Is it more cost effective to stay at home or to work for women?

At various points after and even before my daughter was born, I did think and still think about what would it look like to be a stay at home mom. Given the chance, I would have but I knew that I could not financially.

Let’s break down the costs associated with not working and taking care of your child. A lot of folks, make the decision to stay at home from an emotional perspective without actually looking at the numbers. In creating the cost structure I made a couple of assumptions:

  1. There is no inflation adjustment
  2. This does not take into consideration if you are a single parent or not
  3. The analysis is purely from the lens of costs

Table 1:

Year Income Retirement – Her Retirement – Company Health Savings Childcare
Year 1 50,000 2500 2500 1000 14400
Year 2 50,000 2500 2500 1000 14400
Year 3 50,000 2500 2500 1000 14400
Year 4 50,000 2500 2500 1000 14400
Year 5 50,000 2500 2500 1000 14400
Total 250,000 12500 12500 5000 72000

In the above case study, let’s say year 1 indicates the first year of the birth of this person’s (Sally) child.

Sallie’s salary remains constant from year 1 through year 5.

Decision 1: Sally Decides to Work

Based on Sallie’s decision to work at the end of year 5 she makes $250,000. She is able to contribute a total of $12,500 and her company puts is the same amount for a total contribution in her 401(k) of $25,000.

Consider that she has a health savings plan that she contributes to. She contributes a total of $5,000.

The big expense other than dealing with mortgage or rental payments is child care amounting to a total of $72,000 by the end of 5 year. Average child care expenses in the US amount to $1,200. 28.8 % of her income is going towards paying child care which is a big slice.

Decision 2: Sally Decides not to Work

Now Sally has decided to stay at home. Her decision to stay at home would impact her long term financial goals. She would have lost $25,000 going towards her retirement in addition to the health savings. However she would have saved $72,000 dollars in child care expenses.

However since she would not have an income stream it would be a loss situation because she would have given up on her retirement and other benefits and the learning curve and time it would take Sally to transition back to work would be a steep one.

All in all, going to work brings financial stability, but staying at home has it’s own perks in terms of child rearing.

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