Aleta, one of our lovely readers, asked recently about preparing financially to drop to one income so that I could stay at home with my daughter. Although I didn't make up my mind for certain to stay home until well into my pregnancy, I'd anticipated that it was likely the route I would choose when the time came, so we began preparing for that possibility before the baby was born.
If you are considering dropping down to one income, whether for a baby or for other reasons, here are some things to consider:
1) Look at your expenses and determine if you can pay your bills with just one income. I know. . . not fun. But you need to know if it is really actually feasible to live on just one income. Are you going to end up unable to pay your electricity bill on one income or will it just require a slightly (or substantially) less rich lifestyle?
2) Decide what you're going to do with your second income while you still have it. Last year, we did not use one cent of my income to live on. We paid for our second car in cash, paid off our student loans, and used the last three paychecks to bulk up our emergency fund. Having no debts, no car payments, and a chunk of money if we needed it made going down to one income both easier and less terrifying. It also meant that we knew we could live on one income because we'd already been doing it for a year.
3) Figure out how much of a second paycheck you will actually see after additional expenses. Sometimes you see the cost of keeping a job after having a baby and they put in all these things like "eating out more because you're too tired to cook!" and "professional wardrobe!" and then tell you how you'll actually be PAYING your job to stay. I didn't really buy this because we are committed eaters-at-home (if I don't want to cook, we have cereal or eggs - we don't run out and drop $30 on dinner) and also, I already HAD a professional wardrobe (and I was banking on the fact that I'd be able to fit back into it after the baby was born).
We took my income, deducted the taxes, the required union dues, the required retirement contributes, the cost of childcare (which would be less than in some jobs because my school day was only 7 hours, which included my lunch hour), and the cost of commuting (I worked about 40 miles from our home) and came up with $10,000 of money that I would make over the course of a year. I decided I was not willing to work full-time and leave my child with someone else in exchange for $10,000.
4) Know that there will be sacrifices. You may drive an older car while friends get new cars. You may not be able to go out to eat as often or buy as many new clothes. For us, those sacrifices are absolutely worth me being our daughter's primary caregiver.
I know many of our readers are stay-at-home parents - any secrets to preparing to live on a single income?