Kid on the way... Can wife stay at home?

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Berger
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Kid on the way... Can wife stay at home?

Post by Berger »

Hi! I've been a frequent reader of these boards and now have a topic on which I could use some perspective. My wife and I just got the good news that our first child is due in September. Ideally, I/we would like to have my wife become a full-time stay-at-home mom. We've come up with a plan, but would like to see what some impartial observers think of our situation.

INCOME
Me (31): $4,000/mo (After taxes, salaried, excellent health insurance, 10% raise and 10% bonus in March)
Wife (27): $4,500/mo (After taxes, salaried)
TOTAL: $8,500

DEBTS
Wife SL (several between 2-7%) - $6,000
My SL (4.5%) - $4,100
Car (1.9%)- $2,700
Mortgage (4.75%)- $344k. Purchased in 2011. Valued around $410k.
CC - $0

BILLS (Monthly)
Mortgage (includes PMI, insurance and property taxes) - $2,845
My SL - $160
Wife SL - $170
Cell - $185
Cable/internet - $200
Car insurance - $50
Car property tax - $30
Car payment - $450
Gas - $200
Train - $500
Food/Dining - $300
Entertainment - $200
House gas - $60
Electricity - $70
Oil - $200
TOTAL - $5,620

RETIREMENT/INVESTMENTS
My 401k balance: $99k, 17% contribution + 4% match
Wife 401k balance: $48k, 5% contribution + 3% match
My ROTH: $1k (no longer contributing)
Wife ROTH: $26k (no longer contributing)
My Pension: $15k (fully vested)
Wife Pension: $3k (fully vested)
My Life Insurance: $100k WL, $700k through work
Wife Life Insurance: $100k WL, $700k through work

SAVINGS
General emergency: $7k

ASSUMPTIONS
1. Car and wife's student loan will be paid off in August (wife has reduced 401k contribution from 17% to 5% to pay off student loan). We will not be getting a second car.
2. If wife becomes stay-at-home mom, monthly train expense is reduced from $500 to $150.
3. In September, I'll be reducing my 401K contribution to 5% to ensure we have additional cash on hand and I still receive the full company match.
4. I'll be receiving a $6-8k bonus in March that will go into Emergency Fund.

QUESTIONS
1. How realistic is it for my wife to become a full-time stay-at-home mom? After coming up with a preliminary budget, including new baby expenses, it appears that she'll need to at retain some part-time income.
2. What would you suggest to put our child on the right plan financially? 529? Life insurance policy?
3. We'll be eliminating our life insurance through work following the birth of the child. How much term life insurance would you suggest for both my wife and I?
4. How badly will the reduction in my 401k hurt us in the long run? Is this an advisable strategy?
angelescrest
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Re: Kid on the way... Can wife stay at home?

Post by angelescrest »

Welcome! I would start by reading through the wiki (in the areas of inquiry) if you haven't already, you will find a lot of answers to the questions you posted. Congrats on the announcement, having little kids has been a great experience for us--and incredibly challenging.
Berger wrote: INCOME
Me (31): $4,000/mo (After taxes, salaried, excellent health insurance, 10% raise and 10% bonus in March)

QUESTIONS
1. How realistic is it for my wife to become a full-time stay-at-home mom? After coming up with a preliminary budget, including new baby expenses, it appears that she'll need to at retain some part-time income.
Sounds like you've answered your own question. The math doesn't add up. Your mortgage would be well over 50% of your take home pay! Ouch.
Berger wrote: 2. What would you suggest to put our child on the right plan financially? 529? Life insurance policy?
I wouldn't be thinking about a 529 until topping out 401k and Roth.
Berger wrote: 3. We'll be eliminating our life insurance through work following the birth of the child. How much term life insurance would you suggest for both my wife and I?
How did you come up with the 700k at work? That might suffice, but you definitely both need substantive amounts.
http://www.bogleheads.org/wiki/Life_ins ... ance_needs
Berger wrote: 4. How badly will the reduction in my 401k hurt us in the long run? Is this an advisable strategy?
If I read correctly that you'd only be putting away 5% for retirement, several times less than what you've saved so far? Sounds like you're digging yourself a huge hole. Over 30+ years, it can hurt you in the hundreds of thousands of dollars, if not more depending on how long you keep that strategy up. You're already losing what she's been putting in. It's not always easy for us, but try to save at least 15% of your income if not more. Check out firecalc.com to see where you might need to be, depending on your retirement outlook and plans. It's a great tool.

