Should One of Us Stay Home? How to Prepare for Transitioning to a Single-Income Household

A growing family can create financial stress that may not have been anticipated. Most young families are shocked by the cost of daycare (especially in the first year), which can lead to a conversation about whether it makes sense for a spouse to stay home. My family faced this question three times over. Here are the factors you should consider when making that decision.

1. Childcare expenses. This was a major shock to the system. Childcare can be a big expense. Keep in mind that you can get a dependent care tax deduction, and a dependent care FSA might help some, but it is still a significant cost, especially for the first year.

2. Loss of income and career momentum. This can be difficult to quantify, but it is an important factor. If a family goes from two incomes to one, that means less money going into a 401(k), being paid into Social Security, and general savings. Today’s job market has more part-time gig opportunities than in years past, so getting back into the workforce after time away is not as difficult to overcome as it was even a few years ago.

3. Insurance. For the parent who will stay in the workforce, take a look at their healthcare benefits to ensure they’ll meet your needs. Keep in mind that a spouse leaving the workforce is a “qualifying event,” so you can re-enroll in your benefit elections without waiting for the annual enrollment period.

4. All the intangibles. Nobody can put a value on being present and watching your family grow. Some parents thrive when they have time apart from their kids; some do not. This is up to you to decide.

While the context of this article is based on the decision to go from two incomes to one, sometimes the change is not voluntary. Regardless of whether the change is voluntary, here are some financial steps you can take in anticipation of losing an income:

1. Open a separate bank account (this is important) and move the full paycheck into that account to simulate what it would be like to not have that income.

2. Review your budget without a second income and make changes to balance the budget.

3. Make sure your emergency fund is funded—for a single-income household, it is best to have at least six months of expenses.

4. Take stock of any potential big-ticket items that could be coming up. For example, address any home or car maintenance that might need attention while you still have two incomes. Ideally, this should be done before reducing family income. Use the funds kept in the separate account for these expenses.

These decisions are not easy and involve a lot of feelings and emotions. It is not a one-size-fits-all approach, with plenty of gray areas. By taking time to review your finances objectively, you’ll be able to make an informed decision. If you are looking for help with life transitions like a significant drop in income, please schedule some time for a complimentary review of your situation.