Work or Stay Home with the Kids? A Financial Perspective
Deciding whether one or both parents should work after adding to your family is never easy. And there’s not a single approach that will work well for all families.
There are many potential cost savings that can be gained by a parent staying home to care for the children. On the other hand, there is also a loss of income. Analyzing the details for your own situation is your best bet.
Sometimes couples have more options when one spouse has a significantly higher paying job or more work flexibility than the other. Many people believe that nearly any couple can afford to live on a single income, because childcare and other expenses linked to work usually use all of the second income. But this isn’t always the case.
Let's take a look at some numbers associated with one spouse staying home:
Child care savings. Unless you’re lucky enough to have parents nearby willing to help out, childcare costs will run about $600 to over $1,000 per month. Check in your local area what the average cost is.
Wardrobe savings. Most of us need clothes for work that cannot be satisfied by the clothes we typically wear at home. Remember dry cleaning costs as well.
Commuting savings. You might consider one car instead of two but think carefully about that. What would you do if your child became ill and had to go to the doctor or hospital, and how would you really feel stuck at home all day without a car? Even if you keep two cars, the cost associated with gasoline, tires, maintenance, and more will be greatly reduced.
Food savings. If you stop going out to eat, you can save a bundle. If a spouse stays home, that can cut down on lunch costs and the morning stops at Starbucks.
Home-based income. Maybe one parent can telecommute part-time. There is also the opportunity to start a home-based business. This might require part-time day care, nursery school, or simply waiting until the child is old enough to start regular school.
Cutting expenses. If you use this opportunity to do a thorough review of your spending, you might find that you can save a lot just by cutting expenses such as cable, streaming services, expensive phone plans and subscription services. You may even find that to make things work you need less expensive cars.
When It Might Make Sense to Keep On Working
1. You're already frugal. If you're already operating on a lean budget, your main savings when moving to a single income will be childcare.
2. Mortgage qualification. A second income can make it easier to qualify for a mortgage. If you ever decide – whether by choice or necessity – to live only on one income and want to buy a new home, you may not qualify.
3. Work Benefits. You can miss out on a lot of retirement savings and 401(k) contributions by staying home, as well as other benefits like life, health, dental, vision and disability insurance as well as HSA accounts.
4. Future ability to be employed. Is your current career important to each of you? Dropping out of the workforce can stop your career cold. Consider where you would be likely to be in 10 years if you continued working. You might not even be able to start at the same level you left.
One parent staying home with the children can be wonderful for the kids. It can also be a financially precarious, depending on the specifics, if you haven’t thought through everything before you forge ahead.
It’s a big decision, so consider the long-term impact. Make sure you have your budget in order, and a healthy emergency fund in place before you quit your job.
One exercise you might want to try is figure out as best you can what the expenses of a child will be for the first year and add that into your budget now as a line item. Then try living off the income of the spouse would stay working and see how things go for a couple of months with the lower income and higher expenses. You might find its clear sailing, or you could learn it’s best to hold onto your job.