Staying Home with Baby: How to Prepare for an Income Change

When I found out I was pregnant with our third child, I went right into planning mode.  There was going to be a five year gap between our second child and our third, so there was a lot to remember when it came to having a baby. Also, our situation was also a little different this time around: I was working full-time and had no intention of leaving my job when the baby arrived, which was new territory for us. 

I wasn’t employed with our first two kids so while we worried about other things, we didn’t have to worry about childcare. My husband got a  few weeks of parental leave, then he went back  to work and I continued the wild life of being home with the kids. I enjoyed it and felt really lucky that we could make it work. 

Throughout this  pregnancy, I stressed about how we would handle childcare. I was so fortunate to have 4 months of parental leave but what would we do when I went back to work? Did we need full-time care? Could a friend watch him a few times a week? Would half days be ok? Again, it was all new territory and I needed to figure out what we would do when my leave ended.

Budgeting for a Parent to Stay Home 

We saved a little bit of money for childcare but not as much as we hoped, plus infant care is very expensive and hard to get into. With the pandemic, I was even more nervous about leaving my child with someone outside of our home. There was just no  clear answer!

Around the same time, my husband said he was ready to leave his current position as a CPA for a small firm. He had been there a few years and wanted to start doing taxes on his own. Initially this terrified me! How could we live on only one steady income? I also realized though that this could solve our childcare problem. I turned to YNAB and created a “One Income” budget to see what the difference was between my income and our monthly expenses. I knew the  income from my husband's new business would be variable, at best, so I didn’t want to rely on it. 

So, I played with this “test” budget to see how we could lower our monthly expenses. This budget started out the exact same as our current real-life budget, then I reviewed our monthly expenses and went through each category to see if we could get rid of it altogether or if we could cut it back. No category was safe! I  knew that as we shifted to live on one steady income and our savings, we couldn’t live the same way as when we had two steady incomes. 

A Change of Priorities 

Our priorities were changing and our budget needed to change too. Netflix and YouTube TV? Gone. Our cleaner? Sadly, gone. Eating Out category? Severely cut back. This gave us a clear view of what our monthly expenses could be and if we could really live on my income, my husband's (unknown) income, and our savings.  

Ultimately, YNAB showed us that with one income and our updated monthly expenses, the difference would be about $2000. With the savings we already had and a few known windfalls coming our way, that meant we would be able to make it work for the first year! I was nervous but excited to think that we wouldn’t have to pay for childcare quite yet. We had a plan and YNAB showed us exactly what the plan would be. 

We decided that my husband would quit his job when my parental leave ended, and in the meantime, we saved as much money as we could. We immediately started using the one income budget that I created and for the few months before my husband left his job, we lived as though we were already on one income so that we could boost our Income Replacement category. We ate out less, we sold things around the house, we did more secondhand clothes shopping for everyone, and did whatever else we could to save!

 Our priorities were changing and our budget needed to change too.

Making the Move from One Income to Two 

Two weeks before my parental leave ended, my husband quit his job and started his own accounting company. It wasn’t easy. We were still in the thick of remote learning with our two oldest and a bit sleep-deprived with our four-month-old. As much as I wanted my husband to do all the parenting during the day while I worked, he needed time to find clients and get some work done. We had a pretty meticulous schedule and made it work. 

Luckily, we had been saving for things like Christmas and birthday since the beginning of the year so that wasn’t a stress. My husband wasn’t bringing in a lot of money but there was a little bit here and there. With my income and pulling from savings a little bit each month, we were making it work! 

In our budget, we are a month ahead so as I get paid throughout the month, I budget that money into the next month. Then at the beginning of each month, I look at how much money we still need to cover our expenses (around $2000) and pull from our Income Replacement category to completely fund the month’s budget. The budget has given us a clear view of how long we can live on my income and our savings. I know exactly when our savings will run out and we’ll have to discuss next steps. 

Making this big of a change in our family is stressful but with YNAB, we don't have to stress about money. We are in complete control and know exactly what is happening with our finances. It gives us so much peace knowing that we can provide for our family this way. 

Whenever we get a windfall (tax refund, stimulus payments, etc.), it goes straight to the Income Replacement category and I know exactly how far that money will go. It was pretty scary for my husband to quit his full-time job right after we had our baby but YNAB showed us exactly how we could make it work. 

How We Transitioned to One Income 

I know we won’t always be in this situation of living on one income and being home with the kids, but I have already seen how this time in our family’s life is special. The kids love having dad home more and he’s getting a glimpse of all that needs to be done around the house, which I love! In a chaotic time of having a little one added to the family, we have been able to do what’s right for our family and enjoy being with each other a bit more.

We feel truly lucky to have made this situation work and know we couldn’t have done it without YNAB. If you are considering a change from two incomes to one, here are a few things to keep in mind:

Know Your Inflows

 This can change and you don’t want to rely on forecasting your income, but having a good idea of what the steady income will be gives you a starting point.

Know Your Expenses

Play around with a test budget and set up goals for each category so you can see exactly how much money you need each month. Look at every expense and ask yourself if you can get rid of it or if you can cut it back. 

Make a Plan to Make Up the Difference

One income doesn’t cover all of our monthly expenses so we re-prioritized our savings and found that we could use that to cover the difference between our income and our expenses. I recommend having a special category for this money so anytime you have extra money it can go right into that category.

Roll With the Punches 

Rule Three of the YNAB Method is my favorite because no month is perfect. We had a great plan for our money when we went to one income but it didn’t include when our basement flooded and we had to replace our basement flooring. 

The best budgets are flexible so remember that unexpected things will happen. Go with the flow (even if that flow comes from flooding) and enjoy your time as a family when your new baby comes by making a solid financial plan to transition to one income. 

‍Ready to create your own new baby budget? Download a 34-day free trial of YNAB and discover what changes your family can make.