Wanna Stay at Home? Beat the Big Five
by
Heather Koerner
on May 9, 2008 at 6:22 AM
In a Yahoo Finance article titled "Can You Live on One Income? It's Worth a Try," financial writer Laura Rowley has some advice for those considering single-income family life: Beware the Big Five.
Rowley quotes Elizabeth Warren, author of The Two-Income Trap, who has determined that today's two-earner families spend 75 percent of their budgets on five things (where the single-earner family of the 1970s only spent one-half of their budgets on the same things).
What are the big five? Food? Clothing? Electronics? Automobile? Nope. According to the article, those costs have actually gone down on an inflation-adjusted basis. But five costs have skyrocketed:
- Housing -- Up 100 percent in inflation-adjusted dollars since the 1970s
- Health Insurance -- Up 74 percent
- The Second Car -- Though the inflation-adjusted price of cars has dropped since the 1970s (this surprised me), families now have two cars instead of one.
- Taxes -- The income of the second-earner is going to be taxed at a higher rate than the income of the first earner. So, taxes on the family unit have risen 25 percent.
- Child Care -- In 2007, the average cost for infant care in a licensed center was $14,647.
The takeaway according to Rowley is to be intentional:
"You see lots of articles discussing ways to eliminate the second income -- things like clipping coupons, buying second-hand clothes, and cutting out vacations and cable television. But ultimately, paring those expenses isn't going to cover the gap for most middle-class families, because those aren't the costs that drive them to the economic edge. The real problems are ...'the big five.'
So, if you're serious about raising your future children at home, take a hard look at that list. Good financial choices now (in housing, autos and health insurance) can give you many more choices in the future.
And realize that there will be sacrifices. Rowley quotes financial coach Judy Lawrence: "You have to be willing to do some soul-searching about the things you're going to change and let go of," Lawrence says. "It's going back to your true priorities, values and goals and saying 'it's the best choice for me, my family, and our future' -- not 'we'll be locked into a life of drudgery and we can't do what we want to do.'"
From my experience, the sacrifices are absolutely worth it.
1. PLH had the following to say on May 9 at 7:10 AM:
I think people make the entire SAHM debate out to be larger than it is in actuality. Being a SAHM is a luxury and not a right. Many children die yearly because they lack basic food and health care, so mothers who have to work but have healthy children still have much to be thankful for.
2. Michelle (in the UK) had the following to say on May 9 at 7:18 AM:
First, I must say your continued commitment to helping those of us who would like to make this a reality is much appreciated. It has gotten me thinking about how I use my money now and how I will in the future.
One thing I would like to comment on is the whole idea of getting rid of holidays.
It's a bit off topic, so I understand that you may not post this, but I have always had an issue with that being the first thing people take away when they're cutting budgets. It's kind of like not spending on advertising when your company is not doing so well because of say, lack of customer flow. It just does not make sense. I think it's about careful planning...with all of these things (the Big 5) in mind, you should be able to plan in holidays and such. It's an important time to be with family, catch up on much needed rest and actually enjoy life. I live in a culture where 5 weeks holiday is the norm (having grown up in Canada where two weeks is) and I can see productivity raised by this.
Anyway, that's my off topic rant.
Thank you again for this article. It shows that if we are stewards with our finances that we can literally stretch our dollar, pound or euro...whatever the case may be...
3. Reid had the following to say on May 9 at 8:46 AM:
Michelle (in the UK) #2:
Actually, literally stretching our dollars, pounds, or euros would probably just result in scraps of colored paper.
4. Louise had the following to say on May 9 at 8:49 AM:
I think the "holidays" referred to in comment 2 is what US people call "vacation".
Difference between British English adn American English!
5. Beth had the following to say on May 9 at 9:26 AM:
Could some of the married folks (both boundless authors and others) share how they've managed these things and how this has worked out in their lives?
6. Sarah had the following to say on May 9 at 9:56 AM:
PLH (#1) said "Being a SAHM is a luxury and not a right."
I would agree that being a SAHM is not exactly a right, but I'm not sure I would call it a luxury either. This implies a lack of necessity. But taking care of their children is the parents responsibility and it is a necessity. The concepts of delegation and community make it possible that parents still fulfill this responsibility without a mother being a SAHM. However, for those who can and want to be a SAHM, it should not be looked upon as a luxury, which as noted implies lack of necessity, but rather the fulfillment of a responsibility.
