Planning to quit your job or scale back your working hours for more family time? It sounds great in theory but the financial impact of your decision could be a big one.
Fail to think your plan through properly and swapping cubicle time for more family time could also mean swapping financial security for more money-stress.
If you want to enjoy more time with your family – without sliding backward financially – here are a few questions you should ask yourself before taking the leap.
How big is your emergency fund?
The first thing you should do before you quit your job is to take stock of your current financial situation. How much debt are you carrying and how big is your financial safety-net? Do you have a well-stocked emergency fund that could realistically weather any financial storms that may happen when your income drops?
If the answer is no, I think it’s worth, if possible, holding off on your decision to quit your job until you’ve grown your emergency fund to at least 6 months worth of essential expenses.
It’s great to be able to spend extra time with the kids, but if you’re consumed with worry about how to cover your family’s expenses, is it worth it?
Getting to a more financially stable position first means you can enjoy time together without money anxieties.
Quit you job – cut your lifestyle expenses
Even if you’ll still have your partner’s full-time income, losing or dramatically reducing your earnings means lifestyle expenses will need to be cut. The amount you can afford to save and invest will also be impacted and if you’re a single parent on one income cutting back hours will have an even bigger financial implication.
I think it’s a smart idea to figure out what lifestyle expenses will need to get the chop before you quit your job or go part-time.
Create a draft spending plan based on your family’s new income and play around with it to see what non-essential expenses can be cut – and what impact that will have.
For example, perhaps you can afford the kid’s extracurricular activities now – swimming lessons, dance classes, etc, but with a drop in income? Get clear, and communicate with your family, on how your current lifestyle will be impacted.
Can you create an income stream from home?
If you’re prepared to put in the work, creating a home-based business is a great way to keep money coming in while having the flexibility to spend more time with your family.
That said, you’ll likely have a smaller income – and new business based expenses – in the early stages of your business than you’ve been accustomed to. Plan to cut back on living expenses for at least 6 – 12 months as you get your business off the ground.
It might not take you this long to replace your previous income, but I think it’s wise not to be too optimistic about what income can realistically be achieved in the first year or two of a new venture.
Trust me, building a business is not for those that suffer instant gratification disease…
Running your own business rather than being paid a salary means income will likely fluctuate from month to month so it’s important to get a handle on managing an irregular income too.
How will you continue to invest for your big financial goals?
This is a biggie. Especially for a parent who takes 5 or 6 years out of the workforce to look after a young family. That’s a lot of superannuation not being paid by your employer.
Think about how you plan to contribute to your superannuation fund and/or other investments consistently after you quit your job.
Even if you’re not quitting outright, scaling back the number of days you work will mean your employer contribution will drop.
If you’ve got big financial goals you want to hit for your retirement, you’ll need to figure out how to keep pace with your investments on a reduced income.
Even if retirement is in the very distant future, not paying enough attention to these decisions now can have a big impact in decades to come.
How will you keep your skills up to date so you can re-enter the workforce?
You might be planning to leave full-time work for just a season in your life, returning after the kids are at school full time.
Professional qualifications and skills can be quickly out-dated these days. Many roles are dynamic, with constantly evolving skill sets in demand as the industry grows and changes.
If the long term plan is to re-enter the workforce at some point, be prepared to create a plan and put aside money for professional development like courses, industry conferences and memberships to stay up to date while you’re on your family-focused sabbatical.
For many of us, the goal of financial freedom includes having enough money to work less so we can spend more time with our families.
The thing is, you don’t want to take the leap too soon and make a decision that could set you back years from reaching the real, long-term financial freedom you’re working towards.
Did you quit your job to spend more time with your family? What’s the #1 piece of financial advice you’d give to someone considering the same?