Can I afford to stay home with the kids for 1-2 years?

[Anonymous]

Dear fellow DCUM readers:

I've read so much valuable insight on the Money and Finances forum. Now I wonder if I can solicit your advice on my own situation? (And I should probably consult a fee-only financial advisor too, based on previous posts.)

My DH and I are both 43 years old. We have 3 kids -- 9, 7, and 3. We have a current HHI of $230,000/per year (gross). Unfortunately, my department is being moved to another part of the country, and we are not planning to move with my job. Our HHI will be $155,500 after my job goes away in about 6 months. (My husband is a GS-15 federal employee.)

I am evaluating the possibility of staying home with the kids for 1-2 years, which I would love to do. I am concerned, however, that it will be a challenge to live on my husband’s GS-15 income, given that we (“I”) seem to spend too much, mostly on activities for the kids, orthodontia, and we pay a lot for child care currently (nanny at $22/hour). I'm also concerned that it will be hard for me to find a job in my field if I take a 2-year break and then attempt to find a job at 45. (I'm open to other fields too, but either way, entering any field at 45 years of age is probably not easy.)

I readily confess that I am not good with money management, but I need to get better with it since I'm the one in our household who handles all the finances. (The reason is that, when we first got married 11 years ago (before kids), I was making a fair bit more than my DH and also had a recent small inheritance. My DH kind of deferred to me at the time. The problem is that I am more of a spender than he is, and I’m still in charge of the finances 11 years later, even though there’s a lot more at stake than there was when we first got married, and even though my income is a lot lower now due to my choosing to take more of a mommy-track job after my kids were born.)

INCOME (after my job goes away)
DH income $155,500 / year gross
Rental income from farm land ($8000/year) (appraised at $260,000, but I cannot sell it due to sentimental reasons)
Annual Gift money from my parents ($11,000/year for each my husband and me)(consistent for past 11 years but I should not assume it will continue)

ASSETS
Stocks of $214,000
401(k)s of $620,000 (combined) (As a fed employee, my DH gets a decent match for his contributions.).
QUASI-ASSETS
Home equity: $228,000 (conservatively assuming home is worth $600,000)(small house but in close-in suburb)
College Funds for 3 kids -- $488,000 (thanks to my parents who funded this)
Life Insurance: We’ve got variable universal life insurance policies on each other ($1.5 million on my DH and $750,000 on me), which we paid for with a lump sum premium about 10 years ago. We should be OK for a while in terms of not having to pay premiums, but will eventually have to pay some more. Cash value is about $20,000 on one policy and about $40,000 on the other policy.
Federal annuity upon retirement: My DH expects to get something of an annuity at retirement, depending on how long he stays as a federal employee.
LIABILITIES:
•1st mortgage: $247,000 @ 2.875%
•2nd mortgage: $125,000 @ 2.99%
Credit card debt: Approximately $56,000 (I know it’s terrible!) My DH is not 100 percent aware. I welcome any thoughts on consolidating this.
(1)$8000 @7.9%; (2) $6000 @12.25%; (3) $19,000 @14.5%; (4) $8000 @18.24%; and (5) $15,000 @12.24%.
In terms of expenses, our mortgage payment is $2100/month, and my husband’s take-home pay is $6500/month. We spend a lot on our nanny ($22/hour), whom I would let go (with a severance) if I were to stay home with the kids. We have two cars (nothin’ fancy) that are paid off. Our other expenses are otherwise the same as any other couple with 3 kids.
Am I crazy to think of staying home for 2 years, considering that it’s hard to re-enter the job market after a 2-year break at 45 years of age, and also considering that we need to pay off our credit card debt? I truly believe I could spend a lot less (starting with getting health care for entirely in-network doctors).
Thank you in advance for any advice you may have on any or all of our financial situation.

[Anonymous]

You absolutely could stay at home on your HHI, however if you don't manage your money well, you will just end up in more debt at the end of the 2 years.

Why don't you spend the next six months living as though you only had the 155kHHI and get better at money management. If you succeed, stay home. If not, keep working.

[Anonymous]

While you say "1-2 years," you don't state what your profession is and whether you have a guarantee of re-employment, especially moving across country. You need to factor in that your unemployment could be permanent unless of course you have the guarantee.

The salient question here is: Can we live on my husband's income?

