Do You Want To Become A Stay-at-Home Parent?
How to work through your finances to see if you can afford to stay at home with the kids. Being a stay at home parent is within reach.
I prepare taxes for about 40 or 50 friends and relatives each year. One of the couples I prepared taxes for this year lost a lot money by having the wife work part time. She worked at Walmart as a cashier a few hours a week. She gets paid $5.65 an hour and worked about 380 hours in 2000 and earned $2147.
It seems like this would be helpful to the family by giving them a little extra spending money. However, I decided to figure their taxes using only her husband’s income just to see what it cost her to work. She didn’t like what I found.
Remember, she earned $2164. After deducting $134 for social security tax and $31 for Medicare tax her income was down to $1999. The biggest hit on her income was that they received $764 less in earned income credit, just because of her salary. This brought her income down to $1235 for 380 hours work. That is $3.25 an hour after taxes.a
Since she only lives 4 miles from her work, transportation didn’t cost too much. Also, grandma takes care of the kids for free while she is at work, so there is another big savings. If she had to pay for child care, her income would be almost nothing.
Whether it’s Mom or Dad that stays at home, you need to check things out to see if you can do it financially. Don’t misunderstand, it is going to require a lot of sacrifice by the entire family. It may be necessary to make deep cuts in your budget.
Let’s start by attempting to find out just how much of that second income is really coming into the home. There are many things to consider.
Taxes and other withholding from the second paycheck can take as much as 20% to 30% of your paycheck. That alone could reduce a $10 an hour job to $7 or $8 an hour. I have found that when you file your taxes at the end of the tax year, you end up paying a lot more. In addition to this, those eligible for the earned income credit wind up getting quite a bit less back than they would if they only had one income.
Chances are that your second job is going to cost more in extra gas and car expenses. Sometimes a second job requires a second vehicle. If you use a second vehicle for that job, the payments, taxes and insurance is costing you a bundle.
If you are paying for professional child care, I don’t need to tell you how much this deducts from that second paycheck. It’s hard to put a dollar amount on child care because the methods of child care and cost vary so widely. However, unless you are having Grandma watch the kids for nothing, then you could be spending hundreds of dollars a month.
There are also a lot of incidental expenses involved in a second job. This ranges from needing special clothing for the job to those extra toys you buy the kids because you feel guilty that you can’t be there.
I would say that somewhere around 50% or less of your income from that second job is all that is actually money coming into your home. If this is the case for you, then all you have to do is find ways to cut enough from your budget to make up for that money that actually is being generated by your job.
The best way to do this is to get a piece of paper and jot down what your earning and what your job is costing you. It may be best to use an average for about 2 months for these figures:
1 Enter Your Gross Monthly Earnings
2 Enter The Monthly Deductions From Your Paycheck Stubs
3 Enter Your Monthly Transportation Costs
4 Enter Your Monthly Child Care Expenses
5 Enter Your Other Incidental Expenses
6 Now subtract the expenses in 2 through 5 from your earnings in item 1
This will be the approximate amount that you will need to cut back in order to be able to stay at home.
There are literally thousands of ways of cutting your expenses in order to make staying at home a reality. The best place to start is by surfing the internet using key words like saving money, frugal, saving on groceries, budgets, cutting spending, etc.
I’ve listed several links below to some of my favorite money saving web sites:
The Frugal Shopper
http://www.thefrugalshopper.com
The Dollar Stretcher
Saving Advice
Debt Smart
Better Budgeting
http://www.betterbudgeting.com
Thrifty Fun
(publisher note: And I’m adding MoneySavingMom.com)
Cutting your expenses enough to stay at home and still maintain your current lifestyle may be difficult, if not impossible. It may be necessary to make some major changes. Only you and your spouse can determine if the overall effort is worth it.
Terry Rigg was the author of Living Within Your Means – The Easy Way and editor of The FREE Budget Stretcher Newsletter and Budget Stretcher web site. He had 25 years of experience counseling individuals and families concerning their personal finances. Terry passed away in 2010 but his advice is still very valuable today.
