I had wanted to post this sooner, but things have been busy! Sorry for the delay and thank you for being patient!
So this post is about the financials of being a stay at home mom. I thought that I would start this post with a real world scenario which is my own. This is what we looked at when trying to make the decision if I should stay at home.
My story
So financially things were really grim for us. We had made a cross country move without jobs lined up and without a buffer. The economy had tanked and our two houses that we owned were now being short sold. The first house closed on its short sale not too long after we moved, but other house wouldn’t close until the following year. We had maxed out our credit cards to survive and to make the move and our resources were tapped. We stayed for a little bit at my parents house and then decided to do something that we had been avoiding-pull from our retirement savings so we could survive. The pregnancy was unexpected-but welcomed. However, financially we had no idea how we were going to make things work. How do you budget for a baby?
We made some tough decisions. I decided not to go back into the Information Technology field-where I was making just under $90,000 a year. Prior to the move cross country and the short sale adventure our combined income was right around $200,000.00 a year. However with a number of layoffs for my husband we quickly found that our lifestyle was taking a dramatic hit and found ourselves looking around wondering where all the money went. I decided that I had a once in a lifetime chance to go into business with my Mom and my husband quickly got a job, but at this point we couldn’t really pay any bills. Larger salaries just meant larger bills for us. Now, with just a fraction of what we were making before our bills suddenly became a dark cloud of never getting out of the hole! So…this is where the dip into our retirement savings happened. We got an apartment and were not able to make ends meet with our paychecks, so we slowly watched as we drained years of savings.
I remember crying and being so upset that I knew that I was going to have to go back to work, because we weren’t surviving. Even after cutting our lifestyle and living frugal-it just wasn’t working. First and foremost I knew that when this baby arrived, what we wanted no longer mattered-it was what we needed to do to make sure that our baby had everything that she needed. We decided at this time that we should add an expense as an investment in our future and my husband started his master’s program with school. So now we had all of our debt and we were adding, but we banked on the fact that this additional schooling would allow my husband at some point to be able to supplement our income and would put us in a good spot for me to be able to stay at home.
We ended up with a lucky break. My husband got a job offer back in the place that we had moved from. It was more salary with a good size commission that came with it. That is when we sat down to do the math. We found that although we would need to continue to live tight with our money, it looked like it had the potential to make it so that I could stay at home. So we made one final draw from our retirement savings and took a gamble.
Now, at this point we really had nothing else to pull from the retirement savings. We were now in a place where if we could not make it financially-then I had no choice-I would have to go back to work.
So our choice as a SAHM for me really came over a long process, many discussions and a lot of math! So, if you are thinking of no longer getting a paycheck and want to be a SAHM-then you and your partner have some heavy discussions before you. Here are the items that came up for us in our discussion-
What do we do if one paycheck doesn’t work anymore?
You should always have a plan of action for this. We came up with scenarios for me working full time and part time, if I would need to get back into the IT field or if any job would work. We knew that as soon as we couldn’t make it on one income-we would both have to work-period.
What about financial goals?
There were a lot of points that were important to us. I am going to list them here and then go in depth with them in other posts. These were financial goals that we felt we needed to do regardless how much money was coming in. If we couldn’t meet these goals-then we would need both paychecks.
- · Savings fund for college for our baby
- · Pay off all of our credit card debt
- · Decrease our debt to income number which would also include paying off our vehicles
- · Pay back the money that we took from the retirement account
- · Buy another house
So these were the heavy hitters for the financial goals.
