Financial Strategies for the New Stay at Home Parent
With most households these days generating income from both spouses, it can be a challenge to switch to the single income when the need arises. Such as having multiple children or losing employment. The biggest reason for the challenge of dropping to one income is that dual incomes typically result in a lifestyle that matches the higher household income. Even though the drop in income may be challenge, families do it all the time, it’s just a matter of making it work.
The first year of maternity/paternity leave can be buffered by employment insurance benefits, but even that requires planning. But what I’m talking about is after the first year, how does a family plan for reduced income for years to come? Some families choose to have one spouse stay at home until the children go to school which can last at least 5 years or more depending on how many children they have.
On a personal note, when we had our first child, my wife took a year off work. At the end of that year, we decided that my wife moving to part time work made sense. It would allow her to maintain her professional status, while spending quality time with our baby. Depending on the salary, while working part time does bring in an income, the reduction can still hurt, so we had to do some planning. We reviewed our spending, searched for ways to reduce unnecessary expenses, maximized our child benefits, and actively looked for ways to increase our income.
Save Money
Staying true to my internet handle, over the years, we have developed many ways to save money. However, with a significant income cut, it was time to get more aggressive. One benefit of reduced work hours is that work related expenses will decrease. That is, there will be savings in gas usage, eating out during lunch, business clothing and retirement contributions. As a result, we cooked a lot more at home, spent less time in stores, and focused on our “needs” rather than our wants.
In addition, with a spouse at home, it eliminates day care costs which can be rather expensive. In NL, for a 2+ year old, it can cost $750/month per child and more for a child under 2. Compound that with multiple kids and it doesn’t take long before having one spouse stay at home can make sense.
Government Child Benefits
For families with children, there are a number of government programs to reduce the financial burden of having kids. To start, the Federal Government offers a bit of income support for families with children with their Universal Child Care Benefit (UCCB) and Canada Child Tax Benefit (CTTB). The UCCB offers $100/month for each child under the age of six and the CTTB (tax free) monthly payment varies based on family income (here is a calculator that may help).
In addition to income support, there are tax breaks for single family households. There main being the spousal amount with which the higher income spouse can claim in the case that that the stay at home spouse has little or no income. That’s in addition to the tax credits available to all families, such as the fitness tax credit, the child care deduction (baby sitters etc), and the $300 tax credit/child/family offered by the Federal Government.
Check out my post about child care benefits for more details.
Income Splitting
With a lopsided family income, it brings the opportunity to take advantage of income splitting strategies. Without getting into too many details here, the higher income spouse can contribute to the other TFSA, a spousal RRSP or even loan money to the lower income spouse at historically low rates (currently 1%).
Make More Money
Perhaps one of the more obvious solutions to a reduction in family income is to look for ways to earn more money. A little bit of overtime, or maybe a part time side business would go a long way to balance the books.
One idea is for the stay at home spouse to start a home day care. There are a lot of Government regulations but it’s a way to bring in some extra income. In NL, the limit is four children under seven for unregulated and up to eight for a regulated home day care. Four to eight kids with parents paying $750 per month can certainly cash flow after all expenses. An extra bonus is that the portion of the home used for the day care is tax deductible. Note that each province has their own child care rules and regulations.
Do you have a single income household with kids? How do you guys make it work?
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Being a stay-at-home mom, I’m able to work at home and have to have a strict budget that we stick to. I’m always looking for ways to cut corners and just stick to the main necessities. I found some helpful articles online as well just to keep me on my toes. Here is one of them I ran across.
http://personalbankruptcycanada.ca/blog/managing-money-3-tips-help-keep-you-filing-bankruptcy-canada
I enjoyed the article and comments. :)
Since my husband and I are planning to homeschool our kids (future kids, that is, still a few years away!), we have started making plans already for me to stay home. We live solely off of my husband’s income, and mine goes directly to savings. That way we have a healthy emergency fund, deposit on a home, etc. and we will already be used to living on his income. It’s tight, because we are both full-time students so we don’t make a lot yet, but I figure it is just good practice for the future. =P
I am not clear on the use of TFSA as a good income splitting opportunity since all contributions are after-tax dollars. If the advantage could be explained it would be appreciated. Thanks.
We do a few things to run on one income:
When we had two incomes, we lived off one. This prevented lifestyle inflation, which was probably the biggest threat.
We have one car, which will be paid off next year. So long as we can continue to make that work with two kids, it won’t be replaced until (if?) #3 comes along. I carpool or take transit to work.
We don’t eat out much, once, maybe twice per month, and have a fixed budget for those outings. Special occasions (anniversaries, birthdays) must also fit in that budget.
My wife shops for used clothes, or we have been given bags of hand me downs from friends whose kids are just a little older than ours. We buy gifts of clothes for them, and it’s a cycle that keeps on giving. Mentioned above, Once Upon a Child is a great place for affordable clothing. When we do have to buy clothes at a traditional retail store, we only look at the clearance rack.
