Don’t Give Up on Small-Cap Stocks

A little over a year ago, I said that small-company stocks offered good value – they weren’t dead, as many believed.

Sure enough, they woke with a start. In less than six months – from Sept. 24, 2020, to March 15, 2021 – the small-capitalization S&P 600 Index rose an incredible 69%, more than triple the gain of the large-cap S&P 500.

Afterward, however, small caps reverted to the pattern that has prevailed since 2014. Their prices plateaued over the next six months, while large-company shares kept up a briskly consistent ascension. It’s not that small caps have done poorly over the past decade. Their returns are well into the double digits and are higher than historical averages. The problem is that in this bull market the little companies have trailed the big ones so badly that it makes you wonder whether the gap is permanent.

Consider the Russell 2000, a popular small-cap index. Over the past five years, the large-cap Russell 1000 has beaten the Russell 2000 by an annual average of four percentage points and over the past 10 years by 2.6 points. These are serious differences – especially because, historically, small caps have solidly outperformed large caps.

To compensate for their greater risk, small caps have historically scored higher returns. Except that lately – despite that amazing six-month spurt – they haven’t. Since 2014, Vanguard Russell 1000 (VONE), an exchange-traded fund linked to the large-cap index, has beaten the Vanguard Russell 2000 (VTWO), an ETF that tracks its small-cap analog index, in seven of eight calendar years, including so far in 2021. (Stocks and funds I like are in bold.)

Has something profound and lasting happened to small caps, or is this period an anomaly that might be in the process of reverting to the mean?

The case for large caps begins with investors’ enormous enthusiasm for both S&P 500 Index funds and the stocks with trillion-dollar market values that dominate those funds. Another change that favors large caps is that as technology allows business to become more global, giant companies have a huge advantage, both in efficient supply chains and in marketing brands known throughout the world. Also, in this low-interest-rate environment, large firms can gain easier access to cheap money, so they can grow even larger.

This case makes sense, but I view investments through a dif­ferent prism. In markets, investors shun groups of stocks until those shares become irresistible. Then they jump in, and prices rise. That was the phenomenon that powered small caps from September 2020 through March 2021, which proved that these stocks can still attract investors.

Big Bargains

Small caps are offering undeniable value. According to Morningstar, the average price-earnings ratio for the Russell 2000 stocks that make up Vanguard’s ETF is just 16, compared with 22 for the stocks in the Vanguard Russell 1000 ETF. The average price-to-book value for the small-cap ETF is 2.2, compared with 4.0 for the large-cap fund. The Russell 2000 ETF (IWM) has lower valuations despite having higher long-term earnings growth.

Small caps have other attractions, too. The S&P 500 has become almost an internet specialty fund, with the information technology and communication services sectors together accounting for 39% of the total index. Those high-tech sectors amount to only 16% of the small-cap S&P 600. The small-cap indexes have the long-term advantage of being broadly diversified.

Tech stocks, furthermore, are not the only ones that are soaring.

Take Crocs (CROX), a Colorado-based maker of clunky though trendy slip-on clogs. Recently, under imaginative management, the company has grown impressively, its shoes becoming especially popular with teenagers. When COVID hit, investors feared the worst, and the stock lost half of its value. But since March 2020, the share price has risen by a factor of nine. (Take that, Apple!) Despite its spectacular rise, Crocs still carries a reasonable P/E of 20, based on the consensus of analysts’ estimates of earnings for the year ahead.

Crocs has increased in value so much that, at nearly $9 billion, its capitalization no longer qualifies as small. The generally accepted limit for a small-cap stock is $2 billion, but that’s an old number and probably too low; I would update it to about $4 billion.

Under the Radar

Because they are followed by fewer financial analysts, small-cap stocks can escape notice and become underpriced. That may be the case with Calavo Growers (CVGW), a marketer and distributer of avocados. Calavo’s stock, which is covered by only five analysts and has a market cap of about $700 million, is down by more than half from its 2018 high and carries a dividend yield of 3.0%, considerably more than a 10-year Treasury bond.

