When parenthood pulls on the purse strings

Save (less) now, pay (more) later
The most zealous new-parent couples can actually improve their monthly budget situations on one income, but they're the exception. Furthermore, the vitality in many relationships might depend on the career involvement of both spouses, even without net economic gain from the second income.

Most importantly, though, it's easy to overstate the savings when using online one-income calculators, which also don't factor in these potential future adverse economic effects of current savings.

When it may be better to work:

Budget-Resistant Budgets: If you're already thrifty, your main savings items when dropping one income will be limited to child care and taxes.

Baby-Busted Budget: Children usually cost more than most parents expect.

Grandparents: Today's grandparents are much farther away and busier than in previous generations. Some grandparents may even still be working out of necessity to provide for their own retirement, so they cannot be relied on for assistance. However, there are still a few who are able, eager and within close enough proximity to provide child care, making work more financially attractive for the stay-at-home parent.

Child Care Tax Benefits: Flexible spending (dependent-care) accounts offered by many employers allow employees to set aside up to $5,000 of income before taxes annually to pay for child care. Higher-bracket couples can save up to $150 monthly in federal and local income tax and FICA deductions versus paying with after-tax funds. Even without such accounts, the federal child care credit can save (per child, up to two children) higher-income families about $50 per month and lower-income families up to $1,050 annually. Note: You can choose only one of these two methods each year.

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Mortgage Qualification: Although it's usually a mistake to stretch for a mortgage that fully requires both incomes to qualify, the second income can make it much easier to qualify for an otherwise borderline loan.

Retirement Income: Forgoing years worth of tax-deferred employer contributions and their growth in 401(k) and other employer-qualified retirement plans, and failing to tally 35 solid income years of work, can separately (or in combination) drastically reduce cumulative nest eggs and Social Security benefits, respectively

Employability and Market Value: Leaving the workforce means falling off the salary-growth curve associated with a good career trajectory. Not only will stay-at-home parents who decide to return to work in 10 years be way behind where they'd have been in both responsibility and compensation if they'd stayed working, they'll likely no longer even qualify for the type of job they had before leaving.

Health Insurance: As premiums rise an average more than 10 percent annually — while the benefits shrink — open enrollment each fall gives couples who both work a chance to reevaluate which plan will work best financially (sometimes dividing coverage to have Spouse A in one plan and Spouse B plus children in the other). This option is most critical when both work for smaller employers who often chase the lowest plan price tag and change plans every year. Note: Check for coverage of pre-existing conditions when considering change.

Job-Loss Hedge: Harvard Law professor Elizabeth Warren points out in her book "The Two-Income Trap: Why Middle-Class Mothers and Fathers Are Going Broke" that today's typical home-owning, middle-class two-income couples would likely face bankruptcy despite scrimping and saving if one income were lost. Ideally, unless the spouses both have careers that practically guarantee instant employment (for example, accounting and nursing), they should strive to save as much of second incomes as possible. Thus, should one lose a job, they're not forced to dig too deeply into their savings during a long employment search. This also ensures that they use the employed spouse's health insurance rather than paying much more for the other's post-termination COBRA continuation policy.

Divorce: Today's 50 percent divorce rate makes it almost mandatory that both spouses avoid taking significant time off from developing careers for two major reasons. First, the arguments for living as well on one income as on two disintegrate when a family splits into two households. Each household can, on average, cost 30 percent more than a shared accommodation. The support-payer, receiver or children could all fall short financially. Second, unless it's a long-term marriage, support will be relatively short-term, so spouses who've fallen off the career track and are forced to return to work will be hard pressed to compensate for their monetary shortfall.

Two (or three) financial plans versus one
Unfortunately, most couples don't grow old together. So, in deciding on two incomes versus one, consider not only the effects on joint long-term finances, but also on potential long-term effects on each partner. Although a man deciding to become a stay-at-home parent is becoming more common, the mother's income is still the one that is usually sacrificed, so women should be aware of the particular financial challenges they face.

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