Becoming a parent comes with added responsibilities, especially when it comes to finances. Babies add joy to your life, but they also add many costs. If you are preparing to welcome a new family member into your life, financial planning is a must. Stay on target by keeping these essential stay-at-home mom financial planning tips in mind:
Here are 4 Surprising & Helpful stay-at-home mom financial planning tips
#1: Even Stay-at-Home Parents Need Life Insurance
If you are preparing to raise a child with your partner, and they are the primary source of income for your growing family, you may think that you only need to buy one life insurance policy. However, as the Huffington Post explains, stay-at-home parents can also benefit from having some sort of life insurance policy and estate plan. Therefore, many experts recommend that both parents sign up for life insurance and create estate plans.
You may be wondering whether this step is worth the added hassle and expense. To decide this for yourself, just think about how the loss of either parent would impact your family’s finances. If your partner dies, for instance, could you afford your current expenses, or if you pass away unexpectedly, could your partner afford to pay for additional childcare? Having life insurance will provide critical safeguards, and you can also use certain types of life insurance, like term life insurance, to pay for lost income and college tuition.
#2: Parents Should Put Retirement before Education
Speaking of college tuition, many new or expectant parents make the mistake of stressing more about their child’s future educational expenses than they do about their own retirement. While funding children’s education is an important financial matter for parents to think about, funding retirement can be even more crucial for financial stability. Not to mention that there are quite a few ways to cover higher education expenses, from private loans to scholarships.
If you are planning out your own finances, create your retirement plan before you move on to creating a financial plan to help cover the costs of college for your kids. That way you can keep your kids from having to financially support you and your spouse in your old age, and you can keep you and your partner healthy, happy, and financially stable in your golden years.
If you want a lucrative way to save for both your retirement and your kids’ college expenses, you should consider investing in real estate. While investing in real estate typically means purchasing a rental property and becoming a landlord, you can also invest in real estate-related stocks or even vending machines for commercial properties.
Still, SFGate notes one of the most effective, efficient, and effortless ways to generate income with real estate is via rental homes. It’s a source of passive income while you own it, and it’s also an opportunity to sell it for a profit at a later date.
#4: Parents Should Pay Off Old Debts with Purpose
When most folks find out they are expecting a child, they start making moves to pay off every cent of debt they owe. Now, this may seem like a wise financial move when you are expecting the added expenses of raising a child, but if you have to sacrifice savings to reduce your debts this may not be the best bet for your finances.
That’s because it is extremely important for parents to have savings, especially emergency savings, on hand in case unexpected expenses pop up. Otherwise, you could end up putting yourself even further in debt by paying for those surprise expenses, so be sure to pay off debt selectively. Start with any high-interest credit cards or loans and then work your way from there, saving big debts like your mortgage for last.
Financial planning can be tricky for a stay-at-home mom, but it doesn’t have to be overwhelming. Just be sure to cover the basics, like life insurance, retirement savings, and paying down debts. With finances secured, you can focus on enjoying your little one.
If you are a stay-at-home mom, please share your financial planning tips with us in the comment section below.
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Participate in the budget/retirement planning process– Get personally involved with the family finances. Work with your spouse to create a budget and start tracking your spending. Consider a financial advisor to assist with retirement goals and budget strategy.
We recommend putting 15% of your total household income toward retirement. If your spouse brings in 100% of your household income, then it's just a matter of how you allocate that 15%. If your household income is $60,000 a year, you should invest $9,000 a year—or $750 a month—toward retirement for both of you.
Open an Individual Retirement Account (IRA) for yourself
Even if your salary excludes you from the deduction, you can still make the contribution on behalf of the non-working spouse for tax-free growth. This way you have retirement savings in your name even though you're working in the home.
The general rule of thumb is that you'll need approximately two thirds of your current after-tax income in retirement to maintain your current lifestyle. This figure is based on 30% of your pre-retirement income going towards mortgage payments, and your home being fully paid off before you retire.
If you're a stay-at-home spouse, you may be eligible for Social Security retirement benefits based on your spouse's work history. Those who worked typically receive the higher of their earned or spousal benefits.
Financial Planning for Stay at Home Moms: Convert your old 401k to a Roth IRA. Before making any changes though, you need to understand the benefits of converting a 401k or IRA to a Roth IRA, what factors stay at home spouses should consider, and the basics of the conversion process.
In addition, some parents use the break from their career to retrain for more satisfying work or work that will allow them a flexible schedule once the kids are in school. Other parents opt for part-time work (or working from home) to bring in extra income.
Stay-at-home mom depression isn't a formal diagnosis, but it's a real, shared experience among many moms. The natural isolation of staying at home, accompanied by relationship imbalances, financial inequality, and a lost sense of identity, can naturally make a SAHM prone to depression.
There are a number of ways to use existing retirement-savings vehicles to save independent of an employer, including a solo 401(k), spousal individual retirement account (IRA), and health savings account (HSA).
You can stop working before your full retirement age and receive reduced benefits. The earliest age you can start receiving retirement benefits is age 62.
5 Self-Employed Retirement Plans to Consider. There are five main choices for the self-employed or small-business owners: an IRA (traditional or Roth), a Solo 401(k), a SEP IRA, a SIMPLE IRA or a defined benefit plan.
According to data from the BLS, average 2022 incomes after taxes were as follows for older households: 65-74 years: $63,187 per year or $5,266 per month. 75 and older: $47,928 per year or $3,994 per month.
If you retire with no money, you'll have to consider ways to create income to pay your living expenses. That might include applying for Social Security retirement benefits, getting a reverse mortgage if you own a home, or starting a side hustle or part-time job to generate a steady paycheck.
For example, say you work full time and your spouse is a stay-at-home parent. You could open a spousal IRA in their name and then make regular contributions to it each month.
If you pay off your mortgage and debts before retiring, you could live on smaller portion of your preretirement income. Based on this rule, if your annual preretirement income was $100,000, you need $80,000 a year in retirement to cover your expenses.
A spousal IRA can be an excellent way for stay-at-home parents, homemakers, and other spouses without their own income to prepare for retirement without having to rely solely on their spouse's retirement accounts.
After plugging in assumptions on investment returns, maintenance costs, home appreciation and other factors, the retiree would come out ahead financially by renting for less than five years. If the retiree plans to stay longer, buying would be a better choice.
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