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Working parents, particularly working moms, have been stretched to the breaking point by the ongoing pandemic's effect on child care. In North America, 1 in 3 working mothers considered quitting their jobs or downshifting their careers last year, a McKinsey study found. And more than a quarter of adults ages 25 to 44 who left their jobs during the pandemic cited COVID-related child care issues as the reason, according to the U.S. Census Bureau; mothers were almost three times as likely as fathers to say this.
And in addition to standard child care duties, many working parents are still supervising their children's online education as well. Even if schools are open, a single case of COVID-19 could cause a shutdown or require quarantining children at home for days or weeks. Many child care providers have closed permanently during the pandemic, and many that didn't were forced to raise rates. For working parents who are ready to quit, now could be the perfect time. Can you afford to become a stay-at-home parent? Here's how to decide.
Questions to Ask Before You Quit Your Job
Before you take the life-changing step of leaving the workforce, even if only temporarily, you need to consider the following questions.
How Will You Handle Your Monthly Expenses?
Assess how your monthly expenses and income will change if you leave your job. You'll lose income, of course, but you'll also eliminate some expenses by quitting your job. These may include commuting costs, work clothes, going to lunch with colleagues and child care. In most parts of the country, families with two young children spend more on child care than they do on rent or mortgage, according to Child Care Aware of America, a nonprofit research and advocacy group that estimates the national average cost of child care for one child at between $9,200 and $9,600 annually. Create a new budget to estimate whether you can manage your expenses on one income.
Where Will You Get Health Insurance?
Don't make any decision about leaving a job until you know you can maintain health insurance for your family. If your spouse has employer-sponsored insurance your family already uses, see if you'll need to increase coverage when you're no longer on your own insurance; if you and your children don't already use your spouse's coverage, find out when you're eligible to sign up, and how much the coverage will cost. Employer-sponsored health insurance is generally the most affordable way to get coverage. If the job you want to leave is the source of your health insurance, the best option is to shop for insurance in the Marketplace at HealthCare.gov. Depending on your income, you may receive financial assistance and tax credits that significantly lower the cost of health insurance. An insurance broker who sells Marketplace plans can guide you on the best options for your family.
How Will Quitting Affect Your Family's Financial Goals?
Saving for college, retirement and homeownership could be a challenge on one income. Will you have to stop contributing to your children's college funds? Even if you only pause your contributions until you re-enter the workforce, think about how that might affect the money's growth.
Staying at home may delay your retirement plans a bit, but don't let it throw you too far off track. If both you and your spouse have 401(k) accounts at work, have your spouse boost their contribution so you're still saving the same amount, or open an individual retirement account (IRA) of your own.
Even if you've already saved a down payment for a home, a single income means a lower income, which can make it harder to get a home loan. Lenders use your debt-to-income ratio (DTI) to calculate whether you can afford loan payments. To calculate your DTI, divide your total recurring monthly debt payments by your gross monthly income. For example, a total monthly debt payment of $3,000 and a gross monthly income of $8,000 leaves you with a DTI of 0.375, or 38%. However, if you quit your job, taking $3,000 of that monthly income with you, your gross income shrinks to $5,000 and your DTI soars to 0.6 or 60%. Most mortgage lenders require a DTI of under 43%, and many prefer your DTI be lower than 36%. Take this into consideration if you're hoping to buy a home in the near future.
Do You Have an Emergency Fund?
Every family needs an emergency fund to help handle unexpected expenses like a costly home repair or major medical bill. The general rule: Save enough money to cover three to six months' worth of essential expenses, such as housing, food and debt payments. As a one-income family, you'll be at greater risk if the breadwinner loses their job. Try to build your fund to six months' to a year's worth of expenses before you quit if possible.
How Will Quitting Affect Your Lifestyle?
For many families, two incomes help fund fun times such as dinners out, trips to amusement parks or family vacations. To afford becoming a stay-at-home parent, you may have to give up these perks, or significantly cut back on them. Be honest with yourself and make sure you're comfortable with such a change in lifestyle. Also be ready to resist the temptations that can come with stay-at-home parenting. Meeting other parents for coffee every morning or seeking retail therapy to ease the stress of wrangling toddlers can rapidly chip away at your family budget.
How to Save Money to Stay at Home
Before giving notice at your job, take some time to get your finances in order.
- Look for ways to lower your bills. Review everything from your cellphone plan to your car insurance and streaming subscriptions, and you'll probably find plenty of places to cut. Shop around to see if other insurance companies and cellphone providers offer a better deal. Drop subscriptions and memberships you aren't using. You can also reduce spending by eating at home, buying secondhand, and choosing free or low-cost family activities like visiting the park or library.
- Consider refinancing outstanding loans. If you have a mortgage, auto loan or student loans, investigate how much you could save by refinancing. Doing this before you quit, while you still have two incomes and a lower DTI, can improve your chances of loan approval.
- Pay down debt. Do you have lots of high-interest credit card debt? Quitting your job will make it harder to manage those bills, so pay off the balance before giving notice. Try to negotiate lower interest rates with credit card companies. If you have good credit, you could qualify for a balance transfer credit card or debt consolidation loan, which can help you pay off the debt. However, carrying a high credit card balance may indicate you're already living above your means and aren't ready to live on one income.
- Find ways to earn extra money. If you can fit it into your child care duties, consider a money-making venture like selling crafts on Etsy, tutoring children or selling unused belongings (like your work clothes). Consulting or freelancing can help you stay current in your industry, which is helpful if you ever plan to re-enter the workforce.
Stay at Home, Stay on Top of Your Credit
If you can't quite afford to be a stay-at-home parent yet, consider scaling back to a part-time job. You could also develop a timeline to pay down debt, cut expenses and build up savings in preparation for quitting your job in the future. When your family relies on a single income, maintaining good credit can provide a safety net if the breadwinner loses their job. You can check your credit score for free and set up free credit monitoring at Experian.