his or her job, these might need to be replaced. In making a one income budget. Be sure to consider any added expenses of replacing health, insurance, disability or life insurance. Also factor in any other benefits like a company car or retirement fund contributions that the current working spouse would no longer receive if his or her job were to end.
Consider part time work or work at home jobs
9. If it looks like it would be hard to live one income, another option to explore is having one spouse work reduced hours at his current job, get a job telecommuting or a job working from home. Visit making money when you don’t have a regular job for more suggestions on this topic. Another option is to have the second earner get a part time job on weekends or evenings when the other spouse is home to care for the children. A plus of this choice is the part time job may also come with benefits. The downside is that while the children see more of each parent individually, there is less total family time when both spouses are working different shifts.
Make the big decision
After you have completed your two budgets, go over them together and decide if living on one income might be a good option for your family. Living on one income usually requires some sacrifices and lifestyle changes, but many parents find that these changes are worth the price to be able to spend more time with their children.
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