Also, if you have one parent at home with the children, then number 5 of the big 5 becomes mostly irrelevant to living on one income since you wouldn't need to spend extra money on childcare.
I want to be a SAHM, and I appreciate all these articles to help me work towards that even when it seems like a difficult thing with today's society/culture/economy.
7. Kellie had the following to say on May 9 at 9:58 AM:
Interestingly enough, my husband and I do spend the most on housing (though our house is $50,000 below the median house price in our county). We both have paid off 10 year old cars (which hopefully will last a little while longer). We have very good and relatively inexpensive health insurance through my job.
Sure, my husband and I can live on one income...mine. Oh wait, that's not the one income you're referring to, is it?
8. Mike Theemling had the following to say on May 9 at 10:06 AM:
The SAHM/D debate really boils down to what standard of living you want.
To those who say, "It's 'impossible' to live on just one income" what about all those single parents who do just that? Sure, it isn't easy for them, but most of them DO get by. Adding 1 more adult to the picture doesn't add that much.
The inflation of the "big 5" is a legitimate concern, but often they can be mitigated:
Housing - Not surprising since homes have had an average appreciation rate of about 6% since that time. And OFHEO in their latest report say that average housing prices nationwide have roughly tripled since 1980. Still, a lot of that depends upon where you live and of course how big of a house you get. There is such a thing as a "starter home".
Health Insurance - Again, so surpise, especially as baby boomers retire health costs are only going to get worse. The best thing a family can do is to maintain a healthly lifestyle. Eating right, exercising, lowering stress, etc.
The Second Car - Two words: BUY USED (and drive it until the cost of repair doesn't make it feasible anymore)
Taxes -- Overall Federal tax rates have gone down (comparing the Bush Administration to the Clinton Administration). So I would not say taxes have "skyrocketed". What has really killed some people though is the Alternative Minimum Tax. Still, I don't think taxes are eating any more of an income than they used to. Therefore, it's not a fair comparison to say that "taxes take away 25-30% of a dual-income family" because that's the case with many famlies.
Child Care - Now this is a legitimate issue. I have no reason to doubt the $14K/yr statistic. Child care isn't cheap. Perhaps the couple feels though that a net gain of an extra $10+K/yr off of another parent working is worth the cost.
Honestly, a lot of people get into the 2-income trap because they want to spend a lot of their income on luxuries: Lattes at Starbucks, new cars, new clothing, eating out often, a new entertainment center, etc. They also want things now that their parents had to save up for and didn't purchase until years, sometimes decades, later in age.
9. Nicole Y had the following to say on May 9 at 10:28 AM:
This is a great reminder, especially to those younger folks who are just establishing themselves.
In reference to post #1, working sure is a luxury also, isn't it? Considering there are many Americans right now getting laid off who would die to have a job to support their family. And then there are those in third world countries that are dying, because they don't have the freedom or ability to have jobs to earn a living....so working, as we know it in the U.S. is a privilege and "luxury".
Either way, here in the U.S., we are very privileged to be able to make the choice with what we do with our lives. Whether you work or stay home, you should not take either for granted.
10. Erin had the following to say on May 9 at 10:52 AM:
Beth (#5),
My husband and I have been married for three years, and from day one of our real working lives (aka, out of college) we've chosen to live on his income exclusively. All monthly expenses (food, insurance, mortgage, utilities, spending money, etc..) and a little bit of savings come from his income. My salary is used exclusively to pay down college acquired debt. (We thithe and give from both incomes, also.)
We've had to really crack down on frivilous spending to make it work (things like new curtains, home decor, clothing, eating out...) but we're committed. I want to have the ability to stay home when we start having children, and so when all the debt is paid off (over $50,000 total in less than 2 years) next summer, I'm free to make that decision without worry. And when the time comes, whether I choose to continue working or not, we will be better off financially.
Make sense?
11. Mike Theemling had the following to say on May 9 at 12:56 PM:
Nicole Y (#9)
I would not say that "working is a luxury" but rather "working where you want to and what you do" is a luxury.
There are still plenty of jobs out there. But often you need to be willing to relocate, might take a pay cut, and may temporarily have to something you don't care for to make ends meet (like waiting on tables).
Not saying that we aren't in tough economic times (which we are) and that jobs are easy to come by (they aren't, especially white-collar jobs) but just abou everyone, if they really wanted, could find a job.
