Parents across the country face the dilemma of sending their children to daycare versus keeping them home with one family member. After all, you want to give your kids every advantage possible, and knowing whether that means one person being at home or the child going to daycare with instruction and socialization is complex. Single parents may have the hardest time figuring out what to do about child care.
The stress of deciding whether to have a stay-at-home parent (SAHP) or enroll a child in daycare weighs on people. An added worry is whether you can still secure your financial future while walking away from a full-time job for at least a few years to care for your child. Such disruptions in work can also lead to fewer promotions and difficulty reentering the workforce.
Although two-thirds of families have both parents working outside the home, the lack of affordable childcare options and problems juggling school and work schedules put maximum stress on many families. This decision makes the most sense for families for many reasons.
Ultimately, you must weigh the advantages and disadvantages to make the best decision for your unique family.
The Rising Trend of Parents Staying Home With Children
The number of stay-at-home parents in the U.S. has risen dramatically over the past several years, up to nearly 25% of American mothers in 2023 versus 15% in 2022. The number of parents without full-time work outside the home continues to rise during periods such as the past few years of high unemployment.
Aside from unemployment rates, there are several advantages to being a stay-at-home parent with children. Some parents need to stay at home for practical reasons. Whether your child is one of the 3.13 million who are homeschooled and thrive better in a one-on-one educational setting, or your child is one of the 240 million with some form of disability and who needs more substantial support, staying home could be many parents’ only option.
Further, staying home with children allows you to save on childcare expenses, be part of your child’s developmental milestones, teach your child your belief systems, and enjoy a more flexible and relaxed schedule.
However, becoming a SAHP can also involve financial sacrifices, such as:
- Financial struggles while living on a single income.
- Fears of the money-earning parent being laid off.
- Loneliness without interaction at work with other adults.
- Feeling overwhelmed with child care and keeping a house.
- Worry about putting your career on hold for multiple years.
- Losing momentum on completing an education or career path.
SAHP vs. RTO: Determining Which Is the Best Fit for Your Financial Future
If you’re still crunching numbers to see if staying home or returning to work is feasible, start by mapping out your income. The University of Wisconsin-Madison sociologist Jessica Calarco researched why moms stay home with their children. She found many do it by necessity rather than choice. They just don’t make enough to pay for child care.
Her research shows that around 75% of stay-at-home mothers live in houses with an income of less than $50,000 per year. However, she’s also found that many women with college degrees can’t afford the rising cost of daycare. Many women would rather not interrupt their climb up the career ladder, but they make less than their spouses, and it makes the most sense for them to pause work and care for the children.
Whether you’re in the family planning stage or already have a child, you should start by determining your current income.
1. Types of Income
Make a list of all the monthly money that comes into your household. Include things such as:
- Partner income
- Your income
- Child support (if it is reliable)
- Side hustles
- State help if you qualify, such as food stamps
Most budgeting experts recommend including only reliable net income to avoid confusion. Going by gross doesn’t give you an accurate picture of how much spendable money you have.
Consider potential future earnings. Is anyone in the household near completing a degree? Will there be likely promotions and raises in the next few years? While you should not base your decision on money that isn’t yet promised, you can get an idea if you need to live frugally for a year or two or you’ll need to do so longer term. You can only make a plan once you understand your financial situation.
2. Budgeting
Once you know your income, it’s time to look at all your expenses. Creating a budget means slashing the things you don’t need and reducing the costs of others. The small difference between staying home and not can add up when you factor in cooking more meals at home or spending fewer dollars on commuting, lunches out, and work clothes.
Start by paying off credit card debt. Around 82% of households have a credit card. It’s easy to spend without realizing how much you’re putting on a card. Before you know it, you owe several thousand dollars, and those high interest rates start piling up.
A Story of Three Families
When Couple A found out they were pregnant, they worked to pay off their credit card and student loan debt. Their only expenses are housing, vehicles, and monthly living expenses, such as food and utilities.
They crunched the numbers and realized that one spouse made less than child care would cost for an infant. They decided the parent should stay home with the child until the child reaches preschool age in two years. They may come ahead if the parent staying home commits to budget shopping and cooking more.
Couple B was surprised at their little bundle of joy. They’d wanted children, but maybe not so soon. They still have some credit card debt,, but nothing too much. Both partners make slightly more than the cost of child care, but one partner desperately wants to be home and present for every milestone, like the first laugh, words, and steps.
Couple B crunches the numbers and finds they’d net about $2,000 annually after paying commuting costs and daycare fees. They also decide to have one person stay home,, but their situation looks slightly different. The SAHP, in this case, decides to watch their niece two days a week to earn a little money and make up for the lost income.
Single Parent C worries about working and juggling the demands of single parenthood. Around 46% of Americans are single. As the sole breadwinner and caretaker, it’s crucial that their job is secure and that they have affordable child care when needed. Single parents should check to see if they qualify for any aid through their states. Another option is to turn to family and friends to fill the gap.
3. Fixed Expenses and the Unexpected
When creating a budget, consider every expense and allow some flexibility for the unexpected. Regarding retirement planning, you must include savings in your budget.
What that looks like can vary from family to family. If money is extremely tight, putting $25 per week into an IRA may be all you can afford now. On the other hand, if you have some extra funds, you could look into an inflation-protected annuity that pays you back. As the cost of living rises, your annuity should keep up.
You can tap into many different tools to create a budget that still allows you to save for the future and ensures you have enough money in the present. Use one of the many apps that tie into your bank account and track spending to refine your budget better.
How to Secure Your Financial Future as a Stay-At-Home Parent
Not all parents stay home because they want to have an affluent lifestyle. The average cost of child care varies by location and quality but can exceed one parent’s earning potential.
