Being a new parent takes patience, self-control and tolerance. It’s no surprise that it also takes a lot of money. The price tag is estimated at more than $304,000. That’s the projected inflation-adjusted cost of raising a child until age 18, not counting college. It’s easy to see why many new parents stir the debate on whether they should return to work following the birth of their baby.
But how do you know if it’s feasible for your family to have one parent stay at home? Although there isn’t a right or wrong answer, to reach a conclusion you have to review your household budget, understand expenses, look at where you can make concessions and balance the emotions that come with your decision.
Understand Leave Benefits
The Family and Medical Leave Act (FMLA) guarantees parents 12 weeks of unpaid time off, with health benefits if they’ve logged at least 12 months on the job (or 1,250 hours in the last 12 months). FMLA does not apply to companies with fewer than 50 employees, but many small businesses offer new parents time off. If your employer does not, bank your vacation and sick time for when your baby arrives. Before your leave, show your employer your best work. Training and professional development opportunities will ensure stability if you return to your job.
Review Your Finances and Spending Habits
Diapers, formula, clothes and well-baby doctor visits will run a few hundred dollars a month. Add what you already spend on housing, groceries, utilities, transportation and healthcare. To help determine if you can afford to have one parent stay home, develop two budgets: one assuming both parents working and one with one income earner.
Remember to factor in saving for emergencies, retirement and education. Evaluate the costs of converting a wage earner to a stay-at-home caregiver by comparing actual expenses for working (childcare, commuting, parking, lunches out, clothing, etc.) against what you can save by staying at home (lower transportation costs, fewer restaurant meals, etc.). Take into account your work schedule, location, job stress and desire to work vs. staying at home.
If you both are returning to work, a big line item will be childcare. The average cost of daycare in the U.S. is just under $12,000 per year, according to the National Association of Child Care Resource and Referral Agencies. Live-in nannies can easily double this expense.
If you are your spouse quits work to stay at home, you won’t have childcare expenses, but, of course, you’ll lose the second income. Practice living on one wage before your baby arrives to test your budget. Remember, staying at home is not cheap, either. Utility and grocery costs will be higher. Also, many stay-at-home parents seek classes and outings with other parents to break up the monotony.
Be sure to recognize nonfinancial conveniences as well, such as the stay-at-home parent being able to handle healthcare provider visits and health emergencies more quickly than a parent working away from home.
Who Will Be Minding Your Child?
Deciding whether your child will be cared for at a daycare center or by a nanny or au pair is not only an emotional choice, but a financial one as well. Weigh the costs, convenience and your comfort level with various quality childcare options. Are family members or friends available to help? Find out if your employer offers a dependent-care flexible spending account. This allows you to set aside up to $5,000 a year of pre-tax income for childcare while you or your spouse work, look for work or attendant school full time. However, if your household income is less than $43,000, you may save more money electing for the dependent-care credit on your income tax return. Consult a tax advisor to see which option is best for you.
Ask your employer if you can work remotely. If this isn’t an option and you are anxious about potentially losing employment skills, consider freelance projects, consulting or volunteering in your field. Also, stay connected to your peers via social media platforms.
Staying at home or returning to work doesn’t have to be a permanent choice. If what you’re doing doesn’t work for you and your family (not just financially — you may not feel intellectually stimulated staying at home, for example), you can always make adjustments as needed.
For more on planning for financial success as a new parent, visit www.SmartAboutMoney.org.
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