We have a pre-determined plan for gift money, windfalls, and tax returns. A portion goes to long-term savings (retirement), an equal portion gets divided between the two of us for having fun without justifying the expense, and the bulk goes towards short term saving objectives (eliminate non-mortgage, non car loan debt (done.), saving for a bigger car if we need it (75% of our goal, and closing…), replacing old (older than us) appliances with higher efficiency ones (done.), etc.
We use the UCCB and CTB to fund the kids’ RESPs (getting a 20% bump from the CESG).
We budget for everything. For those who are afraid of budgets, or feel that they’re too restrictive, I tell you that a budget is a guide, not a prison. If we go over budget on one item (colder winter, higher utilities than expected), we spend less on discretionary items (clothing, eating out, etc.). It’s a living, breathing thing.
Another thing we did was switch from a whole life insurance policy to term, raised deductibles on home and auto to the highest we could, and put the difference in our cash flow to a special account that we call our ‘small claims account’. We are our own adjuster for things that will cost less than the deductibles. If an insurance claim is a possibility, we add to the deductible the increased insurance premiums (we’d likely lose our no-claim discounts) and see if it’s worth making the claim or not.
I live in Toronto area with one salary $88000. We married in 2003 and have lived on single income all along. We run a tight ship. There are some basic guidelines to follow when you are running on one wheel. I brown bag my lunch. I take TTC to work. We eat outside only once or twice a month and spending not more than $20 each time. My wife runs the kitchen and we cook all the time at home. We eat healthy diet which include meat everyday. My biggest expense is $1700 monthly mortgage which I would have to pay anyway if I rent also. I have no cable TV. I control my impulses and do smart shopping . I have 10 year old car and spent less than $60/month on gas. I don’t waste energy. There is no gravy train in our life. We are happy and satisfied and live within our means. We divide everything into “need” and “want”
It’s always been very important for us that I stay home with our children, so my husband focuses on earning money while I focus on saving it in any way we can. For instance, I learned how to tailor pants so we can make a pair of slacks or a suit last much longer, saving us money that we would have spent otherwise. I’ve become an avid coupon clipper. Learning a few new skills can actually save you a lot if money in the long run. The more I focus on my “job” of saving money, the more my husband can focus on his “job” of earning money.
– We’ve pared back our belongings substantially by selling on Ebay, Amazon and Craigslist over the nine years since our oldest was born. Gently used baby stuff commands great prices second hand. So does gently used club wear. *ahem*
– Eating out is necessary due to scheduling sometimes, but we try to limit it to take-out around $30 – sharing two or three entrees between the four of us instead of ordering four entrees.
– Whenever we ‘need’ something I give it a test. Is there some way I can solve the problem for cheaper or free? Not many things enter this house at full price anymore.
– When we bought our starter home we only did renovations that would pay for themselves through lower utilities over our first five-year mortgage term.
– Location over house size. We have four of us in an urban two bedroom house. We can walk to three grocery stores, the park, school, and there’s a 10 minute bus to dh’s work. I used a bike and Burley trailer (a free hand-me-down) for the first six years – rode it all over town. We didn’t buy a family car until the kids were four and six.
– Once Upon a Child is an outstanding second hand store. I also shop at Value Village for clothes, stocking up ahead of time if I see a nice designer piece that they’ll use in the next couple of years. This allows us to splash out for quality shoes, which I feel more strongly about. For example, I refurbished a Land’s End winter coat for my daughter at a cost of about $8. And by refurbished I mean I put in a new zipper. It’ll probably last three years.
– Reusable diapering. We really dodged a bullet there. 14 Fuzzi Bunz pocket diapers size large have lasted us through nine years and two kids. They still (barely) fit our six-year-old as nighttime pull ups. Stuff them with cotton prefolds for great absorbency. Then sell them for half what you paid. I’m serious. People are desperate to buy these used in good condition. Also make your own bum wipes and salve from recipes abundant on the internet. The bum wipes I made were a roll of paper towels plus an empty baby oil bottle filled with water and a splash of baby oil. Easy.
– As for extracurricular activities, we try to only pay for activities of interest that they can’t possibly do at home. For example, gymnastics camp is paid for. Baking camp? Bicycle camp? I conduct one myself at home or at the local park – just block off a week and plan to do it.
Jeez, I’ve been living this question for a long time . . . :)
In my case my kids are fine…they are 13 & 12…I do not need daycare, they can be alone for an hour after school, etc….it was supposed to be a temporary transition for the kids coming out of daycare……now almost 1 year of temporary…and not looking good as the summer approaches.
:)
Once the stay-at-home parent starts looking for ways to earn extra money, the challenge becomes maintaining a balance between the needs of children and the opportunities to make money.
No disrespect to the female gender, but in my experience it is they who have the hardest time cutting back. My wife took a package (quit!) last year. It was temporary for the summer to be with the kids as she was still getting “paid” with the promise of a return to work after the summer…here we are a year later with no prospects & a lot lower income (EI). Problem is she lives like she still has the income and slowly…nee quickly driving us into debt. I can turn spending off like a tap in tough times, but she doesn’t get it….So my only hope is the make more money scenario….hoping she gets a job soon!!!