Other questions:
What are the costs of daycare if you were considering the alternative? How much can she make part-time? How long does she plan to be away from work (perhaps you want several children)? If she doesn't want to work for some time, I don't know how you'd do it without selling (or renting out) the house. How much is your PMI, and can you refinance that out? There will be lots of other expenses that pop up--repairs on the home, baby/children's products, etc. If you can, cut everywhere you can (cable, cell, and beyond).
awval999
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Re: Kid on the way... Can wife stay at home?

Post by awval999 »

To start you'd have to sell your house and look at something in the $150k range.
NorCalDad
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Re: Kid on the way... Can wife stay at home?

Post by NorCalDad »

Congrats. The stay-at-home question is obviously a personal one. We have fairly similar income/expenses, and there's no way we would consider having one parent stay at home. We'd have to sacrifice our retirement savings and other expenses too much. But some people decide that they will delay retirement and give up lifestyle comforts so one parent can stay at home, and that may be you.

First, there will probably be baby expenses you aren't foreseeing. I'd build in a budgetary cushion if you haven't already.

You will want to get a 20-year term life insurance policy on each of you, not through your employer, as you've already indicated you will pursue. Something in the range of $750,000 to $1 million each is advisable given your asset level today. I would also run the math on cashing out whole life and directing that money toward Roth IRAs and other retirement savings.

And I agree with boroc - you should try to direct more money toward retirement accounts before considering a 529.
jda
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Re: Kid on the way... Can wife stay at home?

Post by jda »

Just want to point out a few things, if your house is worth 410k why don't you get it reappraise to get rid of the PMI?

Also, if your wife isn't working your take home should be higher because the tax will be less.

Personally, I think you can swing it but your budget will be tight. You are the only one who can decide Whether you should do it or not.

Edit: was on a tablet last night so couldn't type very fast. Just want to add a few things.
As some of the posters have point out there is room reduce your monthly spending such as cell phone, cable and internet etc. Also depending on where you are, day care could be as high as 2k a month so you may not lose as much income as you think. As I said before, your budget will be tight, but to me it's more than just a pure financial choice because you have to put some value in your wife vs a stranger taking care of your child.
Last edited by jda on Mon Feb 24, 2014 9:46 am, edited 1 time in total.
mnvalue
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Re: Kid on the way... Can wife stay at home?

Post by mnvalue »

With the bonus and paying off the loans, your emergency fund will only be 3 months (not counting increased expenses because of the baby). That seems risky for a single-income family with a kid. (To be clear, I'm saying it's risky to choose this when you don't have to.) As you noted, you're losing a lot of the life insurance on your wife, as it is provided through her work. Replacing that with term will increase your expenses further. You'll only be saving 5% for retirement; this is a bad idea. Definitely don't bother with a 529 when your retirement is not on track. And absolutely no life insurance as an investment for the child.
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Riceman
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Re: Kid on the way... Can wife stay at home?

Post by Riceman »

Berger wrote: BILLS (Monthly)
Mortgage (includes PMI, insurance and property taxes) - $2,845
My SL - $160
Wife SL - $170
Cell - $185
Cable/internet - $200
Car insurance - $50
Car property tax - $30
Car payment - $450
Gas - $200
Train - $500
Food/Dining - $300
Entertainment - $200
House gas - $60
Electricity - $70
Oil - $200
TOTAL - $5,620
You can do this easily by dramatically decreasing your spending. I would advise Mr. Money Mustache or other frugality websites for tips if this is the direction you want to go. If you don't dramatically decrease your spending, however, your retirement accounts will suffer, as your monthly budget seems to be at or barely above your projected spending.

If you drop one car (you have two?) or downgrade the one you have, downgrade the house, pay 40 a month for two cell phones, drop cable and get netflix, cut heating costs a bit, and slash the entertainment budget, you'll have a very healthy savings rate and not be missing any of the luxuries of the modern world.
carolinaman
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Re: Kid on the way... Can wife stay at home?

Post by carolinaman »

jda wrote:Just want to point out a few things, if your house is worth 410k why don't you get it reappraise to get of the PMI?

Also, if your wife isn't working your take home should be higher because the tax will be less.

Personally, I think you can swing it but your budget will be tight. You are the only one who can decide Whether you should do it or not.
I agree. Your budget will be tight but it is doable with adjustments. It is really a peronal system that hinges on what you value the most. Congratulations on your family addition and best wishes.
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G-Money
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Re: Kid on the way... Can wife stay at home?

Post by G-Money »

Certainly doable, but I think you'd need to seriously downsize your house. Your housing expenses would constitute nearly 2/3 of your net income. Even if you could somehow make those numbers work, you'd have no flexibility.

