My partner and I have agreed that we’d like one of us to stay home with our baby rather than return to work. How can we ensure we’re financially ready to become a single-income household?
A: Having a baby brings about a number of new financial issues—whether you stay home or find yourself needing to pay for child care while both parents continue to work.
It’s always important, but having an emergency fund equal to at least six months of living expenses will become even more critical when you drop to one income. The best thing to do (if you can both continue to work for a bit) is to begin to live as if you only have one income while saving everything the other partner earns. This will not only help you grow accustomed to living on less, but it will also enable you to put away a good chunk of money fairly quickly.
Additionally, be realistic about your desired lifestyle and how much it will cost. If you try to live on one income before the baby comes and things already seem tight, remember that babies come with a host of new expenses: diapers, formula or breastfeeding equipment, and routine doctor’s appointments to name a few.
If being a stay-at-home parent tops your priority list, consider lifestyle changes that could cut your biggest monthly expenses, such as moving to a less expensive home or driving a less expensive car. This can be counterintuitive because many new parents “trade up” to a suburban home and minivan, but doing so might lock them into a dual-income lifestyle for years to come.
Most of us can’t afford to “have it all,” but if you carefully reflect on what you value most, you’ll usually find a way to make it happen.
—David Weliver, founding editor of Money Under 30