How to Create a Financial Plan as a Stay-at-Home Mom
You've made the decision to quit work for a while and stay home with your kids. But if you've even thought that giving up a paycheck means opting out of all money decisions, you need a reality check. Experts say it's especially important for at-home moms to stay closely involved in household finances—and not to expect (or allow) their husband to take care of it all.
"Every woman needs to have a solid financial plan whether she's working or not," says Candace Bahr, a financial advisor in Carlsbad, California, and co-founder of the Women's Institute for Financial Education. "And a man is not a financial plan."
It's no fun to think about, but sometimes bad stuff happens: Your husband may surprise you by making some dumb investments or over-the-top purchases that put you both in financial straits. (Yup, you're responsible for any debt that he's racked up since you've been married.) You could end up divorced someday or, heaven forbid, as a widow with young kids. Someone could get sick. Or lose a job. The list goes on. Stay-at-home moms (SAHMs) need to be financially prepared for all those possibilities, says Bahr.
To make sure your financial house is built on solid ground, read up on the six things all SAHMs should know about money.
Know Your Worth
You may not think that you're contributing to the family's bottom line because you aren't bringing home a weekly paycheck. But think again: Salary.com (an online provider of salary data) estimates that the services of the average stay-at-home mom—including housekeeping, cooking, doing laundry, driving kids around, and managing the household—would amount to an annual income of $162,581.
If that doesn't convince you that you're valuable, consider this: By taking over the bulk of domestic chores, you're freeing up your husband to focus more of his time and energy on his career, an "investment" that can yield greater earning power for him. Fact is, he couldn't have made that investment without your support.
"So don't hesitate to insist that you have an equal say in financial matters," says Kristin Maschka, spokesperson for Mothers & More, a national networking and support group for moms. "Your job is just as important to the family's economic health as your husband's is."
Stay in the Loop
For a lot of couples, the setup goes something like this: The wife pays the day-to-day bills, but she lets her husband oversee the "big picture" stuff, like managing investments and planning for retirement. If that division of labor seems to be working for you, fine. But no matter how you split the responsibility, it's critical that each partner is fully informed about how the family's money is being invested, and is keeping close tabs on retirement accounts, college funds, and any debt the family has accumulated, says financial advisor June Mays, author of Women's Guide to Financial Self-Defense.
If you've been out of the loop, the first step is to start communicating regularly with your spouse about finances. A couple of times a year, sit down and review all investments together: stocks, bonds, mutual funds, real estate, and so on. When tax season approaches, go over the forms together and don't sign anything until you've looked it over carefully. Be sure you know where all important documents are stored, including tax records; statements for all retirement, checking, savings, and brokerage accounts; insurance policies; wills; deeds; mortgages; and auto titles.
A good way to ensure that both the husband and wife are equally informed, says Mays, is to switch the bill-paying and investment-management duties every year, so that each partner develops a good working knowledge in both realms.
Staying involved has other benefits too. "Handling finances keeps your mind active and keeps you learning new things," says Karin Maloney Stifler, a certified financial planner in Hudson, Ohio. "It can be empowering for women, and it can be an equalizer in a relationship."
Have a Spending Plan
Every family needs a household budget, but it's even more crucial when one of you decides to forgo a paycheck and you're living on less. Even though you'll need to cut costs and make sacrifices, there are two things you shouldn't give up: paying off any debt you may have accumulated and saving for retirement. Bahr recommends that the first 10 to 15 percent of household income go into a retirement fund.
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Work with your spouse to create a budget that allows for those expenses, as well as for your weekly and monthly bills. Then figure out the most comfortable way to divvy up what's left of that single paycheck. Whatever you do, don't fall into the trap of having to ask your husband for money every time you need to get your hair colored or buy a new pair of jeans.
