Last week I wrote about preparing for financial chaos, and gave you some step-by-steps for what your priorities should be right now.
Got a bunch of wonderful feedback, so thank you for taking the time to do that. I see every email that comes my way, and I love getting responses to what I put out there for you.
So, I’m continuing along with the theme then, and while this doesn’t, perhaps, pertain directly to financial preparation, it’s a circumstance that some families are forced into, others choose, and still others take it up for other financial reasons.
I’m referring to sustaining your family on one income. And whether or not this is on the horizon for you, it’s worth considering in advance because sometimes, well, things aren’t always as stable.
Including the tax code. There are changes coming in the tax code that (depending on what Congress decides upon) could mean significant tax increases for some families.
And aside from the tax situation, and as I think we can all agree, these next few months and years will be extremely “interesting” … and it’s all the more reason why it’s so good that you have someone like me in your corner. Because those who don’t have someone who can plan ahead on their behalf are going to be facing some significant changes on the tax horizon, whether they like it or not.
So … whether you are planning ahead, perhaps dealing with unemployment, or are looking at one spouse staying home for other reasons (like children!), here is a great way to think about living on a single income…
“We have to dare to be ourselves, however frightening or strange that self may prove to be.” – May Sarton
I’ve recommended before that couples who are ultimately planning on one person staying home with children, start running their finances and their budget that way from the beginning. That’s simply the best way to be prepared for what is to come.
I’ve also pointed out that one of the best times to save is before having children. But with marriage happening later and later in our culture (and the transition into parenthood for those marriages therefore happening perhaps a bit more quickly than it otherwise might), this important savings period has been crunched. So here’s some quick advice for those who are single: realize that you are saving now for your future family’s financial life.
That aside, here is some advice for those who are starting down this road toward a single income for their family, or even for those who already find themselves walking it out…
Try It Out In Advance
I recommend that couples contemplating a stay-at-home arrangement first take a period of living as if they had only one income for at least three months before one of them quits a full-time job. They may find that even though their expenses will be cut for needs such as day care, transportation and clothing, they may find it hard to continue to dine out frequently or splurge in other ways. If that’s you, it’s a good idea to bolster an emergency fund to cover unexpected things that come up, such as household repairs.
It’s even better if this “trial run” can begin at the start of a marriage, which should allow for a fantastic period of saving before having children.
More Life Insurance
Couples should buy life insurance on both partners, not just on the working spouse. If the stay-at-home parent dies, the surviving spouse can use the benefits to pay for outside child care, live-in nannies, housekeepers and other functions that had formerly been handled by the stay-at-home parent.
I see clients using this advice, and then dropping the insurance as their youngest was heading to college — and that’s smart.
Home-Based Tax Deductions Used Correctly
If the stay-at-home parent or both parents operate a home-based business, both should be listed on IRS Schedule C and all related business documents when they file taxes.
I’ve reviewed past returns (which we do for free, for non-clients — our clients, of course, already being well taken care of!) where only the information of the spouse who actually filed the taxes was submitted, in effect denying the other spouse from accumulating Social Security benefits.
Finally, what is most important: YOU.
Stay-at-home parents should make sure they are well on their way to funding their own retirement before paying for a child’s college education. The best thing you can do for your kids is to take care of yourself first. If your children have to take out student loans, despite all the bad publicity, they do have 40 years to pay those loans back — and at favorable interest rates, at that.
Again, I welcome your thoughts …
Warmly (and until next week),
Aurelia E Weems, CPA