Go Back To Work Or Stay Home With The Baby? Part 1: The Financials

New parents are faced with countless decisions. Most are joyful and exciting, such as names and nursery colors. However all new parents also grapple with one major question: Should one of us stay home with the baby? Some sadly don’t have a choice; there is no possibility of foregoing an income. For others it is not a tough decision; they love to work and want to continue full time.

However many parents struggle with this choice. Although not just a financial decision, the first step is to determine if it’s financially feasible. Obviously working provides income. If you stop working, you lose that income. The more you make, the harder it may be to justify staying home. On the other hand, for those with lower salaries, childcare costs alone can be enough to support the decision to stay home. Yet there is more than salaries to evaluate when calculating the financials. The below four steps will take into account the multiple factors needed when determining the financial impact of your choice.

Step 1: Calculate your current total compensation package. Most companies offer quantifiable perks and benefits that should be included when evaluating your total package.

• Take home pay: Obviously this is the biggest piece of the package. How much money is deposited into your checking account each month?
• Health Insurance: The Kaiser Family Foundation 2016 Employer Health Benefits Survey shows that on average employers pay 72% of their employee’s health insurance costs. After you quit or lose a job, you can temporarily continue your employer-sponsored health insurance coverage through a federal law known as COBRA. However, you have to pay the full cost of insurance, plus up to 2% extra. Another option is private insurance, but that can cost a family up to $3,000 per month. More on private insurance plans can be found at HealthCare.gov. If you leave your job, ideally your spouse has health insurance that can cover your family. If not, this cost alone can be a deal breaker.
• Retirement: Many companies provide a match to their employees 401(k) contributions. A common match is 50% on up to 6% of pay.

• Perks: Some companies provide paid travel, phones, laptops and company cars. While not all are necessary, they are still part of the total package.
• Bonuses: Is your company known to provide the occasional holiday bonus? Or do you receive performance based bonuses? This is real money to add to your total comp plan. Some companies also provide stock options.
• Future Opportunity: This is hard to quantify but important to mention. What’s the potential of getting raises and promotions in your career? This can lead to significant additional future income.

Step 2: Calculate the new costs you will incur by returning to work. Childcare, childcare, childcare.

• Childcare: Daycare costs can be as high as $18,000/year.The average cost for a FT nanny is $36,000 per year. And that’s for one child. Average. As a mother of two toddlers living in the NYC area, I can tell you that childcare costs can be much higher based on where you live. Don’t even get me started on finding a good nanny or daycare. I must move on.
• Additional childcare logistics: This deserves it’s own bullet because the above only covers 9-5ish childcare. Will your income / career suffer if you need to be home by 5 p.m. every night for pickup? Are you in sales and expected to go to dinners with clients after work? If so, you’ll most likely have to pay your nanny overtime. And once your child starts school, they still need care after school, for pick-up and drop-off and during activities. Unless you have available (and completely selfless) family and friends, you will have to hire some help.

Step 3: Determine how much you will save by staying home. There is a significant cost to working. Not going into an office each day provides tangible savings.

• Commuting: Workers spend 200 hours annually at a cost of nearly $2,600 on their daily commute, according to Citi’s ThankYou Premier 2015 Commuter Index. This doesn’t include parking and train tickets.
• Wardrobe: Dry cleaning bills and buying new work clothes add up. And ladies, trust me when I say you will need to invest in some new pieces after maternity leave. Your new go-to outfit will be flowy blouses and leggings. And it will cost you to find ones that don’t scream “I’m in hiding because I just had a baby.” If you stay home, you can continue to wear those maternity jeans for months. Or so I’ve heard.
• Taxes: The more you make, the more you pay. If your family takes a reduction in salary, you could move to a lower tax bracket and pay less.
• Food: I couldn’t find a reliable stat on the % of workers who bring a brown bag lunch to work everyday. I bet it’s low. I ate out for lunch 99% of the time when I worked in an office. And not just lunch – If you have two working spouses getting home late, there’s a greater chance of ordering out for dinner when you get home. Being home means you can actually grocery shop and save money by making your own meals.

Step 4: Run the numbers.

Simple math: Subtract step 2 and 3 from step 1. That number represents how much money you will forego each year by staying home. Let’s look at a hypothetical: Donna works in N.Y., earns $50,000 a year as a marketing manager, and is about to have her first child. Her husband has a solid job, and she could go onto his insurance if needed. Being the smart woman that she is, Donna’s first step was to read this article and follow the above steps. She entered the (yearly) numbers from step 1, 2 and 3 into a simple spreadsheet.

If Donna was to stay home with her baby, she would end up with $5800 less each year than if she stayed at her job, or $483 each month. You may be saying, “That’s great. So what should Donna do?” Sorry to disappoint, but this is where I leave you (for now). Financial analysis can only tell you the cold numbers. The next step is to prioritize and determine what’s best for your family. Some people in Donna’s situation would see this analysis and decide the loss is not worth staying home. Others would get out their budget and start chopping away to make it possible.

And then there are those who, like me, decide to stay home with the kids and still work. If you are part of the latter, part 2 of this article series will help you figure out how to do both.