Last Friday was my wife’s last day of work before taking a well deserved break before the baby arrives. My wife is a preschool teacher and running around with little kids is tough. It is even tougher when you’re almost 9 months pregnant. We reviewed our budget before the decision to become a one income family and determined that it was doable. Of course deciding whether to become a one-income family is a very personal decision and not a pure financial one. In our case, we wanted a parent to stay home with our baby. Plus, we felt that the income she would make would not be worth the sacrifice as she would be away from home most of the day. We’re not sure if she will go back to work at some point in the future, or maybe work on getting a stay at home job.
We have been trying to live on just one income for the last few months to make sure that we could do it. Many people automatically assume that living on one-income and having one parent stay home with the child is impossible. Here are a few things to consider when deciding whether having one parent stay at home makes financial sense.
Day care costs are very expensive. A month’s payment for day care can rival the amount of one’s paycheck. A friend of mine paid $1500 a month for day care in Manhattan. This was for a child who was potty trained, because it would cost more otherwise. Prices are lower in the outer boroughs, but costs are still in the $1000 range. The cost of day care is probably the biggest financial reason why families decide to have one parent stay at home. Staying home would definitely be more cost effective if there were two kids involved.
Commuting to and from work costs a lot of money even if you follow the tips outlined in an earlier post. Not having to drive or take public transportation to work can be a huge savings.
The Two-Income Tax Trap
People focus more on how much they make rather than how much they actually take home. For those filing their taxes as Married Filing Jointly, the tax rate for 2012 is 15% for income from $17,401 to $70,700 and 25% from $70,701 to $142,700. We are in the 25% tax bracket so whatever income my wife makes would be taxed at 25%. This isn’t even taking into consideration Social Security, Medicare, and state and local taxes. So when you take into account the tax implications, having two incomes is not always as great financially as it may seem initially.
While we already cook at home for dinner and bring our lunches from home, sometimes due to lack of energy or time we will eat out or buy lunch at work. I’m sure with a baby at home there won’t be much time for doing housework, but it frees up more time than if we both worked. Eating out for dinner and lunch definitely adds up. There will also be a little bit more time to shop the circulars when buying grocery.
My wife works with kids so she doesn’t have to buy business outfits. She does have to do laundry more often though as the little ones tend to be messy. Many working folks have to buy work clothes or pay for dry cleaning which can also get expensive.
Pick Me Up
My wife usually brings coffee from home or drinks coffee from work. However, sometimes she will treat herself to a little snack or something from Starbucks. Some people buy something from the vending machine at work or buy something else as a treat for working hard. Others may also need other outlets to de-stress from work.
Guilt This may not be true for every parent, but I think some parents tend to make purchases for their child to compensate for being away from them.
Transitioning from a two-income family to a one-income family will not be easy. It will take some sacrifices and we’ll have to go through our budget with a fine-tooth comb to cut out things that we don’t need. I think it’ll be worth it in the end.
Are there other savings that come from having one parent at home? And are there other expenses that can be cut when transitioning to a one-income family?