12. CrochetDiva had the following to say on May 9 at 1:54 PM:
The same principles to which my parents adhered so that they made a good, decent (not extravagant) life for us on one "official"* income apply now. Their model is what I want to follow. (Well, with some modifications. Dad can pinch the nickel so hard that the buffalo poops!!)
* Mom pulled in a bit of extra income before I was born and a couple of years during my college days, working retail. Plus she had a home business for years. And she was really creative in being frugal and being a good steward of what my dad earned.
13. Becca had the following to say on May 9 at 2:53 PM:
Health insurance as one of the big five?? Wow...although we have really high taxes in Canada, I am thankful that health insurance isn't one of the primary financial concerns of Canadians, no matter what their income (essentially, health care costs get rolled into our taxes, with those at higher income brackets bearing more of the burden of health care costs in order to ensure access for all. So taxes are definitely one of the big five here, but we don't consider most health care costs separate from taxes).
While I do think there are some lifestyle changes that an individual and family can make (in response to Mike), I wonder how much that can be counted on to mitigate health costs, especially with the medical genetics field finding all kinds of genetic/family factors that may predispose you to different diseases and could be used as a reason to increase your health insurance premiums.
Interesting...I'm curious about how young adult Americans feel about the cost of health insurance (which will likely continue to go up)? Are the costs fair/reasonable from your perspective?
14. Christy had the following to say on May 9 at 3:27 PM:
I think once my pastor at church was preaching & gave this advice for families...even if you don't have kids: When you do your budget, you should budget your expenses as if you're living on only one income. That way if something were to happen like if one spouse lost his/her job or if the wife decided to be a SAHM, then the financial situation wouldn't become such a burden.
My mom stayed at home & I really appreciated that. Consequently, she's encouraging my sister & I to do the same & that's what I plan to do. It's a priviledge of a mother to care for her children the way only a mother can.
15. Rheanna had the following to say on May 9 at 4:57 PM:
there should be another thing added to the list: gas/fuel/petrol whatever you call it where you live. gas prices have climbed so high, people in the small towns are struggling to pay all their bills and feed the car. i know because i am one of them. i have to drive 45 minuets to my part-time job, because there is nothing in town. you cant very well pay for anything if you aren't getting to your job in the first place. it's a vicious cycle.
16. Jane had the following to say on May 9 at 9:12 PM:
I think if young people would take some 'old-fashioned advice,' more could be SAHMs.....
1. Base your budget on one income only. Then you have a 'security blanket' if one spouse loses their job, becomes disabled, or dies.
2. Start small. I notice that many young people today want to start their marriage with a large, new home, completely furnished, two cars, all the fancy electronics. No wonder they are in debt!!! Gone are the days when you bought a 'starter home' with barely enough furniture to get by. Half the fun was 'fixing up' the home room by room and buying furniture for that room. It may take years, but it was a goal to work towards-----together!
3. Credit cards. Don't use them unless you can pay the balance in full every month. The interest you pay on these accounts is astounding!
4. No keeping up with the Joneses! Is it REALLY necessary to have a TV in every room, multiple computers, a cell phone for every member of the family, and a car for every teenager??
I could go on and on, but I find it no wonder that both parents find it necessary to work. Learn to say no to your kids. If they want something, teach them to earn the money for it and not buy it until they can pay for it in full. Not every child over the age of 16 needs a car. I am astounded at the number of cars in the H.S. parking lot. Bottled water and soda cans that are thrown out still half full. Buy reusable bottles and fill them yourself. Eat at home as a family - it's healthier.
There are many hidden costs in working besides the cost of child care. Gas to get there, purchased lunch, higher tax bracket, clothes for work, endless contributions for gifts, funds, etc. Add these up and how much is really gained by the second parent working??
I realize that in some cases it is necessary for both parents to work. But I think many times both work just to have a higher standard of living which becomes out of control, and causes stress instead of happiness. Things do not create happiness, but a happy, healthy family creates far more contentment.
17. Eldon had the following to say on May 10 at 7:11 AM:
I got married last year, and have a baby due in 7 weeks. When planning finances before the wedding, I wanted to be able to survive on just my income. We got pregnant expecting the raise I got this year in January, and so far all has gone well. I have student loan payments to make, newish car payments to make, and rent. So, while I cannot afford to buy a house (as prices in Calgary have literally tripled from 5 years ago) we are still getting by comfortable on just one income.
