Staying Home to Raise Children is a Big Decision

Transitioning from the workplace to staying home to raise children is a big decision. It’s important to consider the consequences of both choices, weigh the pros and cons, and get your husband’s support before deciding. If you’ve decided to become a stay-at-home mom, you’re in good company—according to the U.S. Census, approximately five million moms stay at home with their children. Before heading down this path, step one is to examine your finances and make sure you’re taking care of the financial changes that come with leaving the workplace.

Save for Retirement

Between the automatic paycheck contributions and employer matches, employer-sponsored retirement plans make it easier to save for retirement. Without a plan and a match, you risk losing prime savings years while you stay at home. But even without an income, you can and should continue to save for retirement, either through a spousal IRA or a taxable brokerage account. Alternatively, if you decide to start a business at home or work freelance projects, you may be eligible for an individual 401(k) plan, a SIMPLE IRA, or a Simplified Employee Pension (SEP).

As for your previous retirement savings, you have a few options: you can roll it over into your new IRA or 401(k), cash it out, or leave it there. The worst choice is to cash it out; you’ll be hit with hefty tax penalties for early withdrawal, and if you leave it behind you risk forgetting about it in the future, plus, you’d be at the mercy of your previous employer’s rules, fees and investment options. Often times rolling it over to an IRA is the prudent choice.

Get Insured

Your 401(k) isn’t the only work benefit you’ll have to replace when you become a stay-at-home mom. If you were participating in your employer’s health plan, you’ll need to obtain health insurance for yourself elsewhere. Your husband’s employer may cover you, but if you’re not eligible, check out COBRA coverage to extend your employer coverage temporarily or consider individual insurance plans.

Life and disability insurance are also important in single-income families. Your husband will need disability insurance, if he doesn’t have it already, because the possibility of your husband becoming disabled is an even bigger risk to the family finances now that he’s the sole income-earner. Life insurance is important for your husband to get for the same reason, but you should get it, too. Many stay-at-home moms don’t think they need life insurance since they aren’t earning an income, but that’s not true. Your husband would have to arrange for child care and possibly pay for a housekeeper and other services without your help, so life insurance may be necessary for both parents.

Adjust Your Budget

Your finances will obviously take a hit with the loss of your income and the addition of a child to provide for. However, staying home means you’ll be saving money in some areas as well, such as work clothes and dry-cleaning, transportation to and from work, lunches out, etc. You may also be able to cut costs more easily when you have more free time to clip coupons, comparison shop, and cook at home. Your tax bill will also likely decrease and you’ll save a significant amount of money by not paying for child care.

Nevertheless, moving from a two-income to a one-income household will likely make your budget a little tight, and you and your husband have to sit down together to determine which expenses can be cut and how you’ll afford your new lifestyle. An emergency fund is even more important now that one spouse is not working, so make sure you build up your savings and keep that in your plan as you make the transition.

Get Credit in Your Name

Make sure both you and your husband have a credit card in your own name. Many people mistakenly think that getting married creates one merged credit score for the two of you. Regardless of your spending, saving, and credit habits, if the card isn’t in your name, your score doesn’t reflect the history. Having your own credit card will help you if you were to get a divorce or become a widow, and it will also keep you financially independent and aware of household finances. You should also make sure that any auto loans, your mortgage and other paperwork is in both names.

Stay Marketable

You may plan on returning to work once your children go to school, or you may be forced to return because of divorce, death, disability, or the economy. In any case, returning to work after being a stay-at-home mom can be difficult, but there are things you can do to stay marketable, so it’s easier when you decide to return.
Consider taking classes in your field or volunteering to get relevant job experience for your resume. Keep up contact with former co-workers and attend networking events throughout your time at home.

You may also decide to work part time, start a business, or freelance on the side. This will keep your skills sharp, get your name out there, and give you something to put on your resume during the interim. A study by the Center for Work-Life Policy found that women lose an average of 18 percent of their earning power when they leave the workplace to raise children. Staying marketable while you’re home can help close this gap so you’re better off in the future.

Staying home with your kids can be a great experience for the whole family, but it’s important that you don’t make the decision lightly. You should always stay focused on your financial plan and future earning potential, because you never know what the future will hold. Just because you won’t be earning money anymore doesn’t mean you shouldn’t stay involved with the household finances. Make sure you’re on top of insurance, retirement, and budgeting concerns and your life’s transitions will be smoother and more successful.