When a parent stays home, they lose 401(k) matches that would pad their retirement savings. You must seek other ways to keep your financial future secure. Explore ideas for ensuring you have enough money to raise your children while still putting some aside for your senior years.
1. Grow Your Nest Egg
If money is tight from only having one working parent in the family, how can you squirrel funds away for your golden years? The good news here is compound interest is on your side. Every little bit you save grows exponentially for the future.
Some ways to ensure you have enough money include having the working spouse max out their 401(k) contributions, particularly if the company matches any amount.
You should also have an IRA for the non-working parent. Spousal IRA contribution limits vary by year but they allow a working spouse to contribute to a traditional or Roth IRA for the one staying home.
2. Start a Small Business
Owning a small business can allow parents to stay home with their children or take them along on jobs. Consider the viability of bringing a child to work as you work. For example, someone who cleans houses might be able to take a child along and set up a playpen while they work, if the client is okay with the arrangement.
Around 59% of children five and under go to non-parental paid child care once a week or more. Rather than working to pay someone else to be with their child, parents are opting to quit their traditional jobs and start in-home daycares or other small businesses, where they are with their kids but also bringing in a little money.
Think about your skills and whether you can earn enough money to secure your finances. Even making enough to cover groceries can free up funds for savings and paying off debt.
3. Save for College
Most parents feel a college education is valuable. Around 68% of parents say they would use their retirement savings to pay for their child’s education. However, many fail to save enough to cover costs. After paying penalties, removing money from your retirement account sets you back drastically on your retirement security.
Consider the money you’ll need when your children are older. They may be in school, and the SAHP may be back to work, but you’ll have lost several years of savings if you don’t stay on top of their 529 account and put funds in regularly. You could ask family and friends who typically buy toys to reduce the clutter and contribute to the college savings account instead.
4. Keep Comprehensive Insurance
When you’re struggling to make ends meet, it’s tempting to let insurance policies lapse. Things such as disability insurance aren’t likely to be used, after all. The problem is that if the unimaginable happens, you could be financially ruined.
Imagine a scenario in which a mother quits her job to stay home with the kids full-time. This makes perfect financial sense because she makes less than she’d pay for daycare. She can now watch their niece and nephew, saving family members money and bringing in a little extra for groceries.
The couple lets their life insurance lapse because the premium seems high, and they really want to go on a family vacation. Unfortunately, the husband is in a car accident and passes away. Now, the wife is left with a situation where she has to figure out how to bring in enough income to keep a roof over their heads and food on the table. She’s without a job, without child care, she can afford, and without the insurance that might have supported them until her kids were older.
Ideally, you should have life, disability, automobile, and home insurance policies to cover any scenario. Some people also take out an umbrella policy that covers them in case the original policy is lacking.
5. Study How Social Security Works
While there are some concerns about whether Social Security (SS) will still be solvent in a few decades, determine how much you can expect to earn based on your spouse’s income. Since an SAHP isn’t bringing in notable money, they can draw based on a portion of what their spouse made.
You and your spouse’s SS income may be enough to secure your retirement funds. If you pay attention to your financial health now, you may have little debt, no house payment, and running vehicles that require little maintenance.
The Social Security Administration has a handy calculator on their website to help you plan for retirement. You can see how much you’ll draw when starting at different ages to help determine how many years you need to work.
6. Take on Part-Time Work
SAHPs can freelance and take on part-time work other than child care. Sometimes, watching other people’s children isn’t something you want to add to your schedule. Instead, look for opportunities such as bookkeeping, working as a virtual assistant, or making and selling items.
If you made jams and sold them at craft markets on the weekends, you could earn a few thousand extra dollars annually to put into your Roth IRA. Even contributing a portion of what you would earn were you working can keep the momentum going for retirement savings.
7. Learn About Financial Security
Take free or inexpensive courses through your local library, university, and organizations. The more you know about financial literacy, the better you’ll be positioned to secure your financial future.
You can also read books and take inexpensive online courses. Pay attention to the teacher and author. Is it someone who has successfully applied the principles to their life? Dave Ramsey has some good budgeting courses and books on retirement planning.
Consider the people you know who have retired young and seem comfortable. Start a conversation about what you need to do to get to where they are. They’ve likely made mistakes along the way they can help you avoid.
Many financial planners offer courses on topics such as annuities, types of investments, and how much you should save to live the lifestyle you want in retirement. Be cautious; some just want to sell a product that might not work for you. However, you can still pick up nuggets of information along the way that will be helpful to your golden years’ finances.
8. Maintain Control of Your Money
In a perfect world, every marriage would last forever, or partners separating would be fair to one another. Unfortunately, the statistics show something different. The latest statistics show that 2.4 divorces occur per 1,000 people annually in the U.S. Around 15 million families are headed by a single mother and about 7.1 million by a single father.
Each individual in a relationship should have a retirement account and savings. While some states require a working spouse to give a portion of their pension or IRA once you’ve been married for so many years, consider what might happen if the marriage ends or your spouse passes away. You’d have to start over with your savings.
Have the challenging discussions and get some written agreements to protect your finances. Your best action is to sit down with a financial advisor and an estate attorney, hash out wills agreements, and look at the bottom line for the worst-case scenario.
Security Is in Your Grasp
Staying home with your children and building a secure future are both possible. You’ll need to plan accordingly and pay attention to detail. Think of creative ideas to keep money rolling in for your IRA account and education savings for your children. You may have to downsize your home, drive your car a few years longer, forgo that expensive family vacation, and take on some side gigs. However, with a dash of determination, you can save what you need and still pour your time and resources into your children. You can do this.
Featured Image Credit: Photo by Julia M Cameron; Pexels
