Consumer Action IF
YOURS IS the typical young American family, chances are you and
your spouse barely see the inside of your home. Between coordinating
busy work schedules, business dinners and the occasional weekend trip,
who has time for quiet evenings around the fireplace (well, OK, in front
of the TV)?
But it's funny how a small bundle of joy changes everything. All of a
sudden, you find yourself wrapping up the work day at 5 p.m. sharp and
asking your boss for a compressed work week so you can spend at least
one more day with your little precious. Or, if your family can afford
it, you quit your job altogether and become a stay-at-home parent.
The problem is, in today's world of jumbo mortgages and sky-high
tuition bills, not many families can afford to live on one income.
According to 2002 Census Bureau statistics, out of 19.6 million married
couples with children under 12, only 5.3 million parents (5.2 million
moms and 105,000 dads) stayed at home to care for their children. At the
same time, 87% of the mothers surveyed in an at-home parenting study
conducted last year for Warner Books said they would stay at home to
raise their children if they could afford to do so.
"This is an all-too-common dilemma shared by many couples,"
says Sheri Iannetta Cupo, a certified financial planner with Sage
Advisory Group in Morristown, N.J. The good news is, with some careful
planning well in advance, at-home parenthood can turn out to be more
affordable than you thought. Here are five tips on how to make it work.
1. Assess the situation: It's not as bad as you
think It turned out not to be as difficult as she feared. "The first
thing that I realized was there were a lot of hidden costs to
working," McCoy says. "A tremendous [amount] of expenses just
disappeared that we didn't know would disappear."
The couple's biggest savings came from daycare expenses. Also gone
were the clothing and dry-cleaning bills that come with a career
wardrobe, and the almost daily deli and restaurant tabs. The family's
gas bill and parking fees also dropped, now that she didn't commute, and
her car-insurance premiums went down because she switched from commuter
to leisure status, which automatically means lower rates in most large
metropolitan areas. Plus, now that they were living on one income, their
tax bills dipped significantly.
"I've met people who [net] less than they [bring home] because
of all these expenses, and they've never thought about it," says
McCoy, who in her spare time runs a Web site for stay-at-home parents, Miserly
Moms.
So when you're thinking of how much income you stand to lose if you
quit your job, don't think in terms of gross salary, but try to factor
in all the marginal expenses that come with being a career parent. Our calculator
will help you figure it out.
2. Downsize your budget The key is to track down how much money you've actually got control
over each month once the mortgage, the bills and your other fixed
expenses are taken care of. "Most people do not have a great amount
of control over what their electric bill is, or what their property-tax
bill is, but the discretionary money that passes through your hands,
you've got some control over," says Denise Topolnicki, a
stay-at-home mom and author of "How to Raise a Family on Less than
Two Incomes."
Most stay-at-home moms find they can significantly cut the family's
grocery budget now that they have more time to spend at the supermarket.
Others find that with a baby in the house, they don't want to eat out or
go to the movies as often. Giving up such things might not seem like a
sacrifice at all.
3. Eliminate debt 4. Rebuild your financial cushion Of course, not everyone has six months' worth of cash lying around.
One way to get some liquidity in a pinch is to establish a home equity
line of credit, or HELOC, which is basically a credit line against the
equity of your home that you can use should the need arise. "If you
never use that line of credit, there's no cost associated with having
it," says Cupo. "In the event that you do use it, the bank
will start to charge you interest based on what you've written the
checks for." Don't confuse this with a home-equity loan, where you
get the cash — and start incurring interest — right away. For more
on the difference between HELOCs and home-equity loans, read our story.
Again, think of that home equity line of credit as an emergency fund,
not as a way to sponsor a family trip to Disneyland.
"Between the liquidity in that savings account and this line of
credit... if you are staying at home and you do have some unanticipated
big expense the one income can't cover, you've got some avenues to help
you without running up your credit cards," Cupo says.
5. After you make the leap... Life insurance. Don't forget to adjust your life
insurance policies now that the family depends financially on only one
parent. Insurance experts recommend that you buy coverage equal to at
least five to seven years' worth of the working spouse's income. But
don't forget the stay-at-home parent. "They provide a value that
you're going to have to pay somebody to do if that spouse is no longer
there," says Cupo. According to State Farm, an insurance company,
the "value" of a stay-at-home spouse could add up to $70,000 a
year when you factor in child care, cooking, chauffeuring and so on.
Fortunately, term-life insurance is quite inexpensive for people in
their 30s and in good health. For more on life insurance, read our story.
Retirement. It's tempting to cut down on your 401(k)
and IRA contributions when you need cash to raise your children. But
don't eliminate your retirement saving completely. "Retirement
needs to be part of your budget," says Cupo. "Maybe you'll
have to cut back a little bit: Instead of fully funding your 401(k),
drop it back so that at least you get your company match. Even if you
save modest amounts, you've got compound interest on your side, and it's
going to grow for you."
College savings. With the average four-year private
college bill expected to run as high as $300,000 18 years from now, it's
only normal for people to start panicking about it before their children
speak their first words. That's why it's important to start saving as
early as possible. Our College
Planning section has a wealth of advice and college-planning
resources. But don't neglect your retirement for the sake of your kids'
529 Savings Plans. This is perhaps the one place where you should put
yourself first. "There are means of getting through college —
there are loans and financial aid — but there's nothing like that to
help you though retirement," Cupo says.
Exploit the tax breaks. Finally, don't forget that
Uncle Sam has some very attractive tax breaks for parents. For a
detailed list, read our story. |
