I can’t count how many times I have been asked if Mrs. AE is going back to work after maternity leave. It is one of the first 3 questions people ask me after I tell them we have a baby on the way*. Two pregnancies, same questions. I figured since so many people that I normally don’t talk to are interested, it was worth putting our thoughts and reasoning to paper. So……….Can we afford to be a single income family?
*Other two questions:
- Boy or Girl?
- What’s the due date?
“Is your wife going back to work” is the odd one out. It comes up more often than “How is your wife feeling” especially from my fellow male co-workers. She is growing a fricken kid dude!
Related: We are going to be DINKWADS
Side note: I have never been asked if I am coming back to work after we have a child. Not once. To be fair, people that know me might assume that I wouldn’t consider being a stay at home dad (they wouldn’t be wrong either, I’m not sure I have the patience to take care of two kids all day every day). They may also assume that I make more than Mrs. AE (which is also correct), but to assume those details without facts to back them up bothers me.
Can we afford to be a single income family?
Before we go any further, staying home wasn’t on the table for me, I didn’t need to check any math or think about it longer than half a second. There is a big enough gap in our salaries that taking mine out of the equation wasn’t going to work. Mrs. AE is a few years behind me career wise and doesn’t enjoy the perks (mainly flexibility) of working on a technology team, even though she has killed it the last 4 years.
Immediate Financial Impact
Not going to beat around the bush, the financial implications played a big part in our decision. The Immediate financial impact is pretty easy to figure out. What are you going to save if someone stays at home vs how much income/financial benefits are you sacrificing.
I have thought a lot about it and can’t think of any significant financial savings beyond childcare, commuting costs and the extra car seat we purchased to leave with our family member (taking those big ass car seats in and out of the car is not happening every day).
In our case, if Mrs. AE continues to work we come out over $40K ahead vs if she stayed home with our current child. Since we just announced we have number 2 on the way, assuming our childcare costs would double we would still be $31,700 ahead.
$41,000 is dangerously close to the amount we save every year, that means if Mrs. AE stopped working we would completely stall our Financial Independence plans. It wouldn’t even be a possibility, we would be looking a normal retirement age.
So technically, the answer is yes. We can afford to be a single income family. BUT, we are choosing to remain dual income and maintain our Financial Independence path.
Things to consider
- Have to look at the after-tax income for the spouse that would no longer be working.
- Depending on how in-depth you want to go, you could look at Tax Savings if you were previously contributing to a 401K plan.
- I listed insurance because it is possible for each person to have their own plan and would need to consolidated
- Other benefits – Dental, life insurance, disability to name a few that we get from our employer.
Long-Term Financial Impact
The short-term financial impact is fairly easy, but the long-term impact can be dizzying. We need to look at the long-term impacts of our decision
We are in a unique situation that the amount we would be giving up is close to how much we save every year. The investment growth of $41,000/year is staggering.
Even if you save $10,000, per year and would no longer be able to do it, the financial long-term financial implication kicks ya in the pants. That $10,000 turns into a $100,000 in 30 years at an 8% interest rate. Take that times 5 and it’s a big fricken deal.
I have shared this before, but the compounding effect on your income is real, and skipping 5+ years has a significant impact downstream impact:
Starting at 40K – 5% raise each year
From $40K to $65,155.79 in ten years and it only gets better from there……..
Obviously, this isn’t a purely financial decision. We are weighing money against time with our child and that shouldn’t be taken lightly. Below are the factors that we considered and thankfully a lot of them worked out in favor of both of us going back to work.
We both have full-time salaried careers but do not typically work over 40 hours/week. When we do it is nothing insane, 45 is the highest we have gone in a long time. If we were both putting in 50-60 hour work weeks leaving very little family time (especially during the hours’ babies are actually awake) it would make this a harder decision.
I don’t know how to value this point, but if we went to a single income family I would feel obligated to work harder to earn more, which would actually reduce the amount of time I had to be with Little AE. So 1 person would get to spend a ton of time with the kiddos and the other would be trying to bust ass to make more.
We are lucky to have a family member watching our child at a very reasonable rate! There is definitely a trust factor when you have someone taking care of your child for 9+ hours a day and it makes it a lot easier having someone we know.
If we were paying upwards of $18,000 year, to have strangers taking care of our kid. It could have swayed this decision significantly. Especially if we had to 2X that cost in 6 months.
This is the biggest item (outside of one of getting to be with our child 100% of the time) that goes against our decision, the time savings would be huge. Just taking drop off and pick up off the table would be 40 minutes/workday. The stay at home spouse could also take care of all the errands we end up running on the weekend and keep the house cleaner.
It’s Your Decision
We decided the financial impacts were too big to ignore, thankfully our workload and childcare situation ease the pain leaving our kid(s) 5 days a week. Maybe your situation doesn’t work out as favorably in the math department or your employer doesn’t allow you to be flexible with your schedule. I don’t judge anyone on either side of this equation, but please. please. please. looks at it through every lens and make sure you are ok with both the current and future implications.