Can You Afford To Be A Stay-At-Home Parent?
Table of Contents
This is one question that all couples will eventually have to face once they choose to start a family.
As most couples today work full time jobs before they decided to start a family, the decision for one parent to stop working is not easy.
Switching from working full time to a stay-at-home parent is a major decision that does not only affect yourself but your entire family.
Can it work out cheaper for your household finances if one spouse stays at home? Here’s how to find out if you or your spouse can actually afford staying at home.
Step 1: Your current household income
How much do you and your spouse bring home every month? List your net income – this is the income after EPF and tax deduction.
What would your household income be after one of you quit working full-time? Will there be some passive income or part-time income coming in? If you plan to try to make some money while you stay at home to look after your baby, consider the potential amount you could make. With remote freelance work now widely available, this is now a viable option.
Determine the before and after income. Let us assume that the spouse who quits full-time work can work side gigs on a freelance basis to earn an average of RM2,500 per month.
| Two full-time working parents | One full-time working parent |
|---|---|
| Your net monthly income: RM6,500 | Your net monthly income: RM6,500 |
| Your spouse’s net monthly income: RM4,500 | Your spouse’s net monthly income: RM2,500 |
Total annual net household income: RM132,000 | Total annual net household income: RM108,000 |
Step 2: Your expenses
The second step requires a lot of soul-searching and monitoring. You could be spending hundreds on something unnecessary without knowing it. List down all your monthly expenses and also annual expenses. If you are unsure, start noting down your expenses for a month or two.
Your expenses should be split into home, childcare and work expenses. Here are the main items that should be included in each category:
| Home expenses | |
| Mortgage/Rent | RM1,300/month |
| Car loan repayments | RM1,500/month |
| Utilities bills | RM300/month |
| Insurance premiums | RM480/month |
| Groceries | RM800/month |
| Other household bills | RM250/month |
| Other loan repayments (i.e. personal loan, student loan, etc.) | N/A |
| Additional retirement contributions e.g. PRS (except EPF) | RM100/month |
| Contribution to tertiary education fund | RM200/month |
| Eating out, other entertainment | RM500/month |
| Contribution to contingency fund | RM200/month |
| ANNUAL HOME EXPENSES | RM67,400/year |
| Childcare expenses incurred by working | |
| Nanny/Babysitter/Day care, etc. | RM1,400/month |
| ANNUAL CHILDCARE EXPENSES | RM16,800/year |
| Work expenses (for the potential stay-at-home parent) | |
| Transport expenses (i.e. petrol, toll, public transportation fares) | RM500/month |
| Breakfast/Lunch/Snacks/Social drinks | RM550/month |
| Work attire/Grooming | RM250/month |
| ANNUAL WORK EXPENSES | RM15,600/year |
| Other family/household expenses | |
| Vacation or holiday trip | RM10,000 |
| Family celebrations and festive season expenses | RM1,000 |
| Child-related expenses (i.e. nutrition, education, childcare equipment) | RM8,000 |
| Medical and healthcare expenses (not covered by insurance) | RM400 |
| Other misc. | RM200 |
| ANNUAL OTHER EXPENSES | RM25,000/year |
| TOTAL ANNUAL EXPENSES with both full-time working parents | RM124,800/year |
| TOTAL ANNUAL EXPENSES w/ ONE full-time working parent minus CHILDCARE & WORK EXPENSES | RM92,400/year |
Step 3: Your calculations
Now, you need to know how much you need every month, and whether your new income will be sufficient to cover that.
| Your Calculations | |
|---|---|
| Annual household income with both parents working full-time | RM132,000 |
| Annual household income with one parent working full-time (+ part-time, freelance or other income) | RM108,000 |
| Amount you need for annual expenses with one parent working full-time | RM92,400 |
| Amount you're short/ahead | RM15,600 |
In the example above, it seems that the family can still manage with the single income arrangement. However, it’s not as easy for everyone. Do bear in mind that some of the work-related and also childcare expenses can be eliminated when you stay at home full-time.
Being able to stay at home full-time with your kids may be a dream come true for many parents — but it can also be difficult to achieve in a world of dual-income expenses. The above example was taken when the family only has one child attending pre-school.
Things will be different when you have more than one child and they start attending schools and need tuition or other enrichment classes. Throw in the fact that the parents may be earning less than the above example or there is an extended family to support. The reality today is that surviving on one income to support an entire family is extremely challenging.
Tips to surviving on one full-time income
But don’t be disheartened. There are some lifestyle adjustments you can make to make your budget work on a single income.
1. Cut your spending
Be really, REALLY strict on your spending. List down every single sen you spend, and at the end of each month, take a long, hard look at it, and cut where necessary.
Look for the biggest changes you can make in your budget. If you spend thousands trying to maintain a big home for just the three of you, you can cut down that spending significantly by downsizing your home. Perhaps a smaller apartment will suffice?
Or you could be spending hundreds to thousands to dine out every night, it’s time to consider cooking your meals at home. This can be reduced when you finally quit and have time to prepare your meals at home for the whole family.
2. Shuffle your priorities
Things like a yearly vacation, changing your car every few years, or weekend high-teas with your besties may seem like nothing to you now, but these are things that you may need to sacrifice first when one of you says goodbye to your stable monthly pay cheque.
Maybe you don’t have to strike all of them off your list, but you just need to make some trade-offs, such as taking a vacation in the country or region to keep the cost low. Come up with what you are willing to sacrifice, and what are the cheaper alternatives for your priority list.
3. Have a strong contingency fund
Some families make the mistake of not having a big enough contingency fund when they decide to switch to a single income household. This fund becomes even more important when there is only one breadwinner left. Where will the extra cash comes from if an unplanned medical emergency happen, or an unexpected home repair?
If staying at home is in the plan, it’s time to start building a bigger contingency fund, so you won’t affect your daily budget, or worse, build up a huge credit card debt, especially if you don’t have the right credit card for your spending.
4. Always stick to the list
Preparing your family financially for you to stay at home requires tons of discipline. You will probably need to make a list for EVERYTHING. From groceries shopping, to paying bills, and you have to be militant about sticking to it. We all tend to buy the same things over and over, so make a list, copy it, stash a copy in your car, and always use it.
Do not leave your home for a grocery run without a list – even if it’s just for a carton of baby formula!
5. Overhaul your budget
A budget for a dual income household is completely different from a single one. After listing down your income and your expenses according to the category as shown above, it’s time to adjust the budget based on the new income and also the new list of expenses after you’ve cut where possible.
Remember to also allow yourself and your partner an allowance beyond household expenses. You both need a little bit of money to blow however you want. This freedom will help you stick to your budget.
6. Look for other sources of income
Being a stay-at-home parent doesn’t mean you have zero income. In fact, the new term, work-at-home parent, is coined in this technology-led era. It’s become increasingly easy to work from home, whether through freelance work, or even baking.
Look for creative ways to make up the difference between expenses and income. If you are staying at home looking after your kid, why not take on one or two more kids to earn some additional income?
Also don’t forget that without an income, you won’t be entitled for the available tax reliefs, or making EPF contributions. Retirement planning will have to be done on your own, and make sure this stays on your priority list! Don’t forego things like medical and life insurance for yourself, and especially for the sole breadwinner of the household.
Everyone will have differing opinion about this, but this major decision should be made by you and your spouse – after making all the financial and emotional considerations. If you or your partner decides to quit and care for your child(ren), make sure you are financially prepared for the leap.
