The decision to become a stay-at-home parent (SAHP) is not one to be taken lightly as it can significantly impact both the current financial stability of the household as well as the future finances of the family. There are several inherent risks involved – for the stay-at-home parent, the breadwinner, and the family – and it’s important for couples to be fully cognizant of what they’re stepping into. If you’re discussing the option of one parent staying at home full-time to raise the children, the following questions can be useful in your discussions.
What are the implications of not earning a taxable income?
Giving up full-time employment means that you will no longer be a taxpayer which means that certain tax benefits you enjoyed while working will no longer be available to you – the most notable being the tax-deductibility of your retirement fund contributions. As it currently stands, taxpayers can contribute up to 27.5% of taxable earnings towards a retirement fund (up to a maximum of R350 000 per year) on a tax-deductible basis. If you’re no longer earning a taxable income, there is no financial benefit to contributing towards a retirement fund, and it’s important to appreciate the longer-term effects of not having retirement savings in your own name. Further, not having an income makes it incredibly difficult to maintain a credit score, provide proof of income, apply for financing, or open retail accounts, which leads to the next question.
Consider: How do you feel about not having retirement savings of your own? Is your spouse currently saving enough to ensure that you can both retire comfortably?
How will you create financial independence in your own name?
Without an income it is incredibly difficult to build wealth in your own name, something which can place the SAHP at great risk if the relationship comes to an end. Lack of financial independence is the primary barrier to exit for many spouses who have chosen to sacrifice their careers to raise children. Our advice is for you and your spouse to put clear plans in place to ensure that you have savings and assets in your name and that you both have unfettered access to capital.
Consider: Is your spouse willing to contribute towards a unit trust portfolio in your name? Will you and your spouse remain jointly responsible for the finances of the household regardless of who generates the income? Are you both committed to full financial transparency?
To what extent does it increase the financial risks of the household?
A significant benefit of having a double-income household is that there is an extra layer of protection should one partner lose their job or face retrenchment. Operating as a single-income household – with the added costs of having a child – can place the family at risk should the breadwinner lose his/her income for whatever reason.
Consider: How secure is your partner’s employment or business operations? Do you have enough money saved to survive financially for at least six months should your partner lose his/her job?
Will the decision place financial stress on the household?
It is important that you both realistically consider to what extent the decision would place financial stress on the household – keeping in mind that children are expensive and it’s not always easy to anticipate what additional costs you could be faced with in the first few years of your child’s life. While you might be happy in theory to tighten your belts, it’s only natural for parents to want the best for their children (specifically when it comes to education) so be pragmatic when assessing your budget.
Consider: Will you be able to save for your child’s education on a single income? What sacrifices are each of you prepared to make so that one parent can afford to stay at home? Do you both feel the same way about the decision?
How will day-to-day money management work?
It’s vital that you and your spouse set out clear guidelines for how the household finances will be managed. In the absence of an income of your own, you will be largely dependent on your spouse for money, so be sure to discuss how this will practically work. Will you be allocated an allowance? Will your expenditure be monitored? The reality is that money remains the number one reason that couples fight, so don’t wait to find out how the money management aspect will play out. Instead, be intentional about developing a model that you are both comfortable with – and be sure to keep the channels of communication open along the way.
Consider: How do you feel having to ask your spouse for money? What if he/she says no? How will you feel if you’re asked to justify your expenditure? How will you feel spending your partner’s money on luxuries for yourself? How will you feel being financially dependent on someone else?
Who will be responsible for household chores?
Tightening your belt may mean cutting back on domestic help (or cutting it out altogether) and it’s important to really think about what this would practically mean for the stay-at-home parent. There’s nothing easy about first-time parenting and having to shoulder the household cleaning and daily chores on top of caring for a newborn baby could place an insurmountable burden on the new parent. Ideally, create room in your budget for domestic or childcare assistance should the stay-at-home parent need it.
Consider: How do you feel about washing and ironing your spouse’s clothes? How will you share the household chores when your spouse gets back from work? Will you feel guilty if you are unable to complete your chores? Will you be able to afford domestic help if you have a sickly child and need extra help at home?
What are the long-term implications of not generating an income?
It’s important that you and your spouse appreciate the lost opportunity costs of giving up your income, specifically the wealth that could have been created if a portion of that income had been invested regularly over time. For most people, their income is the primary mechanism for wealth creation – and sacrificing this income means forfeiting the compounding investment growth that could have been achieved on that money.
Consider: Would you and your spouse be able to afford your lifestyle goals such as travel, experiences, entertainment, vacations, etc, on a single income?
What happens if resentment builds?
It is absolutely vital that both partners agree with the decision for one spouse to stay at home. In the absence of mutual agreement, resentment is likely to rear its head. Moving from a double-income household to a single-income one can shift the balance of power and change relationship dynamics. For instance, a stay-at-home parent may feel bored, lonely, and resentful at having sacrificed his/her career, while the breadwinner may feel overwhelmed by the burden of providing for the family and resentful of the partner’s spending habit.
Consider: Is your spouse really comfortable with being the family’s sole breadwinner? What happens if you regret your decision to quit working? Will you feel resentful of your spouse’s career achievements?
How will it affect your ability to re-enter the workforce later on?
If you plan to re-enter the workforce once the children are old enough, think carefully about how you’ll keep your skills relevant and stay up-to-date with industry developments while you are not working. The rapid pace at which technology and AI are developing means you’ll have to be intentional and disciplined about remaining employable in the future.
Consider: How long do you intend to stay at home? Will you be able to afford courses and training to keep your skills honed?
Have a wonderful day.