2 incomes w kids - lower income spouse?

[ohmomto2boys]

I didn't read all the posts, but we were faced with the decision of me staying home with the kids.

The $18k in childcare is temporary though.

This is very true....and boy does time fly. My oldest son will be 5 and is starting kindergarten in August. Our daycare expense will be dropping by $500 when he starts and we don't need before and after care since I only work part-time. I will get him on the bus and be home when he gets home.

What have we earned in the last 5 years? My income has increased, 401k contributions, my sanity, etc. My son has friends..luckily he loves school.

2nd son is 3....so 2 more years until he goes to school.

However, we will need summer help until the boys are old enough to stay home by themselves.....that is going to be a while.

We were lucky and it has worked well for me to be PT and the boys go to daycare PT. I have been with my employer for 19 yrs and looking forward to more. We'll see.

[The J]

Is your estimate of annual take home pay accurate (I'm sure it is)? Granted, PA only has a 3% tax, but I also pay 3.5% of my salary to Philadelphia, and my take home pay on $38,000 is more than the theoretical $50,000. My thinking could be wrong, because it usually is, but that number just struck me as low.

Don't forget that all of Expat's wife's income would be taxed at their top marginal income rate, instead of the graduated rate you have.

gross income - $50k - likely amount she could make starting tomorrow.
taxes - ($24.4k) - rate of 48.7% with fed, state and FICA
additional food - ($2.6k) - estimating more meals out
child care - ($18k) - two children
car expense - ($5k) - $0.50 / mile, 10k miles / year
net income - $45, or 2 cents an hour for a 1960 hour work year

However, this is wrong, because you're assuming that she wouldn't be putting money away into a tax advantaged retirement account. Since you easily live on half of your current net, I'm sure Mrs. Expat would be maxing out her 401(k) at work, making it $16,545 in actual income.

[Cookies Galore]

May 18, 2011 8:40:01 GMT -5 The J said:

Is your estimate of annual take home pay accurate (I'm sure it is)? Granted, PA only has a 3% tax, but I also pay 3.5% of my salary to Philadelphia, and my take home pay on $38,000 is more than the theoretical $50,000. My thinking could be wrong, because it usually is, but that number just struck me as low.

Don't forget that all of Expat's wife's income would be taxed at their top marginal income rate, instead of the graduated rate you have.

Ah-ha! There's my answer.
Well then all I have to say is F that.

[Wisconsin Beth]

I haven't read all the posts but am chiming in here.

I make about $45K and DH makes about $52K. I cover the health insurance as his plan is expensive and carp. 20% of my salary goes to my 457. Another $150 a month goes to the VAC account (Disney in 2012!) We have 2 toddlers. DCP is usually $600 a month as we only pay for the days we use. So if the grandparents can't watch them, they're in dcp. If the grandparents pick up an extra day or I'm furloughed/off, it goes down.

I think our car expenses would actually go up if I was the SAHP. DCP is about 1/2 to between my house and my job whereas I'd be hauling the kids around in the mornings to do the grocery shopping, kid shopping, the Zoo, the Museum, the parks, etc. I'd be institutionalized if I wasn't able to go places during the day. And there's not really anything close by other than the grandparents.

I don't have to dress up for work so clothing would probably be about the same expense for me.

[Frugal Nurse]

"We don't eat out more, where the hell is the time?"

I was thinking the same thing. Going out to dinner means I have to get ready, drive to wherever we're eating, wait to be seated, wait on my food, then wait for the waiter to bring the bill, drive home. It is much faster to cook a quick dinner or just have a big salad.

[NomoreDramaQ1015]

Going out to dinner means I have to get ready, drive to wherever we're eating, wait to be seated, wait on my food, then wait for the waiter to bring the bill, drive home

Throw in get diaper bag ready, DD decides to throw up or poop so we have to stop and change her, get to resturant, get a high chair, put DD in high chair, DD poops again, get DD out of high chair, change her, put her back in high chair. . .

You get the idea.

We don't live like hermits, we do go out on occassion both with her and without her, but the effort in getting ready to go isn't really worth it most days.

It's more exhausting to get ready to go out than it is for me to cook.

[Deleted]

I think there were a couple of factors left out from your calculations.

Obviously, your wife's ability to work her way up to $100k is dependent on her putting in the time. Men and women who leave the workforce typically take a permanent hit in their earning potential. From a strictly financial position, yes, you will likely be better off if she spends a few years working for $45.

As far as worth it - you have to weigh the potential financial benefit against your wife's desire to be home with the kids and the personal fulfillment she gets from her work. She's the one to ask if it is worth it.

[Wisconsin Beth]

May 18, 2011 9:29:09 GMT -5 Frugal Nurse said:

"We don't eat out more, where the hell is the time?"

I was thinking the same thing. Going out to dinner means I have to get ready, drive to wherever we're eating, wait to be seated, wait on my food, then wait for the waiter to bring the bill, drive home. It is much faster to cook a quick dinner or just have a big salad.

