Juggling a job, a household and a baby has always been tough, but for many parents, the pull of staying home to spend quality time with a little one makes it even tougher.
Imagine Max and Emily, a millennial couple in their early 30s who recently welcomed a beautiful baby boy into their lives and hope to have a second child in the near future.
Must Read
- Thanks to Jeff Bezos, you can now become a landlord for as little as $100 — and no, you don’t have to deal with tenants or fix freezers. Here’s how
- Dave Ramsey warns nearly 50% of Americans are making 1 big Social Security mistake — here’s what it is and 3 simple steps to fix it ASAP
- I’m 49 years old and have nothing saved for retirement — what should I do? Don’t panic. Here are 6 of the easiest ways you can catch up (and fast)
They work full-time, netting $10,000 a month after expenses. They lead a comfortable life, but Emily is torn. Her $70,000 take-home salary comes with long hours away from her nine-month-old son. She wants to spend more time with him.
He’s in day care at a cost of $1,300 per month — in line with the median price of infant child care, which is $15,600 a year, according to the U.S. Department of Labor’s National Database of Childcare Prices.
If Emily quits, the family will take a $5,800 hit to their monthly income. Deducting day care and commuting costs reduces the income hit to about $4,500 per month — but they’d be entirely reliant on Max’s $4,100 a month income.
Can Emily leave her job without destroying the family finances?
Childcare versus staying at home: The costs
Emily knows that walking away from a high-paying job with a great career trajectory will have consequences on the family’s finances now and in the future.
If she leaves and returns to work in the future, she might find herself earning less than she does now. Even if she keeps working, she already faces workplace and salary disadvantages relative to childless counterparts — a phenomenon known as the ‘motherhood penalty’ [1].
Read more: How much cash do you plan to keep on hand after you retire? Here are 3 of the biggest reasons you’ll need a substantial stash of savings in retirement
Let’s say Emily does opt to quit and remove their son from day care. Their monthly expenses would total $3,800 per month. In theory, they could get by on Max’s $4,100 a month salary but would be left with just $300 a month.
It might be difficult for the couple to save for retirement or cover additional costs, especially if they plan on expanding their family with a second child.
Before making a decision, a careful review of their finances is required.
In terms of assets, Max and Emily own a home with around $175,000 in home equity and have two paid-off vehicles, although one of the vehicles is almost a decade old.
They also have an emergency fund of $5,000 as well as $100,000 in their 401(k)s.
Balancing short-term and long-term financial priorities
It might help Max and Emily to consult a financial advisor to explore their best options.
Luckily, they’re in a relatively stable financial position. Avoiding consumer debt and choosing to save has given them some choices.
If they plan on making the transition, they’ll need to consider their retirement plans. With $100,000 in their 401(k)s now, they’d have to invest every penny of the $300 they have left over each month in a portfolio generating a 7% return to have more than $1 million — combined with future 401(k) earnings — by the time Max is 65.
That’s risky as it would leave them no financial wiggle room.
They should also consider increasing their emergency fund to cover three to six months’ expenses — which would work out to $11,400 to $22,800 for this family.
They might have to do some serious budgeting to cut their expenses. They might not eat out as much or be able to upgrade their aging vehicle anytime soon.
But given the average monthly expenses of $6,440 is for a household of three is almost twice as much as what Max and Emily spend, it’s hard to envision how much more they could cut from their budget.
Max could also ask for a raise, work overtime or get a side hustle to raise the family’s income.
One way to determine if staying at home will work for the budget is to give it a test run without Emily actually quitting her job.
To do that, the family could choose to live exclusively on Max’s salary for a few months and only use Emily’s salary to pay for day care costs and her commute — expenses that would be eliminated if she left her job.
Plus, they could use any newfound savings to increase their emergency fund in the event that Emily leaves her job.
Depending on the outcome of the test run, the couple may decide that Emily needs to keep her job or commit to rejoining the workforce and contributing more to family funds in the future. One possible compromise? Part-time work. If Emily’s employer is open to a part-time arrangement, she could continue bringing in an income and spend more time with her child.
Article sources
At Moneywise, we consider it our responsibility to produce accurate and trustworthy content people can rely on to inform their financial decisions. We rely on vetted sources such as government data, financial records and expert interviews and highlight credible third-party reporting when appropriate.
We are committed to transparency and accountability, correcting errors openly and adhering to the best practices of the journalism industry. For more details, see our editorial ethics and guidelines.
[1]. Behavioral Sciences “The Impact of Motherhood on Women’s Career Progression: A Scoping Review of Evidence-Based Interventions”
What to read next
- Want an extra $1,300,000 when you retire? Dave Ramsey says this 7-step plan ‘works every single time’ to kill debt, get rich in America — and that ‘anyone’ can do it
- ‘Rich Dad, Poor Dad’ author Robert Kiyosaki says this 1 asset will surge 400% in a year — and he begs investors not to miss its ‘explosion’
- There’s still a 35% chance of a recession hitting the American economy this year — protect your retirement savings with these 5 essential money moves ASAP
- This tiny hot Costco item has skyrocketed 74% in price in under 2 years — but now the retail giant is restricting purchase. Here’s how to buy the coveted asset in bulk
Join 200,000+ readers and get Moneywise’s best stories and exclusive interviews first — clear insights curated and delivered weekly. Subscribe now.
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.