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5 Financial Planning Questions To Consider Before Taking The Plunge To Become A Full-Time Stay-At-Home Parent

Being a full-time stay-at-home parent takes a lot more than just commitment and dedication. Financially, it has to work as well.

For Singapore families who are able to afford it, there is always a consideration that one parent could stay at home to look after the kids while the other parent works.

Being a full-time stay-at-home parent doesn’t just require dedication and commitment from parents to give up their careers for their children. Financially, it has to work as well. A family should only opt for this option if they are able to cope financially with the challenges of a single-income family.

In this article, we will discuss 5 important financially planning questions that you and your spouse need to discuss about, before either one of you consider taking the plunge to become a full-time, stay-at-home parent.

#1 Can Your Family Live On A Single Income? Try It For One Year First

If your plan is to live as a family on a single income, then you should give it a try to see if you can live your life within your means. Do this in advance, before one of you actually leave the workforce.

One way you can work towards this is to live off on one person’s income for an entire year. The income should be based on the person who will continue working.

Do this over a period of one year. A year is an ideal time frame for you to better calculate your expenses, and to take into consideration any one-off annual payments that you regularly incur.

For example, you may be able to cope financially each month, until the time comes during year-end when you have to pay for your insurance premiums, holiday expenses, income tax or road tax renewal.

That’s when you may realise that while living on a single income is can be done on a month-to-month basis, it may be difficult on an annual basis once additional once-a-year expenses are accounted for.

Read Also: Why Married Couples Should Try Living With A Single-Income Family

#2 Emergency Savings Of At Least 12 Months Of Expenses

As a rule of thumb, we advocate for families to have at least 9 months of monthly expenses as emergency savings. This means if your family spends an average of $4,000 each month, you should have about $36,000 in emergency savings.

If you intend for only one parent to continue working, have at least 12 months of monthly expenses in emergency savings. This is because the risk that your family faces if your sole bread winner loses his job is a lot higher, compared to that of a dual-income family.

The one year that you spend living on a single-income should give you the opportunity to accumulate your savings. If you are unable to accumulate 12 months of savings, even after striving to live on a single-income for one year, chances are that your family is not ready for this transition.

#3 The Cost Of Your Kid’s Future Pre-School Education

Some parents may stop working because it does not make financial sense to continue working. For example, if a mother is earning $2,500 per month, her take-home salary would be $2,000. If we assume that working expenses come up to $500 each month (money spent on transport, lunch at work), the actual income she receives each month is only $1,500.

Now imagine if a family has two kids and the childcare arrangement necessitates that both kids go for a full-day childcare, at $750 per child, or $1,500 for both children. This means whatever the mom earns, after deducting for CPF contributions and working expenses, simply goes towards paying for childcare. This is essentially the opportunity cost that the mother incurs in order to continue working.

With such a scenario, many families may rationalise to themselves that it makes more sense for the mom to stay at home, instead of sending the kids for a full-day childcare.

However, one consideration that you should not ignore is the possibility that you may still want to send your kids to pre-school, even if you are a stay-at-home parent.

What this means is that as parents, we cannot just look at the amount that we save if we stay at home and do not need to pay for external help. Instead, we need to account for the future cost that we will incur when our kids grow older, regardless of whether or not we have a stay-at-home parent.

As far as possible, avoid making the choice of stopping work just because you are earning an income which is too low, such that it barely covers the additional expenses you incur because you are working.

This is because if you continue to work hard, you are also hoping for your current salary to increase. Concurrently, once you stop working, your ability to earn a higher income goes along with it.

At the same time, when your kids become older, you may also realise that the savings you enjoy by not having to send them to childcare when they are young, dissipates quickly once they are old enough to take care of themselves.  At this point in time, their expenses will also increase, and you will no longer be able to provide them since you are no longer earning an income.

Your decision to leave your job and to care for them should ideally go beyond just caregiving support. This allows you, as a parent, to continue in the role that you wish to play even after your kids are older and do not need dedicated care.

#4 Are You Looking To Make Additional Income As A Stay-At-Home Parent?

Just because you are no longer employed on a full-time basis doesn’t mean that you can’t earn some additional income for yourself.

In the world that we live in today, skills are valued as much as spending time physically in the office. This means it’s possible to earn some income for yourself working from home.

However, don’t equate this into being able to make money as long as you want to, as and when you like. If this is your mindset, you will probably end up taking on some sub-par sale roles selling MLM products.

Rather, ask yourself what are the skills that you have that you can monetise, before you take the plunge to become a stay-at-home parent. If you have programming skills, you can help companies build websites on a project basis. If you are a good writer, you can take freelance writing jobs. Or if you are an ex-teacher, you can provide tuition to students.

While you may have the flexibility of working when your schedule permits, doing the job well would still require time. This means having to give up your weekends or weekday evenings, when you have some spare time to do your work as your spouse is helping out with the kids.

#5 Giving Allowances To Your Parents

This can be a major source of tension, if not handled correctly.

In our Asian culture, it’s not unusual for adult children to be giving allowances to their parents. For example, both husband and wife may already be giving their own respective parents 15% of their monthly salary.

Now assume that one of you leave your job. What happens next?

Should the working spouse now take over the responsibility of giving the 15% to their parents-in-law, since the non-working spouse is no longer able to give? Or should the giving of allowances to their parents stop? Or should both set of parents now split the 15%? This can be a particularly tricky scenario if your parents are reliant on the income that you bring in.

Our advice is that if you are currently giving to your parents, get them involved in the decision process. Like it or not, though it’s your decision, it ultimately still impacts them and their advice and support ought to be seek.

Consider Your Financial Carefully Before You Take The Plunge

It’s easy to take the plunge and to be a stay-at-home parent. What’s a lot harder is returning back to the workforce, especially after you have stop working for a few years. So, while staying at home to become a full-time parent may be an attractive proposition, you should not forget to consider the financial aspects of the decision.

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