One strategy is for both of you to agree on a monthly sum each of you can spend for discretionary items (clothes, haircuts, gym dues, and golf outings) with no questions asked. Then you deposit that amount into two individual checking or savings accounts. Use your joint account for paying bills and buying things for the house and the kids. Another option is to keep all funds in a joint account but to set a dollar limit on the amount one partner can spend without consulting the other.
"Either way allows both the husband and wife to feel they're retaining their independence," says Stifler. A caveat: The agreed-upon amounts need to be realistic, so there's no temptation to use credit cards, hide spending, or secretly dip into the household funds for personal expenses.
Make Sure You're Insured
Financial planners say one of the most common mistakes SAHMs make is blowing off life insurance, or if they do get it, not buying enough. "A lot of women think it isn't necessary because they don't have a salary that would need to be replaced if they died," says Andrew Keeler, a certified financial planner in Dublin, Ohio. But remember: If you weren't around, your husband would have to hire someone to cook, clean, shop, and care for the children so he could work. So life insurance is essential for both of you. Ideally, you should buy around $500,000 in a term insurance policy to maintain a middle-class lifestyle until your children are grown. (Premiums would depend on your age, your overall health, and the length of your term coverage.)
Disability insurance is also important since there's a much greater chance of being injured or becoming seriously sick. Your husband may be covered through his workplace, but if he isn't, insist that he buy a disability policy. Since you don't have a job, you aren't eligible for coverage. But Stifler advises building a reserve fund that your family could rely on for six months or so if you become too sick or disabled to take care of the house and the kids.
You should also make sure that your family has good health insurance. If you and your children aren't covered under your spouse's policy at work, or if your spouse's employer does not offer insurance, it's key that you buy coverage on your own. One of the most affordable options is a plan with high co-payments and a big deductible. If you go this route, see whether your husband's employer offers a Health Savings Account, which would let him put aside pre-taxed earnings that can be used for healthcare costs. If you simply can't afford to buy health insurance for your family, check to see whether you're eligible for the free or low-cost health plans that many states offer for kids so at least your children will be covered. (For information, go to www.insurekidsnow.gov.)
Keep Money in Your Name
You and your husband should have joint savings for things your family may want in the future: a bigger house, for example, or a college education for your kids. But it's also important for SAHMs to have some savings in their own name. If you don't already have one, open an individual retirement account (IRA). You don't need to be working to contribute up to $4,000 ($5,000 if you're over 50) to a spousal IRA or to a Roth IRA. (Talk to a tax planner to determine which option is best for your family; it all depends on your age and your income.)
You should also have at least one major credit card (not a store card) in your name alone. Be sure to use it -- and to pay your balance on time every month. This will establish your credit history, which is essential for taking out a mortgage or a car loan. If you only have a card on your husband's account, he could easily cancel it if you ever get separated or divorced.
Finally, make sure that your house -- typically a family's biggest asset -- is in both your names (unless there are unusual circumstances, such as special tax considerations or a prenuptial agreement).
Right now, you love being able to spend your entire day hanging out with your kids. But there may come a day when you'll want—or need—to work.
Here's some bummer news: You're likely to find that your time at home has cost you more than you'd planned. A study by the Center for Work-Life Policy, in New York City, found that women lose an average of 18 percent of their earning power (28 percent if they're in a business field) when they leave the workforce temporarily to raise children. Another study found that moms with college degrees who stay home with kids can suffer a lifetime loss of $1 million in earnings or more, depending on their skills and education.
To increase your odds of getting a decent salary when you're ready to return to work, make the most of your time at home. If you were already established in a career, be sure to stay connected to former work colleagues. Go to lunch with them a few times a year, and shoot them an e-mail if you come across a work-related article you think they'll find useful. Attend conferences in your field, join associations, and continue reading professional publications.
If you don't have much work experience, use your time at home to begin to build a resume. Do volunteer work, and seek out challenges that will help you develop new skills and contacts. If necessary, go back to school.
Above all, it's critical that you have a long-term plan for your career—and for your finances. This way you'll be fully prepared, no matter what curveballs life throws your way.