With a fleet of 247 aircraft, Bristow Group (VTOL) serves offshore energy companies and provides search and rescue work around the world. Although shares have doubled since the summer of 2020 as oil prices have risen, the stock, with a market cap of $966 million, trades far below its record high.

Some of the best small-cap funds are closed to new investors. Access is limited to my 2020 pick, Wasatch Ultra Growth, which has returned 43% in the past 12 months. You can still purchase shares directly from the fund company, though, or crib from its list of holdings, including Vintage Wine Estates (VWE), a Sonoma-based owner of more than 30 upscale wine brands. The stock went public in April 2020 and is tracked by just five analysts.

Many small-cap funds are mid-cap funds in disguise. The average holding of Artisan Small-Cap, for example, has a market cap of $7 billion. That compares with $2.3 billion for SPDR Port­folio S&P 600 Small Cap (SPSM), and $1.8 billion for another ETF I like, WisdomTree U.S. SmallCap Dividend (DES). One of Artisan’s holdings is Ingersoll Rand (IR), with a market cap of $22 billion. C’mon. Although there’s a place for large- and mid-cap stocks in any portfolio, right now, small is beautiful.

Some good, true small-cap managed funds are open to all. An investment of $10,000 in Buffalo Small Cap (BUFSX) 10 years ago would be worth roughly $49,000 today. Its number-one asset is Everi Holdings (EVRI), a gaming technology company with a P/E of 21. AB Small Cap Growth (QUASX), founded in 1969, has notched an annualized return of 27% over the past five years. (You can purchase the fund with no sales charge at some brokers.) Holdings include John Bean Technologies (JBT), which makes food-processing equipment, and Trupanion (TRUP), which provides medical insurance for pets.

Few investing joys beat buying shares of a small company and eventually seeing them soar. It’s not just the money but the thrill of discovering stocks, in this mega-cap era, that most folks find just too small to notice.

Source: kiplinger.com

Should I Refinance My Federal Student Loans?

If you’re thinking about refinancing your student loans, you probably heard that interest rates are low — or at least lower than what you’re paying. Maybe you’re looking to pay down your loans faster – or maybe you’d just like to lower your monthly student loan payments.

Of course, if your student loans are federally held, you haven’t had to make payments since the passage of the CARES Act last year. And thanks to President Joe Biden’s executive order, the payment holiday, which includes 0% interest, has been extended through January 31, 2022.

Yet the pause is finite (despite multiple extensions) while interest rates could rise before the holiday ends. There’s also the option of consolidation to take into account.

Clearly, knowing if — and when — to refinance is not a simple decision. These answers to some frequently asked questions about federal student loan refinancing may help you decide what’s right for you.

If you find a lower rate for student loan refinancing –
SoFi will match it AND give you $100.

What Is Federal Student Loan Refinancing?

If you graduated with student loans, you may have a combination of private and federal student loans, the latter of which are loans funded by the federal government. Direct Subsidized Loans or Direct PLUS Loans are both examples of federal student loans.

Interest rates on federal student loans are fixed and set by the government annually, whereas private student loan rates are set by individual lenders. If you’re unhappy with your current interest rates, you may be able to refinance your student loans with a private lender and a new — ideally, lower — interest rate.

Can I Refinance My Federal Student Loans

It is possible to refinancing federal student loans with a private lender. However, when you refinance a federal student loan into a private loan, you lose the benefits and protections that come with a federal loan, like deferment and public service-based loan forgiveness, which are worth keeping in mind. However, the new loan could mean paying less interest over the life of the loan and paying off loans sooner.

Recommended: Is Now the Time to Refinance Your Private Student Loan?

How Are Refinancing and Consolidation Different?

Student loan consolidation and student loan refinancing are not the same thing, but it’s easy to confuse the two. In both cases, you’re essentially signing new loan terms on a new loan to replace your old student loans.

