If you’re expecting a child, you will no doubt be considering your options in terms of childcare. Stay-at-home parenting can be hard, lonely and utterly exhausting, and not everyone is cut out for it. If you’re a double-income partnership, the transition to being a single-income family will have far-reaching financial consequences for which you and your partner need to be fully prepared.
Here are some financial considerations worth pondering before leaving your formal employment to be a stay-at-home parent:
A single-income budget
One of the first things you will need to establish is whether you can survive on a single income, which may be difficult to determine if you haven’t prepared a baby budget. Children are expensive, with costs racking up as soon as the pregnancy is confirmed in the form of obstetrician consultations, scans, blood tests, as well as vitamins and supplements. Once your baby is born, they will need to be registered on your medical aid and gap cover. You and your partner will need to increase your life cover, and begin saving toward your child’s education. The cost of paediatrician consultations, clinic visits and over-the-counter medicines will need to be factored into your budget, together with the costs of nappies, formula, bottles, dummies, baby toiletries and other essentials.
The loss of your income
If you’re planning to leave formal employment, consider how it will feel to not have a regular income paid into your bank account. If you’ve grown accustomed to earning an income, think carefully about the implications of no longer generating your own income. Not earning an income can have far-reaching effects when it comes to your credit record or obtaining financing should you need to do so in the future. Your loss of income automatically makes your partner the sole breadwinner which, in turn, can shift the balance of power in your relationship.
Your group life cover
Leaving formal employment means that your group life and disability cover will fall away, and you may need to consider replacing this cover in your personal capacity – especially with a new child on the way. Don’t assume that as a stay-at-home parent you won’t need life cover. Consider the financial impact on your partner in the event of your death. Who would care for your child? What debt would need to be settled? What additional costs would your partner need to incur? Further, consider what would happen if you were to fall ill or become disabled. As a stay-at-home parent, it is unlikely that you will qualify for an income protection benefit, so you may want to consider putting a capital disability benefit in place.
Your retirement benefits
If you have been contributing towards your employer’s pension or provident fund, you will need to decide what to do with your retirement savings. Generally speaking, you have the option of withdrawing the money although any withdrawal will be subject to tax. You may also consider transferring the funds to another retirement fund, such as a retirement annuity in your name – and in such circumstances, no tax will be paid. However, you will not be able to withdraw these funds until at least age 55. Another option worth considering is to move your money into a preservation fund for safekeeping. Once again, no tax will be paid on transfer, but such a vehicle allows you to make one partial or full withdrawal prior to age 55, which could be useful in your circumstances.
Your loss of purchasing power
With no income of your own, you need to consider that you will effectively lose your purchasing power. As the primary caregiver and housekeeper, what money will you use to pay for day-to-day child and household expenses? How do you feel about asking your partner for money? Will you be expected to justify your expenses? Will you feel guilty spending your partner’s money on little luxuries for yourself and your child? Are you comfortable receiving an allowance from your partner? Do you have money of your own saved up? The psychological and emotional shift from income earner to non-income earner is a massive one, and can significantly affect your relationship.
Change in lifestyle
Depending on a single income to support your family may mean making some lifestyle changes. For most people trimming costs will be inevitable, and it may mean that you need to make sacrifices and/or compromises when it comes to your child. While most parents want the best for their children, a reduced family income may mean that you have to avoid nice-to-haves such as mom and toddler classes, baby gym, top-of-the-range prams, domestic help or gym classes.
When operating on a single income, give careful thought as to whether you will be able to afford domestic help after the baby arrives. If not, are you comfortable with cleaning, doing laundry and general housework? Will you be able to manage it all on your own? How will you feel moving from holding down a career to being a housekeeper? To what extent will it affect your relationship?
The emotional burden on your partner
Another significant factor worth considering is the added emotional burden your partner might feel being the sole provider for you and your child. In uncertain economic times, be sure to give thought to your partner’s income and job security. If your partner’s income is affected in any way, there is no second income for the family to fall back on. As such, consider ensuring that you have a sizeable emergency fund in place that can provide you with peace of mind.
Putting your retirement funding on hold
Without a taxable income, there is no benefit in contributing towards a retirement fund and this means that you are likely to put your retirement funding on hold during the years that you choose to stay at home. Interrupting your retirement contributions, even for a few years, will have a significant effect on your retirement funding, and this is something you should consider carefully.
Your marriage contract
The nature of your marriage contract is also worth taking into account as you could find yourself financially prejudiced at a later stage if the marriage dissolves, specifically if you are married out of community of property with no accrual. In such circumstances, you and your partner’s estates remain completely separate. If you choose to stay at home and not earn an income, it is likely that you will not be in a position to build your own wealth while, on the other hand, your partner will be in a position to continue increasing the size of their estate. In the event of a divorce, you will have no claim to a share of your partner’s estate and the courts will not consider a redistribution of assets.
Your future career prospects
If you’re planning to stay at home, give thought to your timeline and the number of years you intend staying out of the workplace. The longer you remain out of your area of specialisation, the more you risk losing relevance and the more you jeopardise your chances of re-employment. Think carefully about how you intend to remain connected to your industry and how you will ensure your skills remain relevant in a rapidly changing global economy.