Good luck.
Don't assume I know what I'm talking about.
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bottlecap
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Re: Kid on the way... Can wife stay at home?

Post by bottlecap »

I don't think this is even close. You'll need to get rid of the house and your wife should think about part time work.

That's just a tough mortgage payment on that income.

JT
Onyxmeth
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Re: Kid on the way... Can wife stay at home?

Post by Onyxmeth »

A few red flags:

Cell - $185
-Assuming you aren't paying a third cell phone for someone you have yet to mention, how have you managed to pay so much for two cell phones? That seems quite expensive even for two subsidized smartphone plans. When is the last time you've shopped around? Verizon and Att(I'm assuming you have one of these two) both recently reduced their rates.

Cable/internet - $200
-This is a lot for cable and internet. Do you have competition with your cable options? I would be on the phone with the provider telling them you want the contract price again. You should be diligent about this, because this looks like a full movie package, best everything on the plan, plus a house phone you don't even need since you pay so much in cell phones, all off the two year agreement discount.

Entertainment - $200
-If you go through with this, I would consider the child to be the majority of your entertainment and slash this budget almost completely.

I feel like you can find heavy cuts here. If you can't get these three south of $300 per month, I don't think you can make it work.
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Crimsontide
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Re: Kid on the way... Can wife stay at home?

Post by Crimsontide »

Onyxmeth wrote:A few red flags:

Cell - $185
-Assuming you aren't paying a third cell phone for someone you have yet to mention, how have you managed to pay so much for two cell phones? That seems quite expensive even for two subsidized smartphone plans. When is the last time you've shopped around? Verizon and Att(I'm assuming you have one of these two) both recently reduced their rates.

Cable/internet - $200
-This is a lot for cable and internet. Do you have competition with your cable options? I would be on the phone with the provider telling them you want the contract price again. You should be diligent about this, because this looks like a full movie package, best everything on the plan, plus a house phone you don't even need since you pay so much in cell phones, all off the two year agreement discount.

Entertainment - $200
-If you go through with this, I would consider the child to be the majority of your entertainment and slash this budget almost completely.

I feel like you can find heavy cuts here. If you can't get these three south of $300 per month, I don't think you can make it work.
+1 on all the red flags. Time to take a hard look at these expenses... Even with these expenses optimized the big elephant in the room is still the mortgage. That thing is massive in proportion to your income alone. The only way (IMHO) you will be comfortable living on your income alone is to downsize the house.
Onyxmeth
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Re: Kid on the way... Can wife stay at home?

Post by Onyxmeth »

One other thing. My brother-in-law recently had this come up. They considered this slightly also, and realized they couldn't make it work. He decided to take a different shift so one of them was always with the baby. She works mornings and he works overnights. The trade off is they now don't see each other quite as often. That obviously depends on your particular careers of course, and your preferences, but I thought I'd put it out there in case it's a compromise worth throwing on the table.
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3CT_Paddler
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Re: Kid on the way... Can wife stay at home?

Post by 3CT_Paddler »

If you and your wife really want her to stay at home, you can make it work... just not in that house, with cable or with any kind of entertainment budget.

If your wife stays home, your after tax income should increase slightly (decrease withholding), but I don't see any listing on your budget for baby expenses. I would estimate $300/month for the baby (diapers/formula/clothes),

I wouldn't sweat a decrease in 401k contributions for 5 years or so... It may be unBoglehead, but I think if staying home is important to her, retiring at 67 or 65 instead of 62 is not such a bad tradeoff.

PS When our first came two years ago, we decided that my wife would stay home, but was fortunate to have the flexibility to work part time (10 hours/week) mostly from home. My income was in the same range as yours, but our mortgage amount was almost half, and the budget has been tight at times. We also cut the cable (kept internet) and our cell phone bill is $90/month.

Also don't underestimate the costs over the next several months as you get ready for the baby. Even with family contributing, all the little costs can add up.
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Re: Kid on the way... Can wife stay at home?

Post by Jack FFR1846 »

Is it that your wife wants to stay home or that both of you don't want the child in child care?

She makes more than you. Why don't you stay home?

Something to consider. If you both have been working at least a year in the job, you can take a 12 week leave under the family leave act. I strongly recommend that both of you do this. She stays for first 12 weeks, you stay for next 12 weeks. My wife and I did this with my first son. Some things we learned:

How to take care of our son. Both of us learned how to do it on our own.
You will both appreciate how hard it is. You will lose an assumption that a lot of men have that the women stay home and do nothing all day.
How to manage finances: Jobs will have you exhaust your vacation time and she may have maternity leave, depending on company....but then you're on your own financially.
What changes. We assumed that her 12k mile per year car would go to 5k miles. It went to 18k miles. So don't count on reduced car use.

