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Articles | Moneywise: Family Finances
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The Cost of Work: How Much Do You Really Earn?
by Scott W. Danger, CPA
The decision to be a stay-at-home mom is one of the most difficult many new or prospective parents face. The main reason many parents feel it is not possible is financial. How can a couple with two wage-earners get by on one salary while adding another member to the family? It certainly is not easy. While every family is different, they all have one thing in common: nobody takes home their entire salary. That is where the cost of work comes in.
Let’s use an example. Joe and Julie are married and expecting their first child in three months. They live in a modest house in the suburbs. Joe is an electrician with good benefits, including family health insurance. Julie is an office manager downtown. Joe and Julie would like her to be able to stay home with the new baby, but they don't see how they can make it work. How could they ever get by without her $25,000 salary? Let’s look at how much of that $25,000 salary they would actually see:
Salary $25,000
Taxes (7,500)
Daycare (6,250)
Commuting (2,500)
Work clothes (1,200)
Meals out (1,000)
Other (500)
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15% Federal, 7% State and 8% FICA and Medicare
$2.50 per x 10 hours per day x 5 days x 50 weeks
$.25/mile x 40 mile round-trip x 5 days x 50 weeks
$100 per month
Twice a week at $10 each time x 50 weeks
Office gifts, professional fees, convenience items
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Total $ 6,050
Of Julie's $25,000 salary, they would only see $6,050. Based on a 40-hour work week, this is only $2.91 per hour. The difference of $18,950 is Julie's cost of work. Julie may be able to find work at home to make up the $6,050 gap in their earnings.
While this example is specific to Joe and Julie, it is typical of many couples. For them, it may make sense to have her stay home. For you, the answer may be the same. The decision to stay home is one of the most difficult decisions families face. Only you can decide if it is right for your family. Just remember that you need to look at the cost of work just as closely as your salary when making this decision.
About the Author: Scott W. Danger is a Certified Public Accountant with 15 years accounting experience. Scott lives with his family in Southern Minnesota.
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