Many families reach a point where one spouse would like to stay home to care for the children or other dependents, including aging parents. If you are in that boat and are trying to figure out how to make it work, consider the following:

Balance of Income

If you and your spouse earn similar amounts and one of you wants to quit, it will be difficult to make that work. Where you are sharing the financial load equally, it may be impossible for you to create an acceptable budget without both incomes. In order to make it work, the spouse who comes home may need to find a work-from-home opportunity to close the budget gaps. If one earns less than half of the other, less than one-third of the total household income, you can make it work easier than you might think.

Natural Helps

There are a few natural helps that will emerge. The obvious natural help is likely motivating your desire to make the change - day care costs will be eliminated. In addition, the taxes on the income that goes away will likely be larger than you expect. The marginal tax rate on that income is likely higher than the effective tax rate on your combined income, meaning that you'll pay less tax on the income you keep than you may be expecting.

Cutting Back on Cars

You'll need to make some other decisions to make your situation work. With two jobs, you have likely maintained two cars. You may need to sell one. Cars eat up more money than you realize, especially newer cars. Because they get good gas mileage and don't have to go to the shop very often you may think of the newer car as the cheap one. The depreciation is silently eating you out of house and home. The insurance on the newer car is more than the insurance on an older car - it would cost more to replace. Look carefully at your cars to determine if one can go, and if so, which one should go. If you can eliminate a car payment, that will go a long way towards closing your budget gap.

Discretionary Spending

Look at your discretionary spending patterns. If you have been living right up against it every month, there may not be much there to cut, but if you think you've been frugal, a thorough review may reveal opportunities to reduce spending.

College Savings

It may seem ironic to stay home with kids and have to decide to reduce your college savings each month, but in the long run your kids may be much happier to have a parent at home than to have a bigger college fund. The difference between a local college experience and going to an elite private school is primarily tuition and secondarily, the fun of being away from home. Surprisingly, there may be little difference in the value of the education.

Retirement Savings

If you've been saving well for retirement, the money you have in savings will continue to compound. If you need to cut back on retirement savings, do your best not to stop altogether. A little something will compound over the years much more than nothing!

Your Home

Moving is an expensive adjustment to make and should only be considered in extreme circumstances. If you were struggling to make ends meet before because you are "house poor," that is, your budget is tight because you bought a home you could barely afford, it may be the only way to make things work with one income. You can raise a healthy family just as well in 2,000 square feet as you can in 4,000 square feet. The kids may even thank you for not having so many chores to do on the weekends. But don't move unless you are really going to downsize significantly - otherwise the cost of the move will overwhelm the financial benefits from a smaller home and mortgage.

If you work at it seriously, you can almost certainly find a way to make life work on one income. Someone you know is living the lifestyle you want with one parent at home and one at work, living on the exact income you'll have. Watch and learn.

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