I agree that your lifestyle will need to change to make all this work. Downsize the house. Lose the luxuries (cell, cable tv, going out)
Bogle: Smart Beta is stupid
mw1739
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Re: Kid on the way... Can wife stay at home?

Post by mw1739 »

Your budget seems a bit simplistic. What about clothes for you and your wife? Any pets? What about your water/sewer/trash bills? Your life insurance premiums aren't included in the budget either. For that matter, dump the whole life insurance and insurance through your employer and buy some cheap 20 year term insurance on both of you.

I would take your bonus and any cash value from the whole life policies and pay off all non-mortgage debt immediately. Once that happens, start banking your wifes salary and see if you can pay all the bills on solely your income. My guess would be no, but if you cut some expenses it would be doable, but tight.
Berger wrote:1. How realistic is it for my wife to become a full-time stay-at-home mom? After coming up with a preliminary budget, including new baby expenses, it appears that she'll need to at retain some part-time income.
Your wife makes $4500 a month currently. Lets say she works 50% of the time after the baby comes, so income of $2250. You don't say where you live, but given your mortgage amount I would guess a HCOL area. In my LCOL area we easily spend $1000/month on childcare. So that would leave your wife with $1250 a month in income for 20 hours a week of work. That's roughly $15/hr. There's some tax implications not figured in here, but would your wife be happy working for that amount?
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SamGamgee
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Re: Kid on the way... Can wife stay at home?

Post by SamGamgee »

If having mom stay home is your top priority, you can certainly do that. But everything else must become negotiable (house, cable, etc)

We are currently bursting at the seams -- a family of six in a 3BR townhouse. Luckily I make enough that a move is possible, and we are currently house searching. However, I can testify that even if I made much less, we would not consider having my wife go to work. (Youngest just turned 1) It's all about what is important to you. Communicate. Make a decision that reflects your values.

And yeah, read Mr Money Mustache.
Alexandria
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Re: Kid on the way... Can wife stay at home?

Post by Alexandria »

I think it is feasible, but agree with the comments on cable and cell. (We pay $50-ish for smart phones and access to any programming that can be found on cable; we do not use large overpriced carriers). The mortgage by itself doesn't stand out to me (I am from extreme high cost area) but managing a mortgage like that does mean cutting *everything* else.

When my spouse stayed home with kids the plan was just for the first few years. We both had a $50k income. $230k mortgage, 7%. Which is why I feel our mortgage was probably comparable to yours on some level. We had no other debt and very minimal expenses. (This was very fine for 5 years, but it was not like a long term stay-home plan). The mortgage has always been a *shrug* to us, given our frame of reference.

No one else mentioned that you will probably have substantial tax savings. You will get a raise so to speak, or very large tax refunds.

We were willing to cut back on retirement for a year or two, but in the end I got raises and we have never contributed less than 10% (some years 20% - ironically easier to contribute larger percentage on smaller income, since we tried to keep similar retirement savings pace). Spouse never found work again, economy and all. We have made it work and retirement has been our #1 focus most that time. I'd say the "sacrifice" is we might not pay off our mortgage until the kids are done with college. Retirement funds are robust. College is not of big concern due to generous grandparents and very low-cost state colleges. Thus we have saved -0- for college. Maybe this is also some of it - we don't expect big college costs. We have always believed in a bigger emergency fund, so your lack of cash would make me nervous in conjunction with the mortgage. But, it depends how steady your job is and how easily wife can pick up work in a pinch. Good Luck!

P.S. Spouse was going to stay home anyway, but the math never made any sense for him to work full-time. We figured at best he might take home $10k after taxes, daycare, working expenses. & I think that is generous. Working full-time to bring home $10k is kind of ridiculous if you ask me. We have focused on making money on the side to make up for lost income.
OatmealAddict
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Re: Kid on the way... Can wife stay at home?

Post by OatmealAddict »

We're in a very similar situation. We're both 31, earning about what you guys do, have a child due in two months, and were facing the same decision.

Because we don't have much more wiggle room in our budget and because maximizing retirement savings is such a high priority for both of us, we decided against having my wife stay home and instead settled on one of the nicer daycare options in our area. In addition, and perhaps, even more importantly, my wife is pretty much an indentured servant for her employer for the next nine years until the PSLF program forgives the balances on her ungodly amount of student loan debt.

