Stay-at-home parents could be big financial win

Having only one income earner and a parent stay at home could be a big financial gain for the whole family.

May 7, 2012 10:06:58 AM PDT
Living on one income in a two-income world isn't always easy, so it's a real head turner to find many families forgoing the second income because it makes more financial sense.

Many families are sitting around the dining room table, doing the math and finding that a stay at home parent is not a luxury, but a financial necessity.

At the Webster's home, Gina is a stay at home parent who has taken on the additional duties of home schooling her children. It is a parenting and lifestyle decision, but it was driven by finances when their private school upped tuition.

"For all three, I think at that point, it was $13,000 or $14,000 per child and I probably reduced that to about $5,000 per child," said Gina.

Just to pay tuition, Gina would have to land a job paying -- before taxes -- around $80,000 a year.

"We looked at it for us and what our expenses would increase by having Gina go back to work," said Scott Webster, Gina's husband. "And in her case it is more than just being a housewife, it is being a home school mother. So it is an additional benefit."

It's an additional financial benefit. And here's another that is often overlooked.

"If you have additional income coming into the family, that could actually bump you up into a higher tax bracket. So your effective tax rate or the actual taxes that you're paying, or your take home pay, could be impacted by the lower income spouse," said financial advisor Eric Gottli.

Let's say you have a family of four with an income of $50,000 a year, with a standard deduction. Your federal income taxes will run $694. State income tax will be $26.00 for a total of $720 in income taxes. However, if you have a second income of another $50,000, the tax picture changes dramatically. Federal taxes rise to $8,656 and state taxes to $3,111 for a total of $11,767. The first $50,000 is worth $49,280 to your family. The second $50,000 is worth only $38,953.

Rayven Perkins runs the website and says for her family the numbers didn't add up.

"On paper I was making $2,100 a month. After I started to add up all the expenses that I had for working, I was actually only making $315 a month," said Perkins via Skype.

Where was all that money going? Aside from taxes and child care, there are commute costs, dinner's out, and work clothes. The take home pay gets taken up pretty quickly, but the main decider is nearly always kids.

"How much are you paying on child care every month? If you've got more than one child that is in child care, chances are by bringing that second person home from work, that right there is enough right there to make the savings worthwhile," said Perkins.

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