We have recently made the adjustment to single-income living after deciding that my wife would become a stay at home mom and look after our daughter. Was it a difficult choice? Not really.
While there were many financial implications involved in this decision, the choice ultimately came down to the non-financial benefits that we felt would positively impact our family.
Let’s take a look at some of these financial implications.
Two Income Family or Stay At Home Mom?
- Loss of Income – As the primary breadwinner, I earned approximately 75% of the household income. Losing even a quarter of your income could potentially be devastating to your financial plans. However this was something we felt we could prepare for by adjusting to single income living early and banking my wife’s maternity leave benefits, creating a personal budget, and planning our meals.
- Day Care – The primary costs involved with going back to work full-time would obviously be child care. We checked around at various day care facilities in our area, and the monthly cost of full-time child care would run us about $750.
- Transportation – We would do our best to car pool, but we would at least be faced with an additional $100 in gas each month, especially with these high gas prices. We currently own a 12-year-old second vehicle that we are driving into the ground, but I wouldn’t trust this car to hold up much longer if we were driving it full time again. We would need to consider upgrading this vehicle sooner than later.
- Clothing – Don’t forget about your work attire, which would likely need an overhaul after a year in the closet. Add another $100/month to help get your spouse’s wardrobe back up to par.
- Meals – Due to time constraints from both Mom and Dad working, picking up your child from day care, and trying to keep up with the household chores, you may not be faithfully sticking to your meal plan. Factor in an additional $150/month for dining out, ordering in, and last minute impulse buys from the grocery store.
So financially we were looking at spending about $1100/month for my wife to go back to work rather than become a stay at home mom. After taxes, she would be earning less than $5/hour. That didn’t sound very appealing to us.
Plus, I would be able to claim the $10,320 spousal amount, which is a tax credit that can be transferred to the higher earning spouse if the lower earning spouse has little to no income, and the Universal Child Care Benefit of $1,200/year per child can be taxed in the hands of the lower income spouse.
Aside from the money, what we were really concerned about were our family values. We didn’t want to have someone else raising our daughter during the week. We heard horror stories about how often kids at day care spread germs and were constantly sick. And of course we wanted to share in every part of our daughter’s life while she grows up and reaches those early milestones.
It is certainly a personal choice whether you stay at home with your kids or go back to work. Some women focus on their careers and climbing the corporate ladder, while others dream of being a stay at home mom and raising their family. And as Boomer described in Boom and Bust, some best laid plans get thrown out the window due to unforeseen circumstances.
The point is, there is nothing wrong with either choice, as long as it’s right for you and your values.
My goals for the next five years or so are pretty straightforward. I’m basically setting myself up for retirement, but I still have some major decisions to make. Here are my medium term goals:
1. I would like to move but I’m torn as to where I want to live. Do I move closer to my parents so I can help them out more on a day-to-day basis? On the other hand, I would also like to be close to my grandchildren so I can be involved in and watch their growth. My own personal preference would be to live on Vancouver Island for the milder weather, but the costs of buying a house there are quite high. I want this to be my final move so it will be a huge decision to make.
Also, I wish to be mortgage free and not dip into my savings, so the property will have to be paid for entirely with the sales proceeds of my current house. To maximize this amount I will continue with upgrades – nothing too major, as, like my other investments, I want to maximize the return on what I spend.
2. I’ve never had a really nice vacation, and again I’m torn as to which destination I will choose, as chances are I will only be able to afford one large trip. I’ve always wanted to travel around Australia and New Zealand. An African safari has also been a dream of mine. I spent my early childhood in England and Germany and travelled with my parents and I’d like to revisit the British Isles and Europe on my own terms.
I contribute monthly to a money market mutual fund (this seems far enough removed from my regular accounts that I won’t be tempted to make a quick withdrawal) and when I’m ready to go I’ll check out what’s available within my price range.
3. I will be reviewing my investment portfolio to see if I need to restructure any accounts and future contributions or change any investments within them. I want future withdrawals to not only be sufficient for my needs, but also minimize taxes paid and draw down the principal as little as possible. I no longer contribute to my RRSP (I manage it by reinvesting dividends from my dividend stocks) and have switched the payment to my TFSA as I think this is more tax advantaged for my situation but I still have more calculations to do.
So, these are my plans to lead up to my eventual retirement. I believe as long as I do my part i.e. sock away as much money as possible and keep my portfolio producing satisfactory income, opportunities will arise that will make my eventual decisions easier to make.
Like I said before in my short term goals, what gets measured gets managed. Goal setting is a big part of my financial plan, and there is no time like the present to get started on some things that may take 1-5 years to develop.
So from building a new house, to maximizing our investment accounts, growing our net worth, and the possibility of a new addition to our family…here are some of my medium term goals:
1. Upgrade our house – We currently live in a 7 year old 4-level split with about 1200 square feet of total living space. But with only 2 bedrooms and 1 bathroom, our growing family will not be able to live here for much longer. The plan is to build a 4 bedroom, 2 bathroom house in a neighborhood closer to where I work.
This process can be nerve racking at the best of times, so with all this talk of a real estate bubble bursting, we have the added pressure of selling our house in a down market.
Meanwhile the cost of building a house continues to rise and the demand for new builds doesn’t seem to be slowing down in our area. But, my wife and I have the floor plan already picked out, so we’re just saving up some cash and waiting for the right time to get started.
Related: How Much House Can I Afford?
2. Triple our total investment portfolio in 5 years – Between my pension, RRSP and TFSA accounts I have roughly $70k. The plan is to triple that value to $210k in the next 5 years.
My TFSA is maxed out annually, but my wife still has contribution room. And since I changed careers I have stopped contributing to my RRSP. So the majority of increases will come from monthly pension contributions, annual TFSA contributions, and dividend & organic growth from TFSA and RRSP portfolios.
3. Increase dividend growth in TFSA and RRSP over 5 years – The plan is to quadruple my annual TFSA dividend income to $2000, and double the annual RRSP dividend income to $3000 in 5 years. These numbers may look relatively small now but with continued dividend increases and a lot of patience, these dividends will be my main source of income in the future.
4. Increase net worth by $300k in 5 years – Again, this is a culmination of achieving the previous 3 goals. The challenge will be to live within our means while we upgrade our house, continue to support our growing family, and still manage to max out our TFSA each year.
I’m on pace to achieve a $50k net worth increase this year, but will really need to ramp up our savings and mortgage payments in order to reach my 5 year goal.
Related: Our Fast Track To Financial Freedom
So there is just a glimpse into my plans for the next 1-5 years. Am I too ambitious? Too cautious? Time will tell…