I’ve recommended before that couples who are ultimately planning on one person staying home with children, start running their finances and their budget that way from the beginning. That’s simply the best way to be prepared for what is to come.
I’ve also pointed out that one of the best times to save is before having children. But with marriage happening later and later in our culture (and the transition into parenthood for those marriages therefore happening perhaps a bit more quickly than it otherwise might), this important savings period has been crunched. So here’s some quick advice for those who are single: realize that you are saving now for your future family’s financial life.
That aside, here is some advice for those who are starting down this road toward a single income for their family, or even for those who already find themselves walking it out…
Take A Trial Run
I recommend that couples contemplating a stay-at-home arrangement first take a period of living as if they had only one income for at least three months before one of them quits a full-time job. They may find that even though their expenses will be cut for needs such as day care, transportation and clothing, they may find it hard to continue to dine out frequently or splurge in other ways. If that’s you, it’s a good idea to bolster an emergency fund to cover unexpected things that come up, such as household repairs.
It’s even better if this “trial run” can begin at the start of a marriage, which should allow for a fantastic period of saving before having children.
Life Insurance for Two
Couples should buy life insurance on both partners, not just on the working spouse. If the stay-at-home parent dies, the surviving spouse can use the benefits to pay for outside child care, live-in nannies, housekeepers and other functions that had formerly been handled by the stay-at-home parent.
Using Home-Based Deductions Rightly
If the stay-at-home parent or both parents operate a home-based business, both should be listed on IRS Schedule C and all related business documents when they file taxes.
I’ve reviewed past returns (which we do for free, for non-clients — our clients, of course, already being well taken care of!) where only the information of the spouse who actually filed the taxes was submitted, in effect denying the other spouse from accumulating Social Security benefits.
Lastly, a word about what’s most important: YOU. Stay-at-home parents should make sure they are well on their way to funding their own retirement before paying for a child’s college education. The best thing you can do for your kids is to take care of yourself first. If your children have to take out student loans, despite all the bad publicity, they do have 40 years to pay those loans back — and at favorable interest rates, at that.
Had I known what I know now about compounding interest and the idea of having a Private Reserve Strategy, I’d be in an even better financial position right now. And it’s not about having more money, it’s about having more options for doing the things we like to do. If you want to know more how a Private Reserve Strategy can help you with the some of the financial options I mentioned above, get in touch with us.