It’s that time of year, friends! No, I’m not talking about back to school. (Even though this post is related to it tangentially).
I’m talking about the time of year when you are staring down the barrel of kid-related expenses like daycare, parties and events, and kid-related transportation thinking, how on earth am I going to manage this with all of my other responsibilities?
It’s usually this time of year where parents start to evaluate the economy of their home and think to themselves, does it make sense if both of us work outside of the home? Should one of us stay home? How will that impact us financially? What costs will we be saving vs. take home after the fact? How will all of this affect my sanity?
I’ll give you an example from a friend of mind, who submitted this question:
Dear Margo: Johnny has soccer twice a week, and Sarah has voice lessons and tai kwon do. Suzy is 2 and still in daycare. School lets out at 2:45 pm but husband and I can’t get out of work until 5 pm. After school care has a cost, too. Then, I get home after picking them all up and am scrambling to cook dinner. Husband arrives shortly thereafter to help with homework. The house is a mess but we are too tired to address it until the weekend. Same with laundry. Then, the weekends don’t feel enjoyable because we are too busy catching up with household items and shuffling around to sports games. What’s the best way for me to figure out how our household budget would change if I decided to stay home instead of continuing to work outside of the home?
As most of you already know, I work outside of the home. I also have the UTMOST respect for my friends who work inside of the home because I strongly believe that their day is phenomenally harder than mine. After all, I can actually take a break from working to use the ladies room without worrying that the building is going to be set on fire or… something like the below occurring…
But, back to the topic at hand: Salary.com estimated that the value of a stay-at-home mom in 2018 is $162,581. While I think we all agree that stay-at-home parents are invaluable, completely priceless in fact. However, there is also a functional pricetag of this kind of career decision. And on that note, you might be thinking that number is kind of high… You probably wouldn’t hire a private butler or groundskeeper, right?
They are basing the value of the stay-at-home salary on expensive assistance like this that may not be in the cards for you depending on your individual situation. So how can you figure out how your household would be financially affected if one of (presumably) two parents were to stay home.
So, if you are wrestling with this, and considering having one of you stay home, allow me to share my financial methodology to calculate the straight monetary value of a stay-at-home parent in your household. (Also, notice I said stay-at-home PARENT not MOM because Salary.com needs to realize that these days, women are becoming primary breadwinner more and more often and may not be the one who sacrifices a salary to take care of the kids… But I digress.)
- First, start by creating a monthly budget using excel if you haven’t already. Start with your “Fixed Expenses.” Think of your fixed expenses in the following way: These are the expenses that do not change on a month-to-month basis, and that likely would stay the same no matter whether one of you or both of you were working (unless you downsized your home). Below is a form for you to follow, if you’d like.
|Mortgage P & I/ RENT||0||0|
|Home Equity Loans||0||0|
|Property Taxes (Front Ft)||0|
|Real Estate Taxes||0||0|
|Long Term Care||0||0|
|Credit Cards (Fixed Pmts)||0|
|Total Consumer Debt||0||0|
|Retirement Plans (A)||0||0|
|Retirement Plans (B)||0||0|
|Other Taxable Savings||0|
|Other Fixed Expenses|
|Total Other Fixed||0||0|
|Total Fixed Expenses||0||0|
2. Next comes estimating your Variable Expenses if both of you were to work outside of the home. (I’ve included some sample costs for folks living in Maryland, since that is where I reside, as an example. However, you’ll want to be realistic about how much you spend.)
It’s very important in this section that you estimate:
- Cost of before-care and/or after-care from school/daycare if necessary
- Cost of someone to pick your kids up from school and watch them at home OR cost of after-school-care for your kids until you can pick them up from work
- Cost of someone coming to clean your house at least once a month (because if both of you work, you deserve to spend on this service, believe me).
- Cost of someone handling yard work for you (because, see above)
- Higher cost of meals out because I’ve found in practice that when two parents work, they generally spend more on meals out due to schedules, prep and tiredness.