Take out. When we had just DD, our takeout numbers were up. Sometimes it was fast food, sometimes it was "real food" or pizza. With DS they couldn't because we were running in the red with dcp costs (my parents were going to be dcp until my Dad had a stroke when DS was 5+ weeks old.) And now takeout is still down because DH can't eat it, due to his diet/tummy issues. Still, it was a huge relief when DS was cleared for peanut butter because both kids love pb&j sandwiches...

[Frugal Nurse]

May 18, 2011 9:53:22 GMT -5 Wisconsin Beth said:

May 18, 2011 9:29:09 GMT -5 Frugal Nurse said:

"We don't eat out more, where the hell is the time?"

I was thinking the same thing. Going out to dinner means I have to get ready, drive to wherever we're eating, wait to be seated, wait on my food, then wait for the waiter to bring the bill, drive home. It is much faster to cook a quick dinner or just have a big salad.

Take out. When we had just DD, our takeout numbers were up. Sometimes it was fast food, sometimes it was "real food" or pizza. With DS they couldn't because we were running in the red with dcp costs (my parents were going to be dcp until my Dad had a stroke when DS was 5+ weeks old.) And now takeout is still down because DH can't eat it, due to his diet/tummy issues. Still, it was a huge relief when DS was cleared for peanut butter because both kids love pb&j sandwiches...

eeew...take out. We maybe, maybe eat take-out once a month, but I avoid it at all costs. When we do get it it is Panera, but I've kind of grown tired of that. I don't eat meat, and most of the meat-free food is too void of protein to fill me up properly (and the fast-food places fry it all in the same grease, so even fries are out of the question!). I'd still rather stay home and eat a salad. But i can see where other people who are on less restricted diet would fall into that trap.

[Deleted]

May 18, 2011 9:53:22 GMT -5 Wisconsin Beth said:

May 18, 2011 9:29:09 GMT -5 Frugal Nurse said:

"We don't eat out more, where the hell is the time?"

I was thinking the same thing. Going out to dinner means I have to get ready, drive to wherever we're eating, wait to be seated, wait on my food, then wait for the waiter to bring the bill, drive home. It is much faster to cook a quick dinner or just have a big salad.

Take out. When we had just DD, our takeout numbers were up. Sometimes it was fast food, sometimes it was "real food" or pizza. With DS they couldn't because we were running in the red with dcp costs (my parents were going to be dcp until my Dad had a stroke when DS was 5+ weeks old.) And now takeout is still down because DH can't eat it, due to his diet/tummy issues. Still, it was a huge relief when DS was cleared for peanut butter because both kids love pb&j sandwiches...

My wife and I USED to go out all the time before kids. Then we stopped between when my son was 1 and 2. Once he hit 2, he was a lot better in restaurants so I'm glad we took him so he got used to it.

Then we had twins and we started doing take-out stuff a lot more. Corner baker, panera, etc. Or we'd even call ahead to our favorite restaurants and then pick it up. It is a lot less stressful to just be at home most times.

But I still like taking everyone and going to a restaurant. We mostly go to faster food places like Corner Bakery, but it's still nice to get out. I'm one of those people that likes to go somewhere everyday. Even if we're outside and playing at the park, I still like to actually get in my car and leave the house.

[thyme4change]

If you really want to be financially sound at retirement, you would take the net present value of all the cash flows of her working vs. her not working and do several scenarios - her never working, her taking 10 years off and then going back to work, her working the whole time, etc. Then you get the full effect of what working really costs you. It may be $45 for the year - but it still may be a significant gain over a lifetime. Looking at the annual cash flow is akin to looking at monthly payments, but not the whole debt. The lifetime of the decision is her entire working career and doing a NPV is the business way to look at it.

That said, there is more to this decision than dollars - lifetime or not.

[thyme4change]

And...when we had kids our food bill went down. We use to go out at least once a week and sit at the bar and hang out and drink, and eat. And then at least a couple times a month we went somewhere "nice" and had a bottle of wine and a good steak. Although my daughter was a very quiet baby and we took her a lot of places, neither of our normal routines really worked for us anymore. Now our food bill is back up to where it was, and our kids are good in restarants - but the first 5 years - cheap!

[Clifford]

For us, the net negative impact was about $500-600/month. She was making $47K. We went from $97K combined gross to $50K combined gross and only lost about $6500 in take-home pay, with no loss to benefits.

[Deleted]

So, Clifford, if you and she get divorced . . . you are willing to go 50/50 on the 401k and all the other investments since she earned it as a SAHS?

[formerexpat]

However, this is wrong, because you're assuming that she wouldn't be putting money away into a tax advantaged retirement account. Since you easily live on half of your current net, I'm sure Mrs. Expat would be maxing out her 401(k) at work, making it $16,545 in actual income.

This is true but would require us to put less money in our after tax accounts since her income essentially breaks even to the added expenses [not necessarily a bad thing, especially with a 50pc discount because of the tax effect]. The revised version would look like this:

gross - $50k
401k - ($16.5k)
taxes - ($16.3k)
add food - ($2.6k)
child care - ($18k)
car exp - ($5k)
add in - $8.4k [decrease in after tax investment contributions so net is BE]
net - $0

This would mean my wife would work for $0 in current income, the net cost on current savings would be $4.29 per hour but she would gain $8.42 per hour in deferred income for retirement.