Best of luck to you with the new arrival.
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Berger
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Re: Kid on the way... Can wife stay at home?

Post by Berger »

All, thanks very much for the replies. Having some outside perspective from people that have gone through this is immensely helpful.

Re: Some of the questions in this thread...

- Expenses (Red Flags): Definitely need to be cut. We're under no illusion that we can continue living our current lifestyle. Cable, phone, dining, vacations, etc. will all be slashed dramatically. I posted our expenses "as is" rather than "proposed" to see how far off people thought we were. The answer: FAR!

- Our Home: As some have assumed, we're certainly in a HCOL area and are by no means living extravagantly. The downgrade options are condos and rentals - or sacrificing some comfort/safety in a different area - none of which are appealing options. The wife would go back to work full-time before this step was taken.

- Day Care: In my area, it seems to be in the $1,200/mo range for daycare. The financially-responsible decision is to elect this route as we both continue full-time, but having one of us home is a higher priority at this point. We'll fall back on day care, which will allow us to maintain our current lifestyle and continue to max out retirement accounts, only if we deem the stay-at-home plan cannot work.

- Stay-At-Home Dad: Consider it done! I'd be happy with this route, but there is definitely a desire from the Mom-to-be to be the primary caretaker, which I support. Considering my upcoming raise, annual bonus, and the fact that our healthcare is deducted from my pay, our incomes are not drastically different.

- PMI - We're about $12k away from knocking this off of our monthly expenses, based on our original purchase price. It currently works out to be about $190/mo within our mortgage payment, which would be great to get rid of. I'm going to look into an appraisal via the bank to see if there have been any fluctuations that would eliminate this.

- Retirement - I expect promotions/raises to continue and - after kid(s) go to school in a few years - the missus to go back to work full-time. Five to seven years with decreased contributions to 401k may force a few more years in the workforce, but it seems to be a fair trade of peace of mind during these early years.

- Emergency Fund - I agree that the balance here is a concern. We'll be dumping whatever we can in here as we get closer to September.

What I've taken away from this so far:
1) Start cutting expenses now. Don't wait until September.
2) Create a more detailed budget that includes baby expenses and new term life expenses. This will help us determine how much part-time work is needed.
3) Work with bank on PMI.
4) Increase automatic deposits from checking into Emergency Fund.
5) Explore cashing out our WL policies.

Thanks again for your input and, please, continue to post your stories if you have experience in a similar situation. We really appreciate the insight.
keq1381
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Re: Kid on the way... Can wife stay at home?

Post by keq1381 »

I think your wife can and should stay home with little change in your lifestyle other than the changes a baby would require you to make. However, if I was in your position I would:
- As suggested by others, look into reducing cell and cable bills and try to eliminate PMI.
- IMO, life insurance on children is a scam, so don't bother.
- Invest just enough in a 529 to get any tax credits/deductions.
- Keep your 401k contribution at 10%.
- Use half of your bonus to pay student and car loans.

Children do not (have to) cost as much as people seem to think. Just way too many people buy stuff they don't need or overspend in meaningless ways.
Onyxmeth
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Re: Kid on the way... Can wife stay at home?

Post by Onyxmeth »

Berger wrote:What I've taken away from this so far:
1) Start cutting expenses now. Don't wait until September.
2) Create a more detailed budget that includes baby expenses and new term life expenses. This will help us determine how much part-time work is needed.
3) Work with bank on PMI.
4) Increase automatic deposits from checking into Emergency Fund.
5) Explore cashing out our WL policies.

Thanks again for your input and, please, continue to post your stories if you have experience in a similar situation. We really appreciate the insight.
#1 seems to be the best way to go. Sacrifice starting now to see if this can work for you both. Get your budget tight enough so you can support it yourself. At the very least, it'll give you some extra emergency fund money.

If you're both willing to work a little longer to give your wife an opportunity she really wants and can never get back if she doesn't take it, then I say go for it so long as you can survive on your salary, and have enough of a buffer that you aren't spending your entire time sweating over finances.

Maybe she can earn some side income from home while doing this also. I know someone that stopped working when she had a baby, and then began going to garage sales to save some on home decorations and baby clothing because the budget was tight. She then got a knack for being able to get good deals and started selling garage sale items over eBay and pulled in some nice side cash.
Andyrunner
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Re: Kid on the way... Can wife stay at home?

Post by Andyrunner »

First off: Congrats on the kid! Mine is only seven months and Im still figuring it all out!!

Many people already made good points, but in response to your latest post.

