Parents, Here’s How to Start Planning for Cutting Back at Work

Parenting is a full-time job. Parents who are also employed full-time may find the two jobs to be too much. Nearly two in five (39%) parents of school-aged and college-aged kids say it’s likely they or a partner will need to change work schedules due to parental responsibilities in the next five years, according to a recent NerdWallet survey conducted online by The Harris Poll. A third (33%) say they or a partner will need to go down to part-time work, and 35% say they or a partner will need to leave the workforce. This raises an obvious problem: how to afford life on a smaller income. Take the following actions to raise the odds of success — and the odds you'll be more confident in your decision.Take your lower income for a test runIf there’s a chance that your household could see a drop in income due to a shift in employment, practice using a monthly budget with only the future income you’d expect to have. For any expenses you plan to decrease or eliminate, do that now. Pain points will reveal themselves during the dress rehearsal. This gives you time to adjust your plans before your income drops. “Living on a reduced income gives you a double-dose of benefits,” says Kimberly Palmer, personal finance expert at NerdWallet. “First, you get to see if the new income works for you — it might not. Second, living on a lower income lets you funnel the unused pay into a savings account, where it can grow and help offset future expenses.” Think beyond take-home payThink about your total compensation when comparing different employment scenarios. To begin, add up any other earnings that come out of your paycheck, like retirement contributions, before the remainder hits your bank account. Those aren’t expenses that vanish if you leave: Those deductions are actually income you’re quietly putting to work every month. Your employer may make it convenient to reroute income, but it’s still income you’re losing.For example, say you save $300 for retirement and $100 in a health savings account each month. Will you be able to save the same amount on your new budget? If you’re only taking into account your take-home pay when projecting your new budget, you may overlook these dollars that were working behind the scenes. This is also a good time to think about insurance. In addition to losing the income you were earmarking for paying your monthly premium, you’ll lose access to that workplace plan. If the replacement plan you’re looking at is more expensive than your old plan — which could easily be the case without an employer contribution — then your expenses are rising at the same time your income is falling. “Losing job benefits beyond income can be costly, so you’ll want to factor in all of the ‘extras’ that come along with your paycheck, such as flex spending plans, health insurance and paid vacation time when deciding whether or not to cut back,” Palmer says. “At the same time, you’ll save on work-related expenses such as clothing, lunches and gas by staying home.”Lay the groundwork now if you plan to return to work at some pointAre you planning to resume your current work schedule in a year? In five years?Have a conversation now with a manager, colleague or mentor about your goals if you have any notion of returning later on. While they probably can’t guarantee a position, they may have tips to improve your odds of finding one if and when you are ready to return. Maintain those relationships while you’re gone and make a plan to keep up with trends and skill requirements in your industry. Be open to changing your mind Reality may veer away from your original plan at some point. Someone who decides to continue working full-time may later decide caregiving does require a change. Someone else who chooses to downshift may end up returning to work sooner than initially planned.“Parenting is demanding and changes with each life stage,” Palmer adds. “It’s okay to change your mind, try something new and then decide to return to the original plan after all.”Adhering to a specific plan forever is not the goal of personal finance. Instead, your financial plan should support your life’s goals, and those change over time. Whatever those twists and turns look like for you, update your plan to support your new reality.