When parenthood pulls on the purse strings

By Alan Feigenbaum

updated 12:36 p.m. ET June 21, 2007

When changing work arrangements due to parenthood, there is no single approach that will work, psychologically and financially, for all families. Parents without partners must either find the best acceptable child care that fits their budgets, or arrange more flexible work situations that minimize that need for outside care.

Couples, though, sometimes have more choices when one spouse has a much higher paying job or more work-situation flexibility, or if they've previously lived indulgent lifestyles that can be easily pared back to accommodate newer and tighter budgets. Some "parental care is best" advocates claim almost any couple can afford to live on one income, because child care and other expenses associated with work often wipe out the second income. This 1950s family vision is enticing, but before buying in, closely examine the full financial and lifestyle implications of your choices, and make sure to consider the plethora of relevant factors.

"Oh, baby" versus "oy, baby" budgets
In planning for children, many couples can find substantial savings possibilities in expenditures for dining out, travel and entertainment, recreation, gifts for each other and personal-care indulgences. Furthermore, when one spouse stays at home, many work-related expenditures evaporate, and other savings and earnings opportunities materialize.

Here are just a few opportunities for you to save money on:

Child Care: $600 to over $1,000 per month for adequate day care or in-home child care takes a big chunk out of second paychecks.

Wardrobe: Even in a "business/casual dress" office, you need work clothing and possible dry cleaning.

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Commuting: One spouse at home frees the other to take public transportation or use ride sharing, possibly requiring only one car between the two. Some employers make the IRS Section 132 public-transit commuting benefit available, which offsets up to $105 monthly. But even with two cars, eliminating one commute generates major gas and maintenance savings, and replacing a sporty car with a family car can help you save on insurance.

Food: Most couples can reduce dining out and, with good planning, cut take-out food bills as well. Furthermore, careful, coupon-laden grocery shopping might yield huge savings. Don't forget that one spouse will no longer eat out for lunch at work – nor grab premium coffees on the way. That change alone can up the savings by $5 to $25 a day.

Taxes: Second incomes usually push part of the joint incomes into a higher tax bracket. The extra income is also eaten into by FICA withholding, and might also wipe out credits and deductions available when AGI maximums are no longer exceeded. So, your actual reduction in disposable income will likely be substantially less than the gross second income.

Home Upkeep: Parenting babies is a full-time job, yet you might cut hired-out housecleaning costs due to a combination of squeezing in some yourself and focusing on hygiene rather than spotless appearance.

Home-Based Income: Through a combination of spousal help, part-time child care or nursery school, and older kids starting public school, many stay-at-home spouses start home-based jobs or businesses that bring in significant extra income without the commuting and office-lifestyle costs. There are also others who manage to continue in their current jobs by telecommuting.

Simple-Life Savings: If you use your family transition as an opportunity to overhaul your entire lifestyle, you might save a lot more through simple living, dollar-stretching and other philosophies that emphasize second-hand shopping, spending less on personal wants and choosing functional, energy-efficient housing over size, amenities and over-priced neighborhoods.

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