Under retirement you said you expect promotons and raises to continue. I don't know what business your in, but the economy can change, you might hit a ceiling in the job field, and the cost of things such as healthcare, kid expenses (activities, camps, clothing, etc) will only increase. I would plan on those promotions offsetting the those increased expenses. Anything else is a bonus. That is just my conservitive outlook on things.

If you do go the stay-at-home dad route. Increase the beer budget :happy , some days you will definatly need it (my wife works evenings and weekends sometimes and its just me for 8hrs it can get rough).
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SamGamgee
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Re: Kid on the way... Can wife stay at home?

Post by SamGamgee »

Berger wrote:- Our Home: As some have assumed, we're certainly in a HCOL area and are by no means living extravagantly. The downgrade options are condos and rentals - or sacrificing some comfort/safety in a different area - none of which are appealing options. The wife would go back to work full-time before this step was taken.
Just in case it hasn't occurred to you -- have you considered renting your house out while slumming it in a small rental? I assume your wife wants to get back to work eventually. What you need is a temporary (1-3 year) decrease in housing expenses, not a permanent one.

Even if the rent doesn't cover your fixed expenses related to the home, you will realize the full difference between the two rents in your cashflow. That could make the difference for you.
Calm Man
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Re: Kid on the way... Can wife stay at home?

Post by Calm Man »

Very risky. You run the risk of going broke if goodness forbid you lose your job. The longer the wife stays out of work the harder for her to return to a comparable job. And if out too long, she may have wrecked her career. I am biased as I am the father of a professional daughter. But your wife earns as much as you and presumably contributes as much to her job as you do. Why don't you stay home and have her work or both go part time?
MN Finance
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Re: Kid on the way... Can wife stay at home?

Post by MN Finance »

The question is not CAN she stay home. The question is, she IS going to stay home, so how do you make that work. Like many other future decisions, you make quality of life decisions and then figure out how to make that work financially. If that's an invalid argument, 90% of all of our decisions would be different (should they be solely financially based). I just spent $9 on lunch, which was $8 more than a pb&j and an apple.
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Location: Chicago North Shore

Re: Kid on the way... Can wife stay at home?

Post by bungalow10 »

BILLS (Monthly)
Mortgage (includes PMI, insurance and property taxes) - $2,845
My SL - $160
Wife SL - $170

Cell - $185 $140
Cable/internet - $200 $75 for high-speed + Hulu Plus + Netflix
Car insurance - $50
Car property tax - $30
Car payment - $450
Gas - $200
Train - $500 $150
Food/Dining - $300
Entertainment - $200
House gas - $60
Electricity - $70
Oil - $200
TOTAL - $5,620 $4320
If you knock out the car loan and both student loans you will be closer. I also think you need ditch cable and cut that cell phone bill (we have three smart phones in our house for that price).

My other concern is that your food bill is just $150. That seems low for two people, even for just groceries? No eating out? I also don't see anything for household expenses or clothing. I highly recommend using a tool like You Need a Budget (YNAB) for six months to get a handle on what your expenses truly are and what will be eliminated if/when one of you stops working.

FWIW - My husband stays home with our three kids. I make more money than he did so it makes more sense for him to be home with them.
An elephant for a dime is only a good deal if you need an elephant and have a dime.
Rupert
Posts: 4122
Joined: Fri Aug 17, 2012 12:01 pm

Re: Kid on the way... Can wife stay at home?

Post by Rupert »

Are you planning to have more kids or just the one? If just the one, you two might consider just having your wife stay home for a couple or three years before going back to work part or full time. It's much easier to find a good daycare/preschool placement after age 2, and kids benefit from spending some time away from parents and with other kids at that age anyway. It also gets a bit cheaper.
sunnyday
Posts: 1679
Joined: Sat Jul 16, 2011 8:48 am

Re: Kid on the way... Can wife stay at home?

Post by sunnyday »

Congratulations!

Unless your wife hates her job, I would wait until the baby comes along to make any decisions. Depending on your wife's relationship with her employer, she could take the maximize time off (12 weeks for FMLA) and then reassess how she feels about staying home vs being a professional. If your wife can work part-time and do daycare/nanny part-time, that could be a great mix and make it so the budget isn't so tight. My wife works full-time, but is able to work a lot from home so she sees our daughter a lot throughout the day.

