Leaving your job to be a full-time parent is an important decision on many levels—financial and emotional as well as professional.
To make a more smooth transition, look at both the short-term and long-term impact on your finances.
As a couple, talk through the personal and professional implications as well and come to some agreements in advance.
I'm considering leaving the workforce to be a full-time mom for our two young children, at least for a while. My husband makes a good income, but we will definitely have to get by with less. How can we best prepare? —A Reader
This is an important decision on so many levels—financial, emotional, and of course professional. There's a lot to think about regarding your finances and the changes you need to make to live on one salary, but it's not only your budget that may be affected. You'll also want to consider how this might impact your relationship, your sense of independence and your career opportunities should you decide to go back to work.
Of course, every couple's situation will be different. While I'm happy to help you put things in perspective, as with any big change, it's important for you to sit down as a couple to talk it through. Let's start with the financial portion.
First, be realistic about the short term
Short-term, it's kind of a balancing act. On the minus side, leaving your job means you have less money coming in. On the plus side, it can also mean you'll have less money going out. For instance, you may be able to subtract costs like commuting, work clothes, dry cleaning, housekeeping, and lunches from your budget.
Then there's childcare, which is probably the biggest work-related expense for parents, as I'm sure you're well aware. Childcare costs vary by region, but just as an example, according to the Economic Policy Institute (EPI), a parent in Kentucky pays an average of $525 a month for infant childcare. In Illinois it goes up to $1080 per month. And that's only for one child! No longer paying childcare for two kids could be a significant saving.
Will the savings make up for the loss? That's what you really need to decide at as you reprioritize and refine your budget to balance income and outflow. And beyond everyday budgeting, you also want to look carefully at employee benefits you may be losing. Make sure you'll still have adequate health insurance for you and your family, as well as life insurance or any other perks that come with your job.
Don't ignore the long-term impact
The long-term implications can be even more important, especially when it comes to career development and growth in earnings. If you leave your job, will you also sacrifice your chances for advancement and raises? If you return to the job force in several years, will you face a lower salary because of your time away?
Also think about the potential long-term hit to your retirement savings. If you were contributing to a 401(k), how will you make up for this shortfall in savings? You could open a Spousal IRA. Currently, in 2017, a non-working spouse can contribute up to $5,500 ($6,500 age 50 and over) annually to an IRA as long as the working spouse has enough earned income to cover all retirement contributions, but realistically that's not nearly enough for a secure retirement.
Then there's education savings for your kids. That can be hard enough on two salaries let alone one. Could you direct some of your childcare savings to a 529 account?
I'm not saying that deciding to leave the workforce is a mistake, because the circumstances are different for every family. I just think it's important to realize that the financial impact goes beyond choosing not to take a vacation or buy a new car in the next few years. It can have a significant effect on your future financial security.
Be equally aware of the emotional side
Finances aside, how your everyday life will change is equally important. You might be used to being independent, having your own money and professional identity. Will you feel too dependent when you no longer have your own salary?
Money is a known cause of problems for a couple, so make sure you discuss this openly before you make the change. For instance, will you budget a certain amount each month for your personal expenses? What is a fair way to divide up your discretionary income so neither of you becomes resentful of the other? Don't just assume everything will work out. Come to some agreements before your leave your job.
Think about your professional future
You may love this new time at home and be happy to put your career on the back burner, but kids grow up fast. I know! Whether you return to your current profession or try something new, chances are you'll find your way back to the workforce as the kids get older. How will you keep your job skills up-to-date? At the very least, stay in touch with your colleagues and keep up on new developments in your field.
Remember, it can work both ways
In today's more flexible world, it's not unusual for each parent to want to take some time off to be with the kids full-time, but it's rarely an easy decision, and for some couples it just may not make economic sense. Only you can balance the financial loss with the personal gain.
However if you do decide to make this change, realize that what you work out today for yourself could just as likely apply to your spouse down the road. And I think that's great. As long as you're supportive of each other—and realistic about the personal as well as the financial implications—you and your family may all benefit from this new arrangement.
Have a personal finance question? Email us at email@example.com. Carrie cannot respond to questions directly, but your topic may be considered for a future article. For Schwab account questions and general inquiries, contact Schwab.