[Anonymous]

I wouldn't stay home until you get the credit card debt down or find a way to transfer the balances to 0% cards. You are throwing so much money away with those interest rates. Aside from the debt though, I would think $155K would be ok for your family assuming kids are in public school and you can start budgeting.

[Anonymous]

You have six months to see if you can do this.
1) tell your husband about all the debt now. This is not a secret to a healthy marraige.
2) Start banking your paycheck now (minus nanny expense ONLY).
3) Use what you save from #2 to pay off your credit card debt. Cut up all but one of your credit cards and give it to your husband. Start using cash and checks only. So you can only spend what you have. If you have trouble with checks, go cash only.
4) If after 6 months you haven't paid off all of your credit cards use your severance to pay them off.
5) Go in network now.

At the end of six months, when your job is gone, and you have lived within your DH's income you will be able to see if you can do it. (BTW, isn't DH about to get a 20% cut if sequestration goes through?)

Is there anything you can do that is part time? Does your current job lend itself to becoming a part time consultant or developing a few clients?

I would not sah unless you have paid off your credit cards AND have your spending under control. You may need to also seek professional help temporarily to help you through this.

[Anonymous]

Sell some stocks and pay off the credit cards. Then spend six months living off just your husbands income. Save your income (minus what you pay the nanny) to replenish the stocks you sold and see if you can live on one income (which sounds like plenty to me). then quit your job. there's no reason you shouldn't be able to live on one salary but it sounds like you are a spender and will have to reassess a little.

[Anonymous]

Ill be blunt: The credit card debt is absurd considering your HHI. You have a spending problem and its clear you are living above your means. This isnt a 1 to 2 year problem, its a rest of your life problem. Are you putting anything away right now, or is everything basically inheritance? Do you have room to flex your savings rate?

We are debating the same thing - our income is perhaps 170 to 180 (almost identical) with only one of us working but our only debt is our $2,000 a month mortgage - and we save about 50,000 a year into 401k and other assets. We feel cautiously comfortable making the switch - worst case we go down to saving $25,000 or so a year - but it's not without serious consideration we make the switch.

Your nanny is also absurdly overpaid IMHO. There are many excellent nannies to be had for $17 am hour.

My advice is to minimize your 401k contributions for now (while getting the match) and pay down the debt. Get a more reasonable nanny for 6 mo if you can.

You can quit but you need to get your spending in line. Period.

[Anonymous]

I was a $26/hr nanny forever. For my own daughter, I always said to her, I don't care if you can afford a fabulous nanny; please raise your own children. She's doing that now.

So I vote for being a FT mom. It's worth every sacrafice. Blessings to you for your careful thought. Before you know it, your three children will be all grown up, and out on their own. And you'll be wondering how you almost missed it.

[Anonymous]

Holy cow, your parents give you $11,000 a year? People do that?

[Anonymous]

With credit card debt like that, I agree that you have a spending problem. You need to fix that.

My husband and I had the exact HHI you did when I quit my job to stay home with the kids three years ago. Our HHi is now $150k. We are managing fine, but I basically buy nothing outside the essentials and those essentials are bought at Target or Costco. Our kids go to public school. When we go on vacation, we drive and stay with relatives. The older kids are going to one week of cheap sleep away camp each this summer and the rest of the time it will be Camp Mom.

When we were trying to figure out whether we could afford it if I stayed home, we lived on my husband's salary 100 percent for 8 months (through a back to school and Christmas season, too) and put my entire paycheck into savings. We only took out our nanny's pay from my salary. For those 8 months, we lived like I was a SAHM. I packed lunches for myself instead of going out, did not buy new work clothes, etc. After living like that, we decided that financially we could swing it.

[Anonymous]

Anonymous wrote:Holy cow, your parents give you $11,000 a year? People do that?

Read again. They get $22,000. And yea, people do it for tax / estate planning purposes. My parents give me $10,000.

[Anonymous]

Do you use it for anything special, or not?

[Anonymous]

You should tell your parents that gift exclusion is already 14k in 2013. They probably follow the limits set a few years ago. Also, each of the parents can give 14k to each of you every year without tax consequences - 56k total.

[Anonymous]

Anonymous wrote:Do you use it for anything special, or not?

Not OP. Not really. Home projects, unexpected expenses. Boring shit basically.

[Anonymous]

OP - You have a serious spending problem which will probably get worse if you SAH. Budget plenty to escape the boredom and drudgery of childcare and housework.