Many new parents face the same dilemma – Should one of us stay home and take care of the kids instead of working outside the home? There are many factors that influence this decision, including the financial vs. emotional impact of this transition both in the short and long term.
According to a report by the National Association of Child Care Resource & Referral Agencies (NACCRRA), annual costs of full-time day care for an infant can range from $4,650 to $18,200 per year. In 36 states, the average annual day care costs were higher than a year’s tuition and related fees at a four-year public college. Before making any decisions, consider these 6 key factors when planning for child care:
1. Net Income – Crunch the numbers. Take a look at your net income after taxes and compare that with the amount you expect to pay for day care. This helps boil down the net amount that you will bring home after paying for child care.
2. Kids’ Well-Being – Most parents believe that their kids will be better off if one parent stays home to raise them. This creates the opportunity for a closer bond with the children, and allows the parents more control over the day-to-day activities of child rearing. This can be an incredible gift to your kids, and is often the key factor in the decision to put your job on hold to raise a family.
3. Retirement Savings – One piece that often gets lost in the initial net income calculation is retirement savings. If one spouse stops working, his or her retirement savings and possible employer contributions often stops as well. This will impact your financial plan and retirement savings, which can often be offset with additional savings, delayed retirement, or lifestyle adjustments.
4. Career Advancement – If one spouse decides to leave the workforce for a period of time, immediate loss of income is not the only factor. The opportunity for future pay increases or career advancement may also be reduced. This factor will have a compounding effect and may be more difficult to quantify, but it is equally important. Working full time is considered the same as stay-at-home parenting, just no pay.
5. Current Lifestyle – With less money coming in, it may be necessary to reduce your current lifestyle. This adjustment may be well worth it for the benefits your children receive by having a stay-at-home parent. Simple changes such as eating out less or finding low-cost entertainment alternatives can make these changes relatively painless. The added bonus is that these adjustments may boost your financial planning goals and further reduce your retirement gap. If you can get comfortable with a lower octane lifestyle now, a lower cost lifestyle in retirement may be easier to accept.
6. Workforce Re-Entry – In addition to your financial capital, it is important to consider how this decision affects your human capital – your skills, education and career experience. If the stay-at-home parent plans to re-enter the workforce, is licensing or continuing education part required, or are there skills that need to be sharpened in order to find a job quickly once you are ready to return to work? Develop a plan to re-enter the workforce and you will likely find the transition easier and more fruitful, which can impact your bottom line in the future.
The decision to work or stay at home to raise your children is deeply personal. If you consider the factors above and weigh all options carefully, you can’t go wrong.