My belief is that house prices have skyrocketed so much here because of double income families, as that is the only way most people can afford them (that and the 40 year mortgage).
Looking at my income, I am below the "middle class", and yet I have never struggled to make the rent or get by. Sure, I don't have the big plasma TV, or top of the line computer or brand new car, you can save huge money if you just get last year's tech. And so long as my rent does not go up, all will continue to be good. God blesses His children, and I love that fact about Him
18. Kimberly Eddy had the following to say on May 10 at 11:32 AM:
Beth (#5) wrote:
"Could some of the married folks (both boundless authors and others) share how they've managed these things and how this has worked out in their lives?"
I've been married just over 16 years, and we have five children. I have been a stay at home mom for most of that time, and I have had some very part time entrepreneurial projects for some of that time as well, including free lance writing. Most recently, my home business of web and graphic design has been the result of helping my teen son and daughter learn about running a business, dealing with clients, and learning design skills at their request, and God used it to help us out when my husband lost his job!
1. Housing...we were preapproved for a house well over $200,000 but we bought one for half that...in a township with low property taxes, close to a good church. Our housing payment is still a big expense, but it is also lower than an apartment.
2. Health Insurance...my husband has insurance through work, though it is not very good, so we do have many out of pocket expenses. The insurance used to be much better, but with costs, the employers have gotten rid of better plans. I don't see this as something anyone can do much about unless they are the boss selecting the insurance. That said, shopping around for every sort of insurance (auto, house)is a great way to save big.
3. The second car...we have one of those...we never buy a car on credit. We made that mistake once or twice, and regretted it. Our current vehicles are well-running, older model, paid for vehicles, with basic insurance coverage. Mine is used for taking kids to doctors appointments, the dentist, and other little necessary trips that occur while my husband, with the other car, is at work. My husband's car is small and fuel efficient, whereas the other car is large enough to fit the 7 of us (a van).
4. Taxes....there isn't too much we can do about taxes, apart from knowing and understanding tax deductions. We have an IRA for me, which enables me to get a tax deduction for contributing to it, offsetting some of the tax burden for my graphic and web design business.
5. Child care...isn't really an issue if you stay home, and if you have to work this is one area where you don't want to go with the lowest bidder. It's much cheaper to care for your own children. For babysitting, we used to use a babysitting coop with other families, where we would trade off watching each other's children for date nights, and so on. My oldest is now 15 and my youngest is 9, so that's not really an issue either anymore.
I personally think a bigger issue, from talking with other women who have to work, is credit cards and unsecured debts. This can really a burden. Anyone wanting to pave the way for being a SAHM should avoid debts now, including college loans as much as is possible.
19. Michelle (in the UK) had the following to say on May 12 at 2:29 AM:
Reid (#3) so i just read this now...monday morning...
you're funny :)
20. faye had the following to say on May 12 at 10:15 AM:
I was laid off in a suprise move by my boss just a month ago. I've always been able to find work within a month, I guess because I'm not very picky. But this time has been really hard. After a while, one can feel pretty beat down.
My husband and I had to give up some pretty exciting plans and dreams because of this loss. But beyond the financial issues this brings up, it is a work on our hearts. I wouldn't wish unemployment on anyone really. But, if you happen to be in this position of being forced or willingly giving up on some things, it will challenge you and the people around you.
Above all seek God and know you are loved by him.
21. Loris had the following to say on May 13 at 7:26 AM:
Becca #13,
Until I got my current job with a large company, I could not afford to buy my own health insurance. After my marriage, my mother kept me on her policy as long as she could and I paid her the difference monthly. Premiums are crushing for a married woman of childbearing age as maternity coverage is huge. One policy we looked at--I forget what company--wanted us to begin paying the maternity rate 18 months before planned conception. I remember looking at that policy and thinking, they expect me to be clairvoyant?
Even through my job, it's expensive, but I don't feel the sting because they deduct the premium from my pay and I never have to see it. My company has an excellent policy, but in order to keep it, I would have to work full time through any future pregnancy, and I'm not sure that's something I will be able to do when the time comes. My job can easily be done part-time from home, and I am planning to become a part-time employee when I get pregnant. I guess the solution for me is to get on my husband's policy exclusively, so please pray for a better job for him, Boundless comrades.