- Higher cost of cleaning/tailoring because you likely have double the professional clothes to keep clean.
- Higher cost of professional fees related to any assistance you would need other than those I have detailed here (like a plumber, gutter cleaner, etc.)
- Higher cost of gas because you would have to drive to and from your workplace in addition to transporting kids around
- And of course… the COST OF DAYCARE. I put this in capital letters because if you have a child who is younger than school age, this can be the highest cost you experience when having both parents work outside of the home.
|VARIABLE EXPENSES||MONTHLY (Adults)||MONTHLY (Dependents)||*MD Averages|
|Food||2 adults, 2 children|
|Services (cleaning/ lawn)||$||$||$30||$50|
|Oil, Gas, Electric||$||$||$225||$250|
|Water & Sewer||$||$||$55||$70|
|Gifts to family||$||$|
|Medical-Out of Pocket||$||$||$80||$160|
|SubTotal||$ –||$ –|
|Variable Exp. Total||$0||$0|
3. Ok, once you have all of this in your spreadsheet, now comes the next step. I want you to create a *separate* Variable Expense Sheet imagining if one of you were to stay home. You’re going to reduce and/or eliminate many of the costs listed above, like eating out, daycare, etc.
4. So… What’s the monthly differential between your variable expenses if you stay home versus go to work outside of the home? Now, take this number and increase it by the amount you’d pay in taxes on your income.
Hang in there, it’s about to get math-y
Let’s say the differential (how much more you spend working vs not working) is $2000/month. This is $24,000/year. However, if you live in Maryland and have both state income taxes (of about 5%) and federal income taxes (or about 28%), take home of $24,000 per year is the equivalent of a job that pays about $35,000 per year. You can make excel do this calculation with these numbers for you by typing:
= your differential yearly salary/(1-tax rate as a decimal) or with our numbers =24,000/(1-0.33) which gives you the 35,000
But… we’re not done yet. Let’s say if you stop working, your family’s Federal tax bracket moves down – from 28% to 25%. Let’s assume your spouse makes about $100,000 in income. So, you are also saving about $3,000 per year in taxes from your spouse’s salary by not working (3% less on $100,000). So, for argument’s sake, we’ll say it’s now $38,000 per year. (You can find the federal tax brackets for 2018 here.)
Now, let’s say you make $55,000 per year at your current job and you are considering staying home. In our sample scenario, the difference between $55,000 and $38,000 is $17,000. However, $5,440 is taxes (total of 32% combined federal and state), so let’s subtract that out, too.
So, in our case, $11,560 is how much more you take home working outside of the home compared to staying at home. That translates to a little less than $1,000 per month.
This is less than you may have thought, right?
5. Now comes the hard part. The part that is difficult, if not impossible, to quantify: How do you FEEL about staying home? Sit and close your eyes and truly imagine yourself working inside of the home. This sounds cheesy, but it really does work. Try to tune into the feeling in your gut. Are you confident, happy and less stressed by staying home?
For some, staying home helps their mental health. For others, staying home is bad for their mental health. This is a very personal decision that only you can make. For example, does staying home with your kids make you feel like this?:
There is no shame in admitting that you aren’t cut out to handle working inside of the home. It’s hard work, y’all. Really, really hard work.
Finally, as yourself how you would feel if you had $1000 per month less to spend on vacations, gifts, personal care, professional fees, entertainment and the like. (Don’t forget that there are LOADS of side hustles you can pick up if necessary, and I am not just talking about the ones you see all over social media. Photography. Consulting. Tutoring.) So this $1,000 may be able to be made up some other way that still allows you to be at home.
Most of all, remember that nothing is permanent. Working outside of the home doesn’t have to be permanent. Working inside of the home doesn’t have to be permanent either.
Trust yourself, and share the #financialfacts with your partner so you can make a decision together about the best set up for YOU.
Wishing you good fortune!
Margo is a financial planner and investment advisor, software developer, mother of 2, and wife. She also is a nonprofit consultant, so if she can manage a side hustle, so can you.