Tag Archives: stay at home parent

So-called “Good” Debt and Your Stay-at-Home Partner

BNN recently featured a Bank of Montreal survey with the headline that Canadians are taking on more “good” debt. Oh nice. So everything is fine – nothing to see here – move on.

Give me a break. I understand the logic of what they’re saying, but I disagree with the premise that there’s really such a thing as “good” debt.

The survey called borrowing for the purchase of a home, to do renovations, or for education good debt. Well – maybe. But most of these CAN be done with cash and without taking on more debt. The only exception would be the purchase of a home. But only in comparison to taking on debt for vacations or credit cards, as two common examples.

News flash: At the end of the day you still need to make the payments. It’s “good” if the rate is really low, bad if it’s the 20% credit cards. But debt is debt. It stops or reduces the amount you can save, because you only have a finite amount of net income. So, every time you borrow, you’re taking a voluntary pay cut: Same pay, minus the necessity bills minus one more new payment now.

It’s good or at least “gooder” if it’s a fixed loan where you have three, four, or five years and there’s an end. It’s never good when it’s interest only, such as a line of credit where the average person owes over $35,000 and owes it for more than 14 years. It may have started off with the sales pitch that it’s “good” debt, but when you add up all the interest and time to eventually pay it off, it was a horrible idea.

And one more thing, if you have a spouse who is a stay at home parent with your kids: A new study just found that a stay at home parent would be fairly compensated at $117,000. So if your partner is a full time parent, do not begrudge them their “me” money, or question their personal spending unless you want to pay them what they ought to get paid! You really need to read the Money Tools relationship chapter: When you got married, it stopped being  “your” money or “their” money and became “our” money.

Can You Afford to Be A Stay At Home Parent?

Did you know that the largest numbers of babies are born on a Wednesday? Between that, and the fact that the highest number of marriages happen in July and August, I thought I’d bring up the question again of whether people can afford to be a stay at home parent.

In families were both partners work, the thought of one parent staying home to raise the kids is often a goal and a dream. It might not be for everyone, but those who want to do it, often feel they can’t afford it, financially, and the dream dies before it’s ever started.

Yes, almost all couples who have decided to have one partner stay at home, and to make raising their kids a priority, will share that it was hard. But note that it WAS hard – in the past tense.

For sure, the most challenging steps are mainly in the initial adjustment pains. Can it be done? Yes. Is it worth it? You decide. But just make sure the decision is more about your values, priorities, family, and kids, than it is about finances. After all, your credit card companies and lenders shouldn’t be setting your priorities. But in reality, our debts and monthly payments do dictate our lives in more ways than we care to admit.

But money is almost always where it starts. The most common feedback is: “We’d love to be able to, but our family can’t possibly make it work without my partner’s income.” Often, however this “what’s the use” mindset is not true, because gross income doesn’t count. If your partner makes $2,000 a month, you need to deduct the taxes, EI, CPP, staff fund, and all those other deductions which come off the top, and chances are the real take-home is more likely to be around $1,400 tops.

Now subtract the bills which are mostly as a result of earning this second income. For the most families, that starts with a second vehicle, just to be able to get to work. Are there $200 or $300 car payments? That alone adds another $200 or so for insurance, gas and maintenance. What else? Perhaps there are current (or future) daycare expenses of another $400 or more, and probably at least another $100 for lunch, clothes, etc.

Without these “work bills,” the real net income in this example is $400 a month at best, not even considering the working partner may now also move into a lower tax bracket. That’s less than twenty bucks a day! Sure, each situation is different, but ten minutes of looking at your finances from a different perspective can have a big impact. It’s the old saying: You have to spend money to make money. But in this decision, it totally works against you, and makes things worse and not better.

If your desire is to have one partner stay at home, can you really afford not to do it? Yes, it’s a one-time adjustment, but it can also create opportunities, bonds, and memories that money just can’t buy. So here are a few questions to get you started thinking about the “how to,” instead of the “can’t be done:”

• What’s the real net pay you’re dealing with?
• How much money are you paying out of pocket each month directly related to the job?
• What monthly bills or payments (such as car payments, etc.) would you be able to drop?
• How much (if any) would your partner’s tax drop by with only one of you working?
• What bills can you consolidate into a lower payment (or pay off with current savings) to increase your cash-flow?
• Can you get rid of your current car payments by paying off the vehicle, terminating the lease, or trading down to a less expensive vehicle you’re able to pay cash for?

Financially, Can You Afford To Be A Stay At Home Parent?

Last week, Alberta Finance Minister Iris Evans raised the issue of making staying at home with younger kids more of a priority than money. Whether she was right or wrong, she is the Finance Minister and many families may agree with the Minister, if only they could make it happen.

In families were both partners work, the thought of one parent staying home to raise the kids is often a goal and a dream. It might not be for everyone, but those who want to do it, often feel they can’t afford it, financially, and the dream dies right there.

Yes, almost all couples who have decided to have one partner stay at home, and to make raising their kids a priority, will share that it was hard. But note that it WAS hard – in the past tense.

For sure, the most challenging steps are mainly in the initial adjustment pains. Can it be done? Yes. Is it worth it? You decide. But just make sure the decision is more about your values, priorities, family, and kids, than it is about finances. After all, your credit card companies and lenders shouldn’t be setting your priorities. But in reality, our debts and monthly payments do dictate our lives.

But money is almost always where it starts. The most common feedback is: “We’d love to be able to, but our family can’t possibly make it work without my partner’s income.” Often, however this “what’s the use” mindset is not true, because gross income doesn’t count. If your partner makes $2,000 a month, you need to deduct the taxes, EI, CPP, staff fund, and all those other deductions which come off the top, and chances are the real take-home is more likely to be around $1,400 tops.

Now subtract the bills which are mostly as a result of earning this second income. For the most families, that starts with a second vehicle, just to be able to get to work. Are there $200 or $300 car payments? That alone adds another $200 or so for insurance, gas and maintenance. What else? Perhaps there are current (or future) daycare expenses of another $400 or more, and probably at least another $100 for lunch, clothes, etc.

Without these “work bills,” the real net income in this example is $400 a month at best, not even considering the working partner may now also move into a lower tax bracket. That’s less than twenty bucks a day! Sure, each situation is different, but ten minutes of looking at your finances from a different perspective can have a big impact. It’s the old saying: You have to spend money to make money. But in this decision, it totally works against you, and makes things worse and not better.

Oh, and one more question: What’s the value of your car? OK, how does that compare to the value of your kids’ education savings plan? Or what’s the monthly payment on your vehicle? Is that the same amount you’re contributing each month towards your kids’ education? Aren’t those fair questions about your choices and priorities? But how often do our actions speak louder than our words?

If your desire is to have one partner stay at home, can you really afford not to do it? Yes, it’s a one-time adjustment, but it can also create opportunities, bonds, and memories that money just can’t buy. So here are a few questions to get you started thinking about the “how to,” instead of the “can’t be done:”

• What’s the real net pay you’re dealing with?
• How much money are you paying out of pocket each month directly related to the job?
• What monthly bills or payments (such as car payments, etc.) would you be able to drop?
• How much (if any) would your partner’s tax drop by with only one of you working?
• What bills can you consolidate into a lower payment (or pay off with current savings) to increase your cash-flow?
• Can you get rid of your current car payments by paying off the vehicle, terminating the lease, or trading down to a less expensive vehicle you’re able to pay cash for?