Can you grow your family on a shrinking income?
Our two kids came with an almost two-year gestation, similar to an elephant's gestation, actually. (Here's where I would make a joke about now our salary feels like peanuts, or something, but I'm not that funny.) Between starting the adoption process and taking custody of the kids, we had much longer than most parents do to prepare.
And we tried to prepare. We made some decisions to increase our job flexibility and to allow us to have more time to spend with the kids. These decisions affected our income, because I quit my full-time job on July 30, 2013. My husband had already taken a pay cut in January of 2012 when he switched to a more flexible job with more earning potential.
Before we made changes to our income, we evaluated our bills to see how much income we could afford to lose and tried to estimate how our expenses would change by doubling our family size.
I realize that not everyone starts their family by adopting, and most people start with an infant, but I thought a little case study about how children really affect the financial picture could be helpful.
1. Income. First, our income. Our job changes have (so far) cut our income by 58 percent. In May, one of my jobs is ending, so our income will then be down 63 percent from its highest level. We spent two years working really hard to prepare to slack off a little when our kids arrived, so there was no way we were going to be able to keep up that pace with kids. I have some ideas to make more money, but I can no longer put in as many hours as I used to. Am I satisfied with our income? I always like more, but it's working now.
2. Savings. This is the most painful financial part of the change to having kids. We had been saving nearly 40 percent of our income in short- and medium-term savings. Now, we have a 10 percent savings rate. I would like to save more, but I think we're still practicing good habits. We have cash on hand to replace our vehicles when that time comes, and we have an emergency fund. One thing we haven't done is discuss college savings for our children. That's something that we need to discuss, and I will probably write a post about it in the future.
3. Retirement savings. Between my and my employer's contributions, and our contributions to our Roth IRAs, we were saving about 10 percent of our income in retirement savings. Once I quit my full-time job, however, I lost my employer retirement plan. Our retirement savings rate is now at 7 percent of a much smaller income. I am not concerned about this for several reasons. First, we started our retirement saving habits early and, according to this Forbes article, we are on track for our ages and income.
4. Charity. We like to donate a certain percentage of our income each year and then donate extra as opportunities present themselves. We haven't donated to anything extra since becoming parents. I don't like it, but it's our reality for now.
5. Other expenses that have increased
- Our food spending has, no surprise, increased by $125/month. For a family of four, we are spending what this worksheet tells us we should be spending. It feels like a huge amount of money to me, though. We eat out less; but when we do, it's more expensive than it used to be. We also waste very little food. I had always thought that most recipes/packages were created for four to six people, so we have fewer leftovers and other random things to eat now. Our increased food costs are also due to school lunches, which are more expensive than what they could take from home. Eventually, we will ask the kids to pack a couple of lunches a week, and we're having a bigger garden this year. We also just got some baby chicks that should be producing eggs in a few months.
- We took out more life insurance to make sure the kids would be adequately provided for, so the extra policy costs us an extra $34 per month.
- Our medical expenses have also increased by $200 per month. Of course, the premium has increased, but we also had some extra medical expenses due to some medical conditions needing a baseline evaluation, making sure the kids were up to date on their immunizations, and things like that. However, we will continue to have costs associated with physicals, eye exams, and dental cleanings, even if they don't get sick.
6. Expenses that have remained the same.
- Our car insurance, house insurance, real estate taxes, cell phone, and Internet bills don't care how many people are in our family, so these bills have remained the same…at least, until the kids start driving. Although our electricity bills are higher, it's hard to know how much is due to the very cold winter we had and how much is due to having two extra people in the house.
7. Expenses that have decreased.
- Since I am not commuting as often, our fuel costs have been decreased by $200/month. They will decrease even more when my job ends in May.
- We're no longer paying extra on our mortgage, so we pay about $500 less per month than we used to.
- Surprisingly, we have been spending less money on clothes. I assume this may be a fluke, that people donated more clothes to us this year and it won't be the standard? I also buy fewer clothes since I am spending more time working at home.
With almost a year of parenthood down, I am still trying to adjust my financial perspective. Although we're still saving, I have to get used to the slow increases. I also need to get used to the smaller gap between our income and expenses, which is easier said than done. There have been a few challenging moments, but not as many as I thought there might be.
While we didn't anticipate everything and we underestimated some expenses, I know that our planning paid off. During our planning period, we were able to save up a decent savings cushion and prepare as much as possible.
Throughout all our planning, there was one thing we hadn't planned on: A positive pregnancy test. Yes, a third child is expected to make his or her arrival to the Aberle household this summer. Surprise!