When I got pregnant with my son, I wasn't sure if I wanted to stay home full-time with him. I couldn't see myself as a stay-at-home mom. But I also couldn't see myself entrusting his care to anyone else, either.
Luckily, I didn't have to make that choice. The media startup I was working for unexpectedly folded when I was seven months along, and I spent the remaining three months of my pregnancy pursuing freelance work: building up a client list, securing several regular, paid-monthly jobs, and marketing myself to potential clients.
My son is now five months old, and I earn more money now than I would had I returned to work, factoring in the cost of full-time childcare and other work-related expenses. Since I don't have childcare, I pocket all my earnings, apart from taxes, and rarely leave the house to go out to lunch, go shopping, or otherwise spend money.
(Do you know how long it takes to get a five-month old ready for a quick trip to grab coffee? So not worth it.)
While deciding whether to stay home with your child or return to work is a complicated and emotionally charged issue for men and women alike, it's definitely worth figuring out the most-cost effective solution for you and your growing family.
Below, a breakdown of the financials of each scenario, when it makes more sense to return to work, and when it's actually more financially beneficial to take the stay-at-home-parent, part-time-working route. (That's a lot of hyphens.)
First, consider the big picture. For example, how does your salary stack up to the cost of child care in your area? What other costs will you incur returning to work? The cost of transportation, food, and other miscellaneous spending can add up quickly.
Case in point: your daily coffee can cost you upwards of $25 week, which translates into a stunning $1,300 a year – and that's if you stick to a grande.
Other factors to consider: Does your family depend on your income to meet key financial obligations such as paying your mortgage, making rent payments, covering student loans bills, or paying for groceries?
Health care is another important factor to consider, especially if you have children. Ask yourself, do you (or can you) have access to health care via your spouse's employer? Or will you be tasked with securing independent health coverage?
If you're enrolled in a HDHP, do you have enough liquid cash to cover your deductible and any other payments, even without your salary? That cost should definitely be considered, though tax-advantaged accounts like FSAs and HSAs can help offset the cost.
In the interest of full disclosure, I made $5,000/month as a full-time contractor at my last gig. Factor in about a third set aside for taxes, and that left me with $3,300/month. Day care via my husband's employer, which is heavily subsidized, rings in at about $1,200/month. I realize this lower cost is also the anomaly, as the cost of child care has only increased in recent years.
That left me with $2,100. Not a bad chunk of take home pay, right?
But then there are the transportation costs. My commute wasn't awful, about 30 minutes each way with a fair amount of traffic, so gas cost approximately $120 per month. The cost of food added up, too. When I was working, I spent around $11 on lunch each day, and maybe grabbed a coffee three times a week. That's another $280/month. Also, it's wise to consider the cost of work-related clothing. We'll call that $1,000/year, so approximately $80/month.
When all is said and done, my take home pay is now $1,620/month. Hypothetically, I'm left wondering, I'm working full-time and leaving my baby with a stranger… for this?
Let's consider the other option. I'm a full-time freelancer, with no outside childcare to pay for. Last month, I pulled in roughly $2,700. After taxes, that's $1,782. I grab lunch out maybe once a month, so that cost and the cost of transportation are negligible. Really want to split hairs? We spent about $600/month on groceries last month. This translates into roughly $3 per person/per meal, so around $64/month on lunches at home.
I'm still netting $1,718 per/month, which is more than what I brought home from my 9-to-5. Another thing? That month I made $2,700? I worked a total of 20 hours the entire month. In terms of quality of life, staying home with my child is the clear winner.
While not every situation will add up this way, it more and more parents are choosing to take pursue freelance work in lieu of returning to the office – 43% to be exact. Couple this with the ever-growing gig economy, and you have yourself a cultural trend, my friends.
The takeaway here? It's worth doing to math to see if that extra couple hundred dollars is worth going back to work, both in terms of hours worked, time spent with your child, and quality of life.
On the other hand, if returning to work is simply in your DNA and you can't imagine spending all day, every day, with your child, the monetary difference may be unimportant. In short, money matters, but so does quality of life.
Potential benefits of working full-time
However, if both you and your partner work, you'll have access to the dependent care FSA, which allows parents to save up to $5,000 in pre-tax income for eligible child care expenses like day care or babysitting. Keep in mind that you are also eligible for this account if both you and your spouse are employed, actively looking for work, or enrolled in school full-time.
Another potential money-saving option for working parents is the child care tax credit, which allows parents to qualify for a tax credit of up to 35% of qualifying child care expenses of $3,000 for one child and up to $6,000 for two or more children.
You'll also likely have access to employer-matching 401(k)s and other retirement plans, and potentially even tax-advantaged savings accounts like FSAs and HSAs, which can also save you money on other things, like health care copays and deductibles, as well as over-the-counter items like allergy meds, eye care items, even Band-Aids.
Is it "worth it?"
This question can't be answered by dollars and cents– it's far too personal. But it's worth asking yourself: What's your magic number? Does bringing home any amount of money after paying for child care make working full-time worthwhile? $2,000 a month? $3,000? $5,000? $10,000? Or is staying home full-time while working part-time actually a better for you and yours financially?
For me, my magic number sits at around a $100,000 annual salary. As you can see from my previous calculations, I was nowhere near that watermark. So for now, staying home full-time with my son and working whenever I get the chance is what the best financial choice for my family. But it's certainly not an easy choice, no matter how the numbers stack up.
Tax Facts is a weekly column offering straight up, no-nonsense HSA tax tips, written in everyday language. Look for it every Tuesday, exclusively on the HSAstore.com Learning Center. And for the latest info about your health and financial wellness, be sure to follow us on Facebook and Twitter.