When parents opt to stay at home to take care of the kids, they stop earning income and saving for retirement. It puts them in a risky situation, especially if they don’t have any savings. However, being stay-at-home parents should not stop people from protecting their financial future. Here are Tips on Financial Planning For Stay-at-Home Parents:
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Stay-at-home parents work long hours and make difficult decisions for the household. However, these decisions don’t come with a salary. Most homemakers depend on their partners for their retirement. Due to many uncertainties in life, including death, job layoffs, and divorce, among many others, depending on another person’s income can be risky.
Most stay-at-home parents depend on the income of their spouse during retirement, but less than half are apparently saving for their retirement while many parents are not preparing for their retirement at all.
The income of the stay-at-home parent provided by social security or the government is lower during retirement because payments depend on the individual’s top 35 earning years. You are not earning those credits when you are not working.
The good news is that stay-at-home parents can proactively try to protect their financial future. Here are some ways you can improve your financial security today and also during your retirement years.
#1. Take a Closer Look at the Household’s Finances
It is important for the non-working spouse to take a closer look at the daily budgeting, savings, and investments. Discuss short-term and long-term goals with your partner. Both sets of goals will help you make smarter decisions about spending and saving options.
It is important to be hands-on with the finances of the family. You should know how much your partner is saving for retirement and whether the amount is enough to support both of you after work ends.
You also need to know what accounts your partner has and how to access them when needed.
Debts can cripple the finances of your family. If you have debts then consider taking out a realistic loan so you know exactly how much you are paying out each month rather than having variable amounts that are hard to budget for.
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#2. Get a Life Insurance Policy
You need to have a life insurance policy, whether you have an income or not. If you are no longer around, your partner might need to pay someone else to take care of the kids. That’s why your insurance should be high enough to cover childcare costs. It is advisable to get a term-life policy because it is the most affordable of all types of policies.
You should also make sure that your spouse’s policy payout is large enough to provide the family with the financial support that you need. The coverage must be around eight to ten times the household’s income for you to be safe.
You should also consider the money needed to send your children to college. These things are crucial, so it’s important to discuss selecting the beneficiary of the policy with your solicitor for your will.
#3. Make a Will
If you don’t already have one, make a will. This should be a priority, especially if you have kids, because no will in place can mean problems if you should die. Unless you are comfortable with leaving your financial and personal decisions to state officials, you should discuss what you want done with your finances after you pass away.
Your solicitor or lawyer will be able to give you advice on things like listing kids who are minors as direct beneficiaries or how to organise guardianship.
#4. Double-Check Beneficiaries
Take the time to review all the beneficiary statements on your retirement accounts, bank accounts, and insurance policies. Beneficiary designations supersede any provisions of your will. That means money can fall into unintended hands.
Some people forget to update their beneficiaries after getting married a second time. That’s why it is important to double-check the documents.
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#5. Start Saving for Your Retirement
Talk to your financial advisor about the best way to save for your retirement. They will be able to advise on the best pension credits and how to maximise your returns on your savings.
#6. Save Money in Non-Retirement Accounts
When you have maxed out your tax-advantages for pensions and retirements, you should try to put money into a regular savings account. Even though regular savings accounts don’t have tax benefits, you are at least saving for your future.
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#7. Educate Yourself
If you are home all the time, you can spend your downtime reading about financial planning, finances or investing. You could also enroll in an online course to be more aware of your options. Becoming financially savvy is something that you can pass on to your kids. The financial lessons will serve as a foundation for their future success too.
You might also enjoy reading My Top Tips for Teaching Kids About Money
#8. Create an Emergency Fund
Having an emergency or rainy day fund is an important factor in a household’s financial health. The fund should cover at least six months’ worth of expenses, including all bills and food.
If this feels overwhelming, start by saving towards one full month, then three months, then six months’ worth of savings and so on.
Setting up an emergency fund might be difficult in a single-income family but it is still doable. There are ways for the household to reduce its overhead expenses so that the savings can go to the necessary emergency fund. Another way to set up an emergency fund is to funnel tax refunds or childcare allowance into a savings account.
Being a stay-at-home parent doesn’t stop you from achieving financial stability for the future. Just follow these smart money moves, and you can easily build a strong financial foundation for your household.
You might also enjoy reading Ways To Save Money and Earn Money At Home
Over to you now. Is there any other advice you would give on financial planning for stay-at-home parents? Share your thoughts in the comments below.