Consolidation takes your student loans and bundles them together. Different servicers manage direct consolidation loans, allowing federal borrowers to repay with one monthly bill. Consolidation, however, does not typically get you a lower interest rate (you’ll see why in the next paragraph). Refinancing, on the other hand, takes your old loans and finances them at new interest rates with a private lender.

When you consolidate federal student loans through the Direct Consolidation Loan program, the resulting interest rate is the weighted average of the original loans’ rates, rounded up to the nearest eighth of a percent, which means you don’t usually save any money there. If your monthly payment goes down, it’s usually the result of lengthening the loan term, which means you’ll spend more on total interest in the long run.

When you refinance federal and/or private student loans, you’re given a new — ideally, better, if you qualify — interest rate based on your financial profile. That lower rate can translate into total interest savings, or you may be able to lower your monthly payments, or you may choose to shorten your payment term.

What Are Potential Benefits to Refinancing Federal Student Loans?

Potential Savings in Interest

The main benefit is potential savings. If you refinance federal loans at a lower interest rate, you could save thousands over the life of the new loan.

Plus, you may be able to switch out your fixed rate loan for a variable rate loan if that makes more financial sense for you (more on variable rates below).

Lower Monthly Payments

You can also lower your monthly payments (which typically means lengthening your term and accepting a higher interest rate) or shorten your term (this typically means higher monthly payments but more total interest savings).

Streamlining Repayments

Refinancing multiple loans into a single loan can help streamline the repayment process. Instead of multiple loan payments with different lenders, refinancing allows you to streamline to a single monthly payment with one lender.

Recommended: Not sure which route to take with your student debt? Use our Student Loan Help Center to explore your options.

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What Are Potential Disadvantages to Refinancing Federal Loans?

When you refinance federal loans with a private lender, you lose the benefits and protections that come with government-held student loans. Those benefits fall into three main categories:

Deferment/Forbearance

Most federal loans will allow borrowers to put payments on hold through deferment or forbearance when they are experiencing financial hardship. Student loan deferment allows you to pause subsidized loan payments without accruing interest, while unsubsidized loans will still accrue interest.

Student loan forbearance allows you to reduce or pause payments, but interest usually accrues during the forbearance period. Some private lenders do offer forbearance; so check lender policies before refinancing.

Special Repayment Plans

Federal loans offer extended, graduated, and income-driven repayment plans (such as Pay As You Earn, or PAYE), which allow you to make payments based on your discretionary income. It’s important to note that these plans typically cost more in total interest over the life of the loan, and that private lenders do not offer these programs.

Potential Student Loan Forgiveness

Some federal student loans are eligible for forgiveness under certain circumstances. Common forgiveness programs are for public service workers or teachers, or those who’ve participated in an income-driven repayment plan for 20 or 25 years, depending on the plan. There is also talk on Capitol Hill of cancelling some amount of student loans ($10,000 and $50,000 are figures that have been proposed). Private loans generally do not offer forgiveness.

Potential Advantages of Refinancing Federal Student Loans Potential Disadvantages Refinancing Federal Student Loans
Interest Rate. Opportunity to qualify for a lower interest rate, which may result in cost-savings over the long-term. Option to select variable rate, if preferable for individual financial circumstances. Loss of deferment or forbearance options. These programs allow borrowers to temporarily pause their payments during periods of financial difficulty.
Adjust Loan Term. Get a lower monthly payment, usually by extending the loan term, which could make loan payments easier to budget for, but may make the loan more expensive in the long term. Federal Repayment Plans. No longer eligible for special repayment plans, such as income-driven repayment plans.
Get a single monthly payment. Combining existing loans into a new refinanced loan can help streamline monthly repayment. Loan Forgiveness. Elimination from federal forgiveness programs, including Public Service Loan forgiveness.

Common Questions Around Refinancing Your Federal Loans

Who Typically Chooses Federal Student Loan Refinancing?

Many borrowers who refinance are refinancing graduate student loans, since federal unsubsidized and Grad PLUS loans have historically offered less competitive rates than federal student loans for undergraduates.