You could sign up for Mint and closely track all of your expenses until the baby comes along. My wife and I spend less now that we're parents (not going out as much, not as many trips) but we also got a lot of gifts and hand me-downs from family and friends to cover the initial baby expenses. Other than that, it's mostly just diapers and doctor appointments.
Berger wrote:
QUESTIONS
1. How realistic is it for my wife to become a full-time stay-at-home mom? After coming up with a preliminary budget, including new baby expenses, it appears that she'll need to at retain some part-time income.
2. What would you suggest to put our child on the right plan financially? 529? Life insurance policy?
3. We'll be eliminating our life insurance through work following the birth of the child. How much term life insurance would you suggest for both my wife and I?
4. How badly will the reduction in my 401k hurt us in the long run? Is this an advisable strategy?
1. If your wife enjoys her work and wants to grow in her field, I think working part-time could be a great option.
2. It's better to max out retirement accounts before 529.
3. I would take out as much life insurance to hit your number (or at least close to it).
4. I didn't run the numbers, but it probably depends on if you want to retire early (and if so how early).
Kuyper
Posts: 9
Joined: Fri Dec 28, 2012 8:51 am

Re: Kid on the way... Can wife stay at home?

Post by Kuyper »

Your goal should be to save at least 15% of your current SOL in order to be able to maintain your SOL in retirement. For example, if you get your SOL down to $4,000 (which sounds like a stretch), your targeted monthly retirement savings would be $600 per month after-tax (which can include both employee and employer contributions). If you get started soon after college graduation, saving 15% of your SOL will get you to the magic number of 25x your SOL. 25x your SOL allows you to pull 4% Safely from your retirement account. If you're a little behind, no problem. Something should be left of the pay-as-you-go Social Security program to cover the difference.

Also, I would estimate your 2014 taxes based on one income before making a final decision. Reducing your taxable income and adding a dependent may be a bigger decrease in your tax bill than you are expecting.
YngInvstr
Posts: 22
Joined: Tue Dec 15, 2009 6:28 pm

Re: Kid on the way... Can wife stay at home?

Post by YngInvstr »

As a point of reference, we had our first child in July and my wife left her good paying FT job to stay at home. Similar age, somewhat similar income, but we are not in a HCOL area - my 15 yr mortgage payment + tax + insurance is somewhere in the $1,400 range for a nice home in a great school district (we bought in 2010, foreclosure and remodeled).

Just some thoughts:
-Everything is possible, a tight budget is a MUST! It's absolutely a sacrifice at these income levels to cut pay by half, but that's a personal decision as far as how much you value the SAHM aspect. We valued it very highly and decided to forgot the additional income for my wife to stay home.
-Baby costs can be extremely low to extremely high- as an example, I'll use breastfeeding- if you breastfeed exclusively, you'd save hundreds a month on formula. Babies also don't need much, most of the time they hang out in plain onesies, they don't need tons of expensive toys, they'll play more with your cell phone and the remote than they do with anything you buy them. Diapers are cheap, with Amazon subscriptions services, this is a must to have.
-Not referring to your budget, but just using us as an example- our going out costs have virtually plummeted- baby is in bed by 7, means we have dinner at home most nights and have leftovers for lunch.
-We don't have cable, but do have streaming services like Hulu Plus and Netflix- the only thing I miss are live sports....
-Get creative- I use skills that I've developed in the corporate work to earn some side income consulting- my wife got her real estate license and has helped friends buy/sell homes- great little side income and can easily be done at home on her own time.
-Keep in mind, if you both do decide on her staying home, it will quite a transition depending on what your wife did in her job- my wife went from managing many people to being home by herself with a baby for 10 hours a day- not easy for anyone to do....

I can go on a on- message me if you have any specific questions! And congratulations, it's going to be a lot of fun!
mrsevansc
Posts: 67
Joined: Wed Feb 06, 2013 5:31 pm

Re: Kid on the way... Can wife stay at home?

Post by mrsevansc »

I think the best ideas have already been mentioned above. I'd like to suggest some money saving ideas for after baby.
If your wife stays home these shouldn't be too hard to implement

1. Breast feeding. Huge money saver. Better for baby.
2. Cloth diapering. I did the calculation before my daughter was born and found out that we broke even at the 1yr mark. She is now almost 2yrs old.
3. Homemade baby food or (my favorite) baby-led weaning
4. Childrens consignment stores for clothes and toys. There is a huge national consignment organization called Just Between Friends. They organize semiannual consignment events all over the US.
5. Not strictly baby related but look into joining a food coop. I participate in Bountiful Baskets and I save a lot of money on very good quality produce.

Congrats!
bungalow10
Posts: 2311
Joined: Sat Apr 09, 2011 6:28 am
Location: Chicago North Shore

Re: Kid on the way... Can wife stay at home?

