Work or Stay at Home?

Can you afford to stay home after the birth of your child? In an attempt to answer this question, many folks use too simple an equation -- typically looking at a rundown of major bills, adding the cost of child care, and then comparing the expenses to their income. The trouble with this calculation is that it fails to do a couple of important things, such as (1) factoring in the true cost of working and (2) acknowledging many of the "hidden" financial benefits of employment.

That simple calculation also assumes that bills are an accurate gauge for how people spend all of their money. In reality, a lot of money drains out of the family coffers for incidental expenses (anything at Target), ATM withdrawals (huge chunks of cash unaccounted for), and daily dribbles (almost any habit, like Starbucks). Getting an accurate picture of where your money goes is an important step in determining if you'll actually be able to live on one salary.

Step 1. Figure out where all your money goes.

• Look at your fixed bills.
• Keep track of your spending. (The Fool's budgeting calculators may give you a hand.)
• Identify all the ways you could cut back.
• Add back in a realistic budget for essential baby items (clothes, diapers, etc.).

Need more encouragement to budget? Try:

• Balancing Your Budget
• Budget With Worksheets
• Budget Denial

Step 2. Figure out what your two incomes will boil down to, after expenses.

At first blush, it may seem like income from a job is pure profit for your family. In reality, jobs can spawn expenses, as well as boost you into a higher tax bracket -- both of which can take a big bite out of your take-home pay. Be sure to consider these costs of having a job:

• Child care
• Dry cleaning
• Professional wardrobe
• Commuting (gas, fare tickets, car maintenance)
• Higher car insurance (depends on the length of your daily drive)
• Parking
• Eating out or convenience foods
• Household services (housekeeping, lawn maintenance, or other services for your home you no longer have time to perform)
• Daily Starbucks habit
• Your colleague's daughter's wrapping paper and Girl Scout cookies
• The effect on your tax bracket
• Cell phone, pager, or Treo.

Your picture would be incomplete, however, if you stopped there. Be sure to look at all of the financial perks of outside employment beyond the increased income. You may be surprised by how many benefits exist beyond your paycheck.

• Dependent care benefit programs and 401(k) matching from your employer that can add significantly to your bottom line over the long haul
• Access to training and educational opportunities that boost your value as an employee
• Keeping your professional skills current
• A health care plan that may offer better benefits than your spouse's
• Insurance benefits (life insurance, short-term care, or disability insurance)
• Pension benefits
• Other perks such as subsidized gym memberships.

Your considerations won't be purely financial, of course. You'll have to factor in your (and your spouse's) opinions about parenting, as well as gut feelings. But having a handle on whether or not you can make it work from a financial standpoint gets you that much closer to making the optimal decision for your family.