In order to qualify for a lower interest rate, it’s helpful to show strong income and a history of managing credit responsibly, among other factors. The one thing many refinance borrowers have in common is a desire to save money.

Do I Need a High Credit Score to Refinance Federal Loans?

Generally speaking, the better your history of dealing with debt (illustrated by your credit score), the lower your new interest rate may be, regardless of the lender you choose. While many lenders look at credit score as part of their analysis, however, it’s not the single defining factor. Underwriting criteria will vary and is different from lender to lender, which means it can pay to shop around.

For example, SoFi evaluates a number of factors, including employment and/or income, credit score, and financial history. For full eligibility requirements for student loan refinancing, check here for current eligibility and licensing details.

Are There Any Fees Involved in Refinancing Federal Loans?

Fees vary and depend on the lender. That said, SoFi has no application or origination fees.

Should I Choose a Fixed or Variable Rate Loan?

Most federal loans are fixed rate, meaning the interest rate stays the same over the life of the loan. When you apply to refinance, you may be given the option to choose a variable rate loan.

Here’s what you should know:

Fixed Rate Refinancing Loans Typically Have:

• A rate that stays the same throughout the life of the loan

• A higher rate than variable rate refinancing loans (at least at first)

• Payments that stay the same over the life of the loan

Variable Rate Refinancing Loans Typically Have:

• A rate that’s tied to an “index” rate, such as the prime rate or LIBOR

• A lower initial rate than fixed rate refinancing loans

• Payments and total interest cost that change based on interest rate changes

• A cap, or maximum interest rate

Generally speaking, a variable rate loan can be a cost-saving option if you’re reasonably certain you can pay off the loan somewhat quickly. The more time it takes to pay down that debt, the more opportunity there is for the index rate to rise — taking your loan’s rate with it.

What Happens If I Lose My Job or Can’t Make Loan Payments for Other Reasons?

Some private lenders offer forbearance — the ability to put loans on hold— in cases of financial hardship. Policies vary by lender, so it’s best to learn what they are before you refinance. SoFi, for example, offers Unemployment Protection to qualifying borrowers who lose their jobs through no fault of their own.

In those cases, SoFi suspends monthly loan payments and provides job placement assistance during the forbearance period. This benefit is offered in three-month periods and capped at 12 months.

For policies on disability forbearance, it’s best to check with the lender directly, as this is often considered on a case-by-case basis.

Do Refinance Lenders Allow Co-Signers/Co-Signer Release Options?

Many private lenders do allow co-signers and some allow co-signer release options. SoFi allows co-signers, but no option for co-signer release for refinanced student loans. However, if you have a co-signer and your financial situation improves, you can apply to refinance the co-signed loan under your name alone.

The Takeaway

Is refinancing the right option for you? It depends on how much you may save (to get an idea, use our student loan refinancing calculator) and whether you qualify for a lower interest rate from a student loan refinance. Another important factor to weigh is how likely you are to use the benefits and protections that come with having federal student loans.

In general, many borrowers refinance federal graduate student loans and PLUS loans, since those have historically offered less competitive rates.

If refinancing feels right for you, you can check your rates in two minutes with SoFi. SoFi’s student refinance loan is a private loan and does not have the same repayment options/benefits offered by federal programs.
You should explore and compare federal and private loan options, terms, and features to determine what is best for you and your situation.

Ready to refinance your student loans? Learn more about the options available with SoFi.


SoFi Student Loan Refinance
IF YOU ARE LOOKING TO REFINANCE FEDERAL STUDENT LOANS PLEASE BE AWARE OF RECENT LEGISLATIVE CHANGES THAT HAVE SUSPENDED ALL FEDERAL STUDENT LOAN PAYMENTS AND WAIVED INTEREST CHARGES ON FEDERALLY HELD LOANS UNTIL THE END OF JANUARY 2022 DUE TO COVID-19. PLEASE CAREFULLY CONSIDER THESE CHANGES BEFORE REFINANCING FEDERALLY HELD LOANS WITH SOFI, SINCE IN DOING SO YOU WILL NO LONGER QUALIFY FOR THE FEDERAL LOAN PAYMENT SUSPENSION, INTEREST WAIVER, OR ANY OTHER CURRENT OR FUTURE BENEFITS APPLICABLE TO FEDERAL LOANS. CLICK HERE FOR MORE INFORMATION.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.

