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Stay on Track if You Stay at Home

When starting families, many couples wrestle with whether one parent should leave the workforce to become a stay-at-home parent. With one parent at home childcare costs and other work-related expenses are reduced, but there are other financial implications to consider.

Budget
When a parent stays home, a budget becomes more important than ever. In addition to showing you what is needed for a family to live on a single income, a budget lets you see where you can save and spend. It also helps both parents understand where the money is going. When planning a budget for a reduced income, it?s important to be realistic. Cut costs where you can without sacrificing essential expenses and without risking your goals for your future.

Healthcare
Whatever the changes in national healthcare bring, it?s essential that you have a plan that covers your entire family. If one parent works outside of the home, you may be able to obtain healthcare coverage for the whole family through the employed parent?s plan. If not, you need to find outside personal coverage. Either way, it?s an expense you need to consider and plan for as you grow your family and consider leaving behind employer-sponsored benefits. Healthcare costs are rising at a rapid pace, so make sure your healthcare budget is realistic and takes into account premiums as well as other out-of-pocket expenses. Remember that children visit the doctor a lot, particularly in the first few years.

Social Security
When one spouse stops working, they also stop paying into Social Security?which impacts the amount of Social Security benefits received in retirement. To compensate for this, the stay-at-home parent should increase his or her contributions to other retirement savings plans.

Retirement
Saving for retirement may seem daunting once you have children, especially if you?re living on a reduced income. A growing family makes it even more important that you make the most of your income to prepare for your future. Contributing to the working parent?s IRA or 401(k) provides a good source of retirement savings, but remember that you need to save enough for two people, even while potentially living on one person?s income.

In some cases, a Spousal IRA can help. With a Spousal IRA, the stay-at-home parent can contribute up to $5,000 a year to his or her own IRA. To qualify, the other spouse must be working, you have to file a joint tax return, and contributions are subject to IRS income limits.

Without the automatic withdrawals that make contributing to an employer-sponsored retirement plan easy, it?s essential that the stay-at-home parent diligently contribute to retirement accounts. A solid plan and automatic bank transfers can help.

Work-from-Home while Stay-at-Home
Working from home can allow the stay-at-home parent to earn additional income, often with the flexibility and part-time hours that make it manageable even with children. It can also have the additional tax benefit of opening up home office deductions on your income taxes.? The tax laws surrounding home office deductions are complicated and the risks and rewards can be high?so it?s essential that you consult a tax specialist.

A Personal Plan
Staying home with kids can bring additional financial stress, but expert advice and a solid plan can help you maximize your current financial situation as you reap the rewards of your personal choice. A financial advisor can help you manage all the big changes in your life?and the financial implications of a growing family and a reduced income can certainly be big.

Erin Eddins is a Chartered Financial Consultant?, a member of the Financial Planning Association (FPA) and is a CERTIFIED FINANCIAL PLANNER? professional. She has more than 20 years of experience working with individuals and families to develop financial plans and implement investment portfolios to help clients secure their financial futures. She can be reached at erin.eddins@standard.com or 425.212.5986.

This entry was posted on Thursday, May 12th, 2011 and is filed under Business Spotlight. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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