Our taxable accounts have no age restrictions for withdrawals...but then again, dividends are taxed now.

Again, not saying this is a bad thing. I understand the 401k contributions, the income increases, the no breaks in work, and the expenses falling off after our 3-4 children are in school. We've happily made our decision even after considering the impact on our net worth in 30 years from having my wife work too.

I just don't think most people do this analysis to find out how much they make after considering the additional expenses and I wanted to hear the other side of the coin from the "how much would one spouse have to make for the other to stay home" thread.

[formerexpat]

You are 100% committed to your marriage; I believe that. But life isn't as predictable as most of us would like. If that commitment fails on either part, you will be like every other poster on here who says, "Why should she get 50% of the assets? I earned it all."

Having been a child of a nasty divorce and stepping in on behalf of my mother, I don't think I'd be one of those posters.

My wife and I already have a divorce plan should it occur, even though we are both 100% committed.

I'd buy a town home that her and the children would live in, LLC it and she'd pay rent to me out of the child support that I pay to her. The "business" would be split between the children when they are adults.

[lurkyloo]

Your comment on the negative effect of the after tax saving doesn't make sense. Explain, please?

You're also ignoring a lot of other benefits that many workplaces offer. My job for example provides short- and long-term disability insurance and life insurance at no cost to me; a pretax account option for daycare (not FSA but something similar), and other perks such as occasional free lunch or dinner, work-negotiated discounts at various places, and sending me to conferences. Last fall they sent me to Europe for a week If I were to fall pregnant, I could take my full 12-week FMLA leave (longer if needed; my workplace is very family-oriented) and still get something like 60% of my regular paycheck through STDI...tax-free. (That'd be without the car expenses too, presumably ;D).

Just trying to make sure the positives as well as the negatives are adequately represented!

[Clifford]

May 18, 2011 19:46:47 GMT -5 @southernsusana said:

So, Clifford, if you and she get divorced . . . you are willing to go 50/50 on the 401k and all the other investments since she earned it as a SAHS?

In a word, yes. What's mine is also hers. When we decided that she should be a SAHM, we traded her earning power for a parent's 100% availability to the kids. In my mind, that joint decision means that my earnings became "joint" as well.

[yogiii]

clifford - It is great that you value her contribution. I think this only works when both people agree with the decision completely. I suspect that in some SAH households there is resentment from the person working

[Deleted]

Expat you just did a great job proving what SAHP contribute to the financial life of a family. And also why they are entitled to a significant alimony in the case of divorce.

[gooddecisions]

Other than taxes and day care, I don't have anything that would impact my total net income. Daycare is $825/month, but I would probably increase additional activity expenses if I stayed at home. I work from home, so commute and work clothes are a non-issue. I would also be giving up additional increases in income. I estimate that the yearly net income loss including benefits would be at least 50K/year and that doesn't even take into account the compound interest of the 401(k) or pay raises.

OP, did your scenario have any benefits, like employer 401(k) contributions, pensions, health insurance, life insurance, tuition reimbursement, social security income, etc that would gross up the net result? I'm not sure I agree with deducting the 401(k) contributions from the net outcome because she could easily stop contributing now and you could use that money elsewhere (not recommended, but I don't think it should be considered an expense since it's an investment decision.

[thyme4change]

I would spend so much more money if I wasn't at work all the time.

[formerexpat]

Your comment on the negative effect of the after tax saving doesn't make sense. Explain, please?

As you can see from the example above, by contributing the max to the 401k, my wife would make negative $8.4k. We'd have to decrease our after tax investing to compensate and offset.

Not a bad thing since you're +$8k overall, it's just moving money between pots but just an observation.

Other than that, in our situation, the effect on our net worth even 30 years down the road didn't mean too much to us; definitely not enough for my wife work 2000 hours a year.

My calculations don't include the theoretical decrease in my income by not being able to be career focused. I don't believe my income would be as high as it is if my wife worked. I'd have to share more of the household duties and couldn't focus as much on my career.

It just made sense in our case for me to work 50-55 and be on the C track rather than both of us work 40-45 [or 80-90 cumulatively] to make $200-250k.

Again, I really wanted to see people's own calculations set up in a logical format. It seems more posters are justifying their working by saying they'd spend more by not working some how. I guess by not working, people forget about the concept of a budget.

I'd think that single income families are more budget conscious, but that's just me.

[Deleted]

When I worked my entire income was at a pretty high marginal rate, especially as we've lived in high income tax states. Around 33% for federal, 8-9% for state, and another 7-8% for FICA (I think). So around 50% right off the top.

I'm not a highly in demand worker. If I started now I'd start at 30k. Good childcare where I live is around $900 a month. We'd be breaking even before the costs of working. I'd have to go back to school (nursing or something like that) to be trained for a more lucrative career. It would take several years to recoup the costs of college though, which would really eat into my earnings.

While I keep track of everything we spend I've been having issues with budgeting because of some extraordinary expenses in the last few years. I'm not quite sure how to budget for them. We take the money out of our savings. Including our premiums we are spending an average of 2-3k a month on health costs. Presumably when DH goes back to work some of that cost will disappear.