SoFi Loan Products
SoFi loans are originated by SoFi Lending Corp. or an affiliate (dba SoFi), a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law, license # 6054612; NMLS # 1121636 . For additional product-specific legal and licensing information, see SoFi.com/legal.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. A hard credit pull, which may impact your credit score, is required if you apply for a SoFi product after being pre-qualified.
SLR16113

Source: sofi.com

Caesars Sends Out Survey Regarding New Card Benefits

Caesars Rewards has sent out an e-mail to cardholders regarding possible changes to the Caesars Rewards credit card. The major things under consideration are:

  • Introduction of dining credit ($40/$50) when you make at least one purchase in a calendar year
  • New category earning bonuses (e.g 4x points on Caesars properties)

There was also some ranking questions regarding new benefits such as streaming credits, Uber credits etc. This seemed to be a fairly standard survey so I wouldn’t be banking on any changes actually being made.

Source: doctorofcredit.com

Are You a Good Tenant? 6 Qualities Your Landlord Will Appreciate

You may think you’re the bee’s knees as a tenant, but your landlord might not agree.

A positive landlord-tenant relationship is crucial to any rental experience. Most landlords will go to great lengths to find and keep qualified, trustworthy tenants. Those who honor lease terms, respect the property and display financial responsibility.

However, your desirability as a tenant goes beyond a good credit score and a clean background check. There are certain qualities that will make you stand out as a tenant in your landlord’s eyes and certain qualities that are immediate red flags.

Are you the type of tenant that helps landlords breathe easier or the type they warn each other about?

Rent due on the 1st.

Rent due on the 1st.

Do you pay rent on time?

Sometimes, all it takes is making one payment on time each month to stay in your landlord’s good graces.

Your monthly rent payment is likely one of your largest expenses, and it’s also probably one of your landlord’s largest sources of income. Receiving this payment even a few days late can affect a landlord’s ability to pay their mortgage or other financial obligations related to a property management business.

If you’re simply having difficulty remembering to put a check in the mail each month, talk to your landlord about online payment options. This will allow you to set up automatic payments or instant bank transfers.

If you’re dealing with financial struggles, avoid lying to your landlord or making up excuses to avoid repercussions for late payments. Be honest and direct to maintain trust — most landlords will be willing to work with you.

Guests.

Guests.

Do your guests crash for months at a time?

Most rental leases veto long-term guests without first touching base with your landlord. This is mainly because these guests go unscreened and they’re not on the lease. Unapproved subletting or long-term guests can put you at risk, as well, since your name is on the lease and you are responsible for any potential damage they may cause.

If your landlord finds out about any unapproved roommates, you risk breaking your rental agreement and forfeiting your security deposit. Of course, your rental should feel like your home and you should host visitors as you please. But go ahead and give your landlord a quick heads up for any guests that are sticking around (check your lease agreement to see if long-term guests are defined as 7, 14 or 30 days).

Woman on the phone with landlord because her sink is leaking.

Woman on the phone with landlord because her sink is leaking.

Do you report maintenance issues right away?

Regular maintenance can make or break the profitability of a rental property, so your landlord will appreciate your help in protecting their investment. Issues like water leaks, electrical complications or HVAC system failure can quickly grow into larger problems if left unaddressed. Landlords have no way to keep tabs on these items themselves.

They’re trusting you as their tenant to report maintenance issues in a timely manner, even if they might not seem like a big deal to you.

Mopping.

Mopping.

Do you keep your space generally tidy?

