Adding a child and dropping an income: a time for planning
Your suspicions are confirmed: You're going to become parents for the first time. It's a heady prospect for many, but one that is often followed by concern over family finances - especially if both parents-to-be have well-paying careers and the wife decides to change hers from budget analyst to full-time mother.Skip to next paragraph
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In such cases, it's important to remember that ''financial decisions are not primary. Having a child is the primary decision, from which there is financial fallout,'' says Thomas Foley, vice-president for financial planning at IDS/American Express in Minneapolis.
''One nice thing about becoming parents,'' he adds, ''is that you have some time to plan.''
''It's a time to take a look at your total (financial) situation,'' agrees George Barbee, excecutive director of the Consumer Financial Institute in Newton , Mass. ''People often are afraid that they'll be confronted with what they can't do. In reality, planning gives you greater control and well-being.''
That's a theory that my wife and I were unknowingly about to test when we learned last spring that she was pregnant with our first child.
Early on she decided that she preferred full-time motherhood to returning to her job as a budget analyst - if we were able to keep going after a 53 percent drop in income. While she worked, she enjoyed both a modest salary and some additional income from outside work. My journalist's salary is supplemented by some modest outside income that is too unreliable to include in our budget. We rent our home, the car is paid for, and after four months, we're finding that, so far, there is life after a 53 percent income drop.
The first step, says Mr. Barbee, is to sit down and evaluate financial goals for the next one or two years, reset spending priorities, and ''recognize the need for trade-offs.''
This, he says, is important even if a mother-to-be initially plans to go back to work after the baby is born: ''I've seen a number of cases where the wife plans to go back to work. But after three months, the baby gets cute and looks like a real person, and the mother decides to stay home. In other cases, women have tried to go back to work but find that the job is not as exciting.''
Once goals are set, Barbee says, ''you have to understand where the money is going so you know what faucets to turn off or tighten.''
This involves some sort of recordkeeping. But you needn't keep track of every penny. For us, the bookkeeping system involves a checkbook and a notebook. The notebook keeps track of each paycheck and of fixed expenses, including savings and a general category that includes food and incidentals. After accruing a prorated amount to each fixed expense, those accruals are added together. The result is subtracted from that period's income, and the balance is entered into the checkbook for discretionary spending.
The obvious benefit of setting up some form of bookkeeping system is that it helps show where the money is going. Without some sort of recordkeeping, we might know that we're saving money when we change our spending pattern in one area, but we wouldn't know how much and in all likelihood would not be able to direct the savings into other areas.