When you and your spouse decide to start a family together, you have to make an important decision together: will both parents return to work, or will one remain as a stay-at-home parent? While there is no right or wrong answer, it is crucial that you first weigh whether or not it is suitable from an earnings and expenses-related standpoint.
Guaranteeing Sufficient Income
The most important thing to do is work out a budget with your spouse in advance of making such a change. It is important to ensure that the household can remain financially secure with a sole breadwinner. Factor in additional bills, investments, and savings to determine whether opting to be a stay-at-home parent is a viable option. Staying at home will also shift expenses; you’ll save on gas and lunches out, but you’ll have whole new expense categories for diapers and baby clothes.
Taking into consideration the age of your children, hours that they’re home, and amount of attentive care they require (special needs, etc.), the stay-at-home spouse may be able to work part-time or launch a home-based business. This can help to maintain a steady income flow as home office-based expenses and other legitimate costs associated with a home business are tax-deductible.
If you are looking to save on expenses as a household, having one parent remain at home with the children can be a blessing in disguise. The biggest contributor is the lack of daycare costs, which in Calgary top $1000 per month per child. Child care for infants is even more expensive. If the family unit includes an older parent or in-law in need of consistent support, there may be an opportunity to save even more money. Having someone at home helps to reduce for care-related expenses either via facility or home care.
Tax Planning and Maintaining Insurance Coverage
Income-splitting opportunities are ripe for the picking for households with a stay-at-home spouse and the other being the primary source of income. The main breadwinner can contribute towards a spousal Registered Retirement Savings Plan (RRSP). Additionally, they have the option to give funds to the spouse with a lower income to invest in their own Tax-Free Savings Account (TFSA). Combined, expect a considerable deduction on taxes. Clever spousal loan strategies involving higher earning spouses lending money to their lower-earning partner to invest and be taxed at a lower rate are also applicable. In this sense, having a stay-at-home spouse can allow for lower taxes and higher return rates.
These savings may be important in regards to maintaining adequate insurance coverage. With one spouse no longer earning an income, it is more crucial than ever that the appropriate amount of insurance is readily available to cover the cost of replacing their services. Also, you may want to consider critical illness insurance to compensate for whoever remains at home with no income being ineligible for disability insurance.
By considering your options and weighing the pros and cons appropriate for your income and expenses, becoming a stay-at-home parent may be more of an opportunity than a burden. Making sense of the financial aspects of such a lifestyle change is important to maintain a sound future, and reaching out to The Beacon Group of Assante Financial Management Ltd. to speak with one of our financial advisor will help make sense of it all. Feel free to contact us if you require further assistance with financial planning, investment planning, tax planning, and insurance planning with stay-at-home parenting in mind.