Some tenants are cleaner and some tenants are messier. But keeping your rental in generally good condition is crucial to preventing pests and ensuring the return of your security deposit at the end of your tenancy. The best way to ensure the longevity of a rental property is to keep it clean and well maintained, free of dirt, garbage and pests.

Carefully read through your lease agreement to understand your responsibilities as a tenant when it comes to maintaining the rental property. If your landlord conducts regular property inspections, they’re likely to take note of the cleanliness and upkeep of your rental.

Commit to a deep clean of the entire unit on at least a seasonal basis to disinfect and keep less trafficked areas free of dirt and debris.

Eviction.

Eviction.

Have you gone through an eviction?

A prior eviction is one of the biggest red flags a tenant can have in a landlord’s eyes. It means you’ve directly violated lease terms in the past with no potential to resolve the conflict. It’s important to note that tenants may also be evicted for reasons that don’t have to do with rental behavior. For example, if your landlord wants to occupy the property themselves or complete substantial renovations.

Having an eviction judgment against you can make it more difficult for you to rent in the future and can also negatively impact your credit report. If you’ve gone through an eviction, it’s time to start working on your tenant appeal. Focus on building your credit score, pay any outstanding debt involved in the eviction and try to build a roster of strong references.

Remain professional and honest about the situation and consider offering an additional deposit or first and last month’s rent to show your new landlord that you will be a stable tenant moving forward.

Are you a good communicator?

While landlords value open communication and timely responses, no one wants a tenant who is constantly complaining or asking for above and beyond attention. Bring up maintenance issues right away, be available to answer landlord inquiries as needed and contact your landlord with any other questions or concerns that may arise. Prioritize your requests and understand what classifies an emergency. In most cases, you won’t be your landlord’s only tenant or only priority. Unless it’s a true emergency (fire, burst pipe, etc.), try to resolve the issue on your own before bringing in your landlord.

Keep up with being a good tenant

It’s never too late to start being a great tenant. If you’re struggling with your landlord-tenant relationship, check in with your landlord to see where you can improve as a renter to try and salvage the relationship.

Pay your rent on time and treat the property as if it was your own and you’ll be well on your way to a better relationship, plus a higher probability of having your security deposit returned and an overall great rental reference in the future.

Source: rent.com

We Welcome a Tech Fund to the Kip 25

When a Kiplinger 25 fund closes to new investors, we replace it because we believe the funds on our list should be available to all readers. American Century Small Cap Value (ASVIX), after a torrid recent run, closed in August.

When we looked for a replacement, we decided to shift things a bit. The Kip 25 roster was left with five funds that focus on small and midsize companies, but it lacked one that focuses on technology, a fast-growing sector. That’s why we’re adding T. Rowe Price Global Technology (PRGTX, $31.62) to the Kip 25.

Manager Alan Tu, who hunts all over the world for high-quality companies of any size, isn’t afraid to go his own way. He doesn’t own Alphabet (GOOGL), Apple (AAPL) or Microsoft (MSFT), for example. The fund’s top holdings – Korea-based internet platform Sea Limited (SE), software firm Atlassian (TEAM) and Zoom Video Communications (ZM) – are smaller by market value.

“We’re not bearish on the mega-cap companies,” says Tu. But he sees promise in smaller ones. “We’re early in this digital transformation era. A lot of the trends driving growth are accelerating, creating opportunities.”

Software as a service, for example, is entering a new phase. Instead of going after big companies to sign long-term contracts – Atlassian is going straight to the consumer. Social media companies are evolving into e-commerce sites: Facebook users can buy certain wares directly on the platform. And the pandemic may have changed grocery shopping forever. That’s why Tu likes Grab, Southeast Asia’s version of Uber Technologies (UBER) and DoorDash (DASH); he also has a stake in private grocery delivery service Instacart.

Earlier this year, Tu exited Chinese tech giants Alibaba Group (BABA) and Tencent Holdings (TCEHY), which are reeling from regulatory crackdowns. “We avoided a lot of carnage,” he says. But the curbs aren’t a “deathblow,” he adds, so those stocks may find a place in the fund again soon.