- · 4-6 months of savings that would cover all of our bills in the event that my husband lost his job
- · Have a savings account for our baby that wasn’t her college savings for high ticket items that we needed for her
Being dependant on your spouse
If you are a SAHM then you are relying on financial means from somewhere other than you. This should not be overlooked. When you are considering to stay at home this is a lot deeper than just relying on someone else to bring home a paycheck. You need to know how strong your marriage is! It is no easy task for anyone to be the bread winner. It can cause strain on the relationship even more than the arrival of your little one. Having a child is very rewarding and to me the most wonderful thing in the world-but now this heavy responsibility can weigh heavily on your relationship with your spouse. If you are not able to get comfortable with your spending being monitored, the questioning of purchases, etc-well then maybe you don’t need to be a SAHM. Many feel that being dependant on your partner is taking a step back in time and that you should be able to stand on your own in case you end up in divorce. I think that is a little extreme in the cynical department, but that is also because for me divorce would not be an option unless me or my child were in physical or emotional danger. If divorce for you would be something that is an option should things go south-well then again-maybe you should keep your income coming in.
The little things add up
Being a SAHM also means some additional expenses for your household. For instance-your utilities are going to increase. With you being at home and the amount of laundry in general that everyone has to do with a new child, expect electric, gas and laundry costs to go up. Do you plan on enrolling in classes/activities with your child? If so, look up and see what the age and costs for are in your area. This will give you a good idea of how much extra you would need to have each month.
Price out baby needs so you can get a good idea of how much your new shopping trips are going to be.
The professionals
The best advice that I can give financially-is to talk to the professionals. Know your goals and concerns and then seek out the people that are best equipped to help you make sure those things happen.
- Tax Professional- seek out and find out how your taxes will change with you going down to zero income and the addition of a family member. We are in southern California and we use Szabatura & Co.
- Real Estate – find out what is going on with the housing market and new things that are coming down the pike for home loans and options. Talk to your banker about what you need to do financially to qualify and find a good real estate agent that you can trust. We use Kathy Scruton as our agent and have for years. She is really great and has a great blog that you can get to that talks about the market and guidelines that you can visit here.
- Health Insurance – Find out what all is covered and what you will need to pay for out of pocket. Bella Baby is 5 months old and we are still getting bills from the delivery. We found out the hard way that for our coverage-she couldn’t meet a deductible prior to birth because of no social security number-so we had to pay for all of her expenses out of pocket. Just to give you an idea-the hospital charged her for a room and meals that was identical to mine. It didn’t matter that she was in a plastic tub and was breast fed. This didn’t include the in house physician checking on her and immunizations. Find out if well visits are covered by your provider as well.
- Financial Counselor -talk to an advisor about your savings goals. This can be everything from a savings account, buffer, investments, etc. They will let you know what you need to be able to put away and how much you should be saving a year with different options to put your money where it really counts. We used USAA since I am former military.
- Insurance-Find out how much it will cost for a life insurance policy that will benefit your little one and what the cost of that is for each month. If you didn’t have this before-you will want to get it now to make sure your baby is covered in the case of something happening to you, your spouse or both. A grim thought I know, but this is important.
- Legal Fees- Once your little one arrives you are going to want to put a will together and make sure that everything is set in the case that you or your partner are gone. I cannot stress how important this is!
Weigh the options!
Figure out what is important to you in your heart and then find out how to make it work on paper! Call in your area to find out how much daycare would cost for part time support and full time support. Take a heavy look at your financial statements-what could you cut to make everything work? Write down what your families goals are financially for your little one. Is it more important for you to work and make those financial goals happen sooner rather than later? Do you want to not have to be as stressed financially because you are bringing in a second income-or is the stress worth it to you because you feel that staying at home is the best answer for your family? My best advice is to sit down and come up with different scenarios, have many discussions with your spouse about this-and then together make the decision.
Ask around…
Find people that are both working and being a SAHM and find out financially how things work for them. You don’t need to get into salary for this discussion-but things that they do to make sure that they are a balanced family. Remember no two situations are the same! Take the things that might work for you and your family and go from there.
Tools:
- Find out your debt to income ratio-don't know how? Use this resource
- Check out this article from CNBC on money tips for the stay at home mom
- Baby Center has a child expense calculator to help you find your yearly cost with your new little one
- Check to see if you qualify for the state funded WIC program here
If you missed the earlier posts to this series you can check them out with the links below. The next posting will be “The Everyday”
Be A SAHM???-The Series - Guilt By Association
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