Sonia
The decision for one spouse to stay-at -home and another to earn money is significant. While the pattern brings various benefits, it also has wide-ranging financial implications. One spouse’s choice to stay at home can impact various household economics and planning aspects. Here are 15 such financial implications.
Single Income Dependency
When a family is dependent on a single income, there are increased chances of financial risks. Their capacity to meet financial ends is at risk if the primary earner loses their job or develops health complications. Because of this dependency, in families with single earners, careful planning for money is necessary.
Tax Implications
When one spouse stays at home, the household has a single-income tax situation. The tax implications could be beneficial since the family might fall into a lower tax bracket. Reducing tax deductions, qualifying for different tax credits, and other beneficial tax situations can bring relief.
Social Security Benefits
Social Security benefits provide financial support to retirees, disabled individuals, and their dependents. Stay-at-home spouses may gain lower benefits due to a lack of financial contribution throughout the years. They are eligible for some benefits but to a limited level. Social Security benefits are estimated in the 35 highest-earning years.
Less Retirement Saving
With one income, the impact on retirement savings can occur in numerous ways. The single-earning member may not be able to contribute as much to retirement accounts due to more financial responsibilities throughout the years. Usually, a stay-at-home spouse misses out on potential employer-matching contributions to retirement plans.
Reduction in Household Expenses
The decision for one spouse to stay at home can have financial implications on household expenses. The stay-at-home spouse can provide full-time care to the household and kids, saving significantly on many services. Besides that, the cost of transportation, professional attire, meals, and other expenses is also reduced.
Life Insurance
Having a stay-at-home spouse means a financial burden on the working spouse, especially for life insurance. The working partner may need to increase their life insurance coverage for financial security in case of their untimely death. Since the family is dependent on their income, insurance planning becomes crucial.
Childcare Saving
With a stay-at-home spouse, the family saves money as childcare expenses are almost eliminated. In the U.S. and U.K., the cost of childcare can be very high, be it daycare, a nanny, or other services. However, with one parent at home, these expenses are significantly reduced from the overall family budget.
Potential Loss of Earnings
When one spouse stays home, they are not earning money from a job, which impacts the overall income of any household. This loss of income can affect the finances, including both savings and family expenses. To make up for the lost income, the working spouse may need to work longer hours.
Education/Skills Gap
The stay-at-home spouse may find it difficult to return to the workforce because they have been out of it for some time now. To remain competitive in the current employment market, they might need to reset their education and skill set. This step may include engaging in courses that come with added expenses.
Work From Home Opportunities
Stay-at-home spouses don’t necessarily bring financial burdens, especially with numerous work-from-home opportunities these days. Those who choose to stay at home can join remote jobs to increase their household income without having to go out. Work-from-home opportunities are now available in numerous sectors, and some are even backed/ promoted by the government.
Increased Household Duties
When one spouse decides to stay at home, they typically take on more household responsibility. This allows a family to save on numerous chores like cooking and cleaning that would otherwise require hiring help. This reduction in expenses can positively impact the family budget savings annually.
Challenges in Debt Management
When one partner decides to take on the stay-at-home responsibility, it can bring challenges in debt management. Such family situations can make debt management challenging, especially when you have to pay off credit card bills, loans, and mortgages. The household may need to create a budget and prioritize debt payments over unwanted expenses.
Challenges in Emergency Fund Needs
Having only one source of income reduces financial flexibility. This can present challenges when trying to save for an emergency fund, be it for medical costs, a wedding, or job loss. Ideally, an emergency fund is the amount immediately available in case of emergency and should cover three to six months’ worth of living costs.
Reduced Opportunities for Professional Networking
The stay-at-home spouse misses out on opportunities to network and build professional relationships since they spend most of their time managing the home. As a result, they may find it more difficult to get a job or grow in their careers when they need it later on. Reduced professional networking can add a roadblock to financial independence at various stages.
Dependency on Spouse’s Employee Benefits
With only one spouse working, the other spouse and even the family become highly dependent on the benefits provided by the working spouse’s employer. However, as the working spouse changes jobs or loses their job, the family may face changes in these benefits, which at times require higher financial adjustments.
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