Can You Afford to Stay Home?
It starts as a fairly simple calculation: You need to figure out what will be going out each month and what needs to come in. So start with your fixed monthly expenses, including the mortgage or rent, your car payments and insurance, your utilities, other insurance payments (life—which you need when you have children—homeowners, disability), savings and any debt repayment, like student loans. Then add in your flexible expenses: things like groceries, entertainment, new baby expenses, including daily childcare (there are a few online calculators that can help you estimate the cost of your new addition. I like this one on BabyCenter.com.) and gas. Add those together, and that's about how much you'll spend each month.
How does that compare to your combined monthly income? Do you have a lot left over? If you do, continue your calculations by subtracting from your monthly expenses what you'll save by one spouse not returning to work. You'll definitely, for instance, spend less on gas. You may even be able to get rid of an extra car. That spouse will no longer need weekly visits to the dry cleaner, or daily visits to the coffee shop, or a few lunches out each week. You may also save on taxes, if the loss of that income means you drop down into a lower tax bracket, says Cathy Pareto, financial planner and president of Cathy Pareto and Associates in Florida. Then, subtract your newly adjusted monthly expenses from the monthly take-home pay of the spouse who will continue to work.
Where do you stand? If you're considerably in the red, you may need to scrap your plan to stay home, or at least consider other options, like staying on with your company part time or working from home a couple days a week. Companies are becoming more and more flexible. If you're close, though, go back through your monthly expenses and see what you can cut out. "The major ones are the ones that can have the biggest impact. So maybe you reduce your vacation to one week, or you stay with friends or relatives," Goldstick says. Look also to your entertainment budget. I'm all for date night—it's important for your sanity and your relationship—but see if you can do it on the cheap. Once you've gone to a movie and dinner, plus paid a baby-sitter, you can easily be out $150.