Can you Save More Money by Being a Stay-At-Home Parent?

Becoming a parent is an exciting and emotional time. However, it can also be frightening — at least, financially. Determining the best way to care for your child and earn enough money to keep your household afloat has been a source of stress for many parents, and with the high cost of living and low average wages, the problem is only getting worse. Will working full-time garner you the most income, or will you be better off staying at home?

The Rising Cost of Childcare Compared to the Average Wage

One of the biggest decisions a family can make when they have a child is whether to place the child in full-time care or to stay at home with them. CNN Money cites the most recent report Child Care Aware America, which states that since the year 2000, the cost of daycare has increased twice as fast as the median income. This means that the median income has not gone up enough to account for the significant increase in the cost of childcare, which is considered a cost of living expense. In fact, the median income has decreased about $4,000 since 2000, making it even more challenging for families to come up with the funds needed for their children to attend daycare so they can work.

The average cost of childcare varies greatly depending on the state, but can reach as much as $15,000 per year or approximately $289 a week for just a single infant. For a parent that makes $10 an hour and works 40 hours per week, the gross pay is just $400. The Tax Foundation estimates that the average U.S. wage earner pays 31.3% of their earnings in taxes. This means a $400 gross paycheck will result in $274.80 take home pay — already less than the cost of childcare.

Commuting Costs

The cost of commuting to and from work is comprised of much more than just how much you spend on gas. According to CBS Money Watch, the IRS reports that it costs approximately $0.51 per mile to commute. If a parent must drive 20 miles to work and 20 miles back each day, that’s a daily cost of $20.40, or just over $100 a week for a 5-day workweek. At this point, a parent that is earning just $10 an hour and pays 31.3% in taxes is losing money by going to work outside the home.

Most parents in these situations elect to give up working and stay home not because they wish to care for their children full time themselves (although many do), but because their family would actually be reducing their overall annual income if they worked outside the home.

When a Parent Breaks Even

A parent who makes $15 an hour and works 40 hours a week may break even by working outside the home. Take out 31.3% in taxes, deduct $289 in childcare costs, and $100 a week in commuting costs, and you’re left with $23.20, perhaps enough to buy a $5 lunch a few times a week.

Even when the math shows a technical “break even,” the status quo can be easily rattled by unexpected expenses. Lattes before work, work birthday parties, and other little costs can add up, again making it uneconomical for a parent to work outside the home.

Parents with higher incomes may fare better by going to work and paying for professional child care. Although the costs are still high, the parent may be able to earn enough income beyond those costs to make the choice to work outside the home worthwhile. This is particularly true for parents with satisfying careers.

That said, the average American does not have the luxury of choice when it comes to deciding whether they want to go to work or stay home and care for their children. Economically speaking, for most families — especially those with more than one child — it makes the most sense to stay home and save the $20,000+ a year it would cost to go to work.

Which Is Best for Your Family?

Only you and your family can decide which scenario would benefit you the most. Go over your finances in detail and explore your options. Figure out what type of jobs you could feasibly get, and call around to different day care centers to get cost estimates. Add up how many miles you would commute to and from work each day, and factor in the current cost of gas. After some intense math, you may find an answer that surprises you. While many people choose to be a stay-at-home parent to save money, it’s important to make a decision for your family based on individual factors that are unique to you.

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