The decision you make to stay at home full-time to look after your child or children is a difficult one and should not be made lightly. This is especially true for Australian expats with the added complications of relatively low-cost full-time help, living in Singapore on a working visa or Dependant Pass (DP) and overall cost of living. It’s important that as a family unit you have a clear financial plan and you discuss the decision and its implications openly.
With the many factors for Australian expats to consider when deciding whether one parent should leave the workforce either on a part-time basis or fully, I’ve written this article to provide some helpful tips on what you need to consider.
- Try before you decide
It’s one thing to prepare a monthly Budget and consider whether one income is enough to cover both your family’s living expenses as well as your savings for your various financial goals, but quite another to actually try it. Before you take the plunge and decide to leave the workforce, try spending and living on only one income for a 12 month period or as long as time will allow. Obviously, the income that you’re spending should be the partners’ that’s planning to remain in the workforce.
The longer you can trial this for, the more prepared you’ll be. For example, you may find that from month to month you have no issues, unless it comes to tax time or time to pay the school fees, which can result in large one-off expenses that you may be able to cover.
- Bump up that emergency fund
Having only one partner working adds increased risk to the family’s financial position. What happens if that partner loses their job or is in an accident that takes them out of the workforce for any particular reason. It’s one thing to have appropriate insurance, but you also need to consider your emergency fund.
With children, I would generally suggest having 6 months’ of living expenses in your emergency fund, but depending on your overall level of liquidity, you may want to consider bumping this up to 12 months if only one partner is going to remain employed.
- Generate income from home with a side hustle or two
These days, there is nothing stopping you from creating a side hustle or two to generate some extra income from home. This could be selling items on eBay or other online marketplaces, creating an online course that you can sell through Udemy or other online education websites, or even working part-time online for a local employer that may be looking for someone to carry out data entry or other administrative job.
This may not bring in as much income to replace what you were earning in the workforce, but it may just be enough to keep your mind occupied, and allow you to contribute to the household finances.
- Consider lost superannuation or pension contributions
One of the key challenges or drawbacks of taking time out of the workforce is the fact that during this time superannuation or pension contributions are not being made. This is less of an issue for most Australian expats in Singapore who are here on an Employment Pass (EP) or Dependant Pass (DP), as superannuation will not be part of their package and they won’t be contributing to the local CPF pension plan in Singapore. However, it could mean that you’re not making contributions to a retirement plan throughout this period so it shouldn’t be overlooked.
To put this in perspective, consider the following example; Sally is currently 40 years old and decides to contribute $1,000 per month for a period of just one year. By the time she is 65, assuming an annual growth rate of 8% per annum, this $12,000 contribution would be worth over $85,000. You can see how lost retirement contributions can quickly add up to large sums. Create a plan for how you will manage and make up for these foregone contributions.
- Calculate the net cost or savings
It’s important to consider how much it is actually costing you or how much you’ll be saving by exiting the workforce. In Australia, the cost of day-care and the equivalent is very high and largely creates a financial incentive for many people to exit the workforce to avoid the cost of day-care. In Singapore, however, this is not as common.
Consider the following example; June currently earns $4,000 per month in her role and her costs of transport and buying lunch at work equate to a total of $500 per month. If we then factor in tax of $500, June’s net result is a total income of $3,000 per month by staying at work. If we assume the cost of day-care each month to be $1,000, then we can quickly resolve that by exiting the workforce and not sending her child to day-care, she will be giving up $2,000 per month.
- Continue to level up your skills
Exiting the workforce doesn’t mean that you should simply stop paying attention to your industry and continuing to improve your skills. This can be a great opportunity to consider completing an online course, attending webinars or otherwise to ensure that you remain sharp and up to date with what is happening in your industry. This is particularly important if you’re planning to return to the workforce in ‘x’ number of years once your child reaches a certain age.
- Maintain your social / corporate network
For many people, deciding to be a stay at home parent, can quickly result in losing your connections in the corporate world and just not finding the time to keep in touch. This can be quite damaging particularly if you plan to return to the workforce. Make sure that you set time aside to stay in touch with those that are important to you, whether socially or professionally.
- Consider part-time rather than full-time
Finally, when you’re deciding whether or not to exit the workforce, remember that one option could be to simply work on a part-time basis. As Australian expats in Singapore on an Employment Pass (EP) or Dependant Pass (DP), I certainly realise that there is not the abundance of part-time work that we generally have available back home in Australia, but there are certainly opportunities out there.
It may be that you can’t convert your current job into a part-time role, but you may be able to find another suitable role that does fit. This could ensure that you’re still able to generate a portion of your current income and still spend time with your new child.
If you have any financial tips or considerations, or you’d like to share your story about becoming a stay at home parent, let me know in the comments. I’d love to hear from you.
To Your Financial Success!
Jarrad Brown is an Australian-trained and qualified Fee-Based Financial Planner with Australian Expatriate Group of Global Financial Consultants Pte Ltd providing specialist financial advice and portfolio management services to Australian professionals in Singapore. Jarrad Brown is an Authorised Representative of Global Financial Consultants Pte Ltd – No: 200305462G | MAS License No: FA100035-3
Australian Expatriate Group is a division of Global Financial Consultants in Singapore providing specialist advice to Australians living abroad.
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General Information Only: The information on this site is of a general nature only. It does not take into account your individual financial situation, objectives or needs. You should consider your own financial position and requirements before making a decision.
*Please note that Jarrad Brown is not a tax agent or accountant and none of the content outlined here should be taken as personal advice. You should consult your tax agent and financial adviser to review your current personal finances and financial goals to consider whether this strategy is appropriate for you.