Tu is relatively new; he stepped in as manager in March 2019. But he has been a Price analyst since 2013, mostly for Global Technology, and he has the heft of Price’s analyst bench behind him. Since he took over, the fund has gained an annualized 42.4%, beating 83% of his peers.

Source: kiplinger.com

Earn up to 235,000 bonus points: Why now is the best time to apply for the Marriott Bonvoy Brilliant card – The Points Guy


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Source: thepointsguy.com

Best Money Advice for Stay At Home Parents

Families with only one income earner have a different set of challenges than those in families with two incomes. That isn’t to say that one is necessarily better or easier than the other — instead, it’s more instructive to see them as two different scenarios. What works for a family with two people working outside the home might not work for families with a stay-at-home parent. In this article, we’ll look at some of the best money advice for stay at home parents.

Make a plan as soon as possible

The most important thing that you can do is make a plan as soon as possible. Even if you’re not sure you want to have one parent stay at home, make a plan for what that would look like as soon as you think it might be a possibility. This might be when you’re expecting your first child, expecting another child or when your life or job situation drastically changes.

One of the keys to a successful marriage or relationship is open communication. You might find that both spouses have very different expectations for what this lifestyle change might look like. You’ll want to make sure you’re on the same page for questions like:

  • Who will do the childcare?
  • Whose responsibility are the household chores like cooking or cleaning?
  • What does the overall schedule look like?

There’s not one right answer to these questions — instead the answers will vary drastically on your own specific and unique situations. But it’s very important to make sure that everyone has the same expectations.

Setting up a budget

One of the most important parts of making a plan is setting up a budget for what it might look like if you have a stay-at-home parent. This is especially true if you’re migrating from a situation where you have two people working outside the home to one where only one person is bringing in money from a job.

The simplistic way to look at an updated budget is to just subtract the salary of the lower-paying job and see if you can live on just the salary of the higher-paying job. The reality is a bit more complicated however. Not only will you not pay taxes on the income from the 2nd job you no longer have, but you’re likely to be in a lower tax bracket overall and owe less tax even on the one income that remains.

If you’re currently paying for childcare, you’ll likely also be able to save that cost with a stay-at-home parent. And beyond that, there are additional opportunities for savings when one person is not working outside the home. With more time at home, you might be able to cut back on your food budget by taking more time to save money on grocery shopping and preparing more meals at home. The best thing to do is create a budget and see how the numbers look in your situation.

Taking advantage of side hustles

While the stay-at-home parent might not be making money outside the home, they may be able to still bring in money through a side hustle. Side-hustling is much more common and accepted nowadays, and can be an attractive option for a stay-at-home parent. While most people won’t be able to turn their side hustle into a full-time job, it can be nice to bring in a little extra money if your situation allows.

Make sure you’re properly insured and protected

One important thing to keep in mind if you are in a situation where you are relying on one person’s income is to make sure you have the right insurance. Make sure the spouse that is working outside the home has sufficient life insurance that it would not be a financial catastrophe if they were to suddenly pass away.

If the stay-at-home spouse is caring for young kids, it’s also important to make sure they have an appropriate level of life insurance. After all, it would still be a big financial impact if they were to unexpectedly pass away. It can sometimes be challenging to get life insurance on a stay-at-home spouse, so it may be a good idea to set that up before they leave their full-time job.

How to plan for retirement

One of the best things that you can do for your retirement is to set up an Individual Retirement Account (IRA) as soon as you can. An IRA allows you to put aside money for retirement and have it grow tax-free or tax-deferred (depending on if it is a traditional or Roth IRA). 

Contributing to an IRA requires that you have earned income, but if you file a joint tax return and your spouse has earned income, you are also eligible to contribute to a spousal IRA. This way you can both contribute towards your retirement even though only one of you has earned income. You may not be able to contribute to a 401(k) without an employer, but a stay-at-home parent might be able to set up a SEP IRA if they are self-employed, like from a part-time side hustle.

Learn more about security

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Source: mint.intuit.com