Post by bungalow10 »

mrsevansc wrote: 1. Breast feeding. Huge money saver. Better for baby.
2. Cloth diapering. I did the calculation before my daughter was born and found out that we broke even at the 1yr mark. She is now almost 2yrs old.
3. Homemade baby food or (my favorite) baby-led weaning
+1!!

We have three kids and the amount of money we've saved using these three options is probably $10,000+. More if you count the health benefits.
An elephant for a dime is only a good deal if you need an elephant and have a dime.
NorCalDad
Posts: 774
Joined: Sun Mar 25, 2012 11:14 pm
Location: Northern California

Re: Kid on the way... Can wife stay at home?

Post by NorCalDad »

mrsevansc wrote:I think the best ideas have already been mentioned above. I'd like to suggest some money saving ideas for after baby.
If your wife stays home these shouldn't be too hard to implement

1. Breast feeding. Huge money saver. Better for baby.
2. Cloth diapering. I did the calculation before my daughter was born and found out that we broke even at the 1yr mark. She is now almost 2yrs old.
3. Homemade baby food or (my favorite) baby-led weaning
4. Childrens consignment stores for clothes and toys. There is a huge national consignment organization called Just Between Friends. They organize semiannual consignment events all over the US.
5. Not strictly baby related but look into joining a food coop. I participate in Bountiful Baskets and I save a lot of money on very good quality produce.

Congrats!
These are good suggestions. We used consignment sales but also got bagfuls of hand-me-downs from friends with older children. For a while, the only new clothes our kid wore were bought by the grandparents and other relatives. Our friends and relatives also took care of most big-ticket items like car seats and strollers through our registry. And don't fall into the trap of buying a big new car before the kid arrives; you probably won't need a bigger car until carpools and more children arrive, and maybe not even then.

I found that most parents I know generally fell into their pre-child spending habits once they had children; if they were big consumers before kids, they were also the ones that bought tons of new clothes, toys and gadgets once their kids were born. Those of us who are more Money Mustache types looked for ways to save where we could.
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Watty
Posts: 28860
Joined: Wed Oct 10, 2007 3:55 pm

Re: Kid on the way... Can wife stay at home?

Post by Watty »

If your car is worth a lot you could look at refinancing your car to free up the money to get out of PMI or to be able to refinance your house.
PenFed has auto loans at less than 2% for this.

https://www.penfed.org/refinance-auto-loan/

If you want to refinance your house then you should check to make sure that getting a new car loan will not cause you problems with refinancing the mortgage at about the same time.
Mortgage (4.75%)- $344k. Purchased in 2011. Valued around $410k.
PenFed has a no cost 5/5 ARM that is at 3% right now. It can only go up by 2% once every five years so you could reduce your interest rate to 3% for years 1 to 5 and then 5% for the next five years so you might be able to buy some time with a loan like that. You would need to bring the loan up to 80%. You would save enough in the first five years so that in the worst case you would not end up paying more in total interest until around year 15 if the rate goes up by the maximum again in year 11, but there is a good chance you will have moved or refianced the mortage by then anyway.

https://www.penfed.org/55-Adjustable-Rate-Mortgage/
INCOME
Me (31): $4,000/mo (After taxes, salaried, excellent health insurance, 10% raise and 10% bonus in March)
Wife (27): $4,500/mo (After taxes, salaried)
TOTAL: $8,500
How badly will the reduction in my 401k hurt us in the long run? Is this an advisable strategy?
There is not enough information so I didn't try to crunch the numbers but without your wife's income and the extra deduction for the kids, and the child credit there is a very good chance that you will owe very little federal taxes in 2015 and you will be in a low tax bracket. If you have a lot of itemized deductions and pretax payroll withholdings it is even possible that you might not owe any federal taxes in 2015.

https://turbotax.intuit.com/tax-tools/c ... taxcaster/

It would be good to rework your numbers from scratch based on your future income to get a better budget of what you might actually be able to afford and what your future tax bracket will be. If you have tax software it is very easy to make up a dummy tax return based on your 2015 numbers to see how high a tax bracket you will be in in 2015.

If you are will be in a low tax bracket next year then reducing your 401K contributions to just enough to get the employer match is a reasonable choice for a few years.

My wife did not have as much income as yours but she wanted to stay at home with my son when he was a toddler so to make that doable she did daycare in our house for one or two other kids that were about my sons age. Between us not paying for day care and that income it worked for us. Maybe six months or so after your kid is born that could be an option that might or might not work for your situation.
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