Can we make it on one income?

ErikaB123

Hi ladies,

I am pregnant, due in August. My dream is to be able to quit my job and be a stay at home mom with our little one at least for the first couple years. Childcare is outrageously expensive and I would rather be raising my child then paying someone else to do it.

My husband and I currently make close to 100k before taxes. Without my income we will go down to a little over 75k pre tax. Our only debt is our mortgage ($1850 with prop tax and insurance included per month). We are currently contributing a flat amount of $2000/per month towards our mortgage in hopes of paying it off a few years early (I think we calculated that this would save us 5 years). We are able to put $2000 a month into savings.This is our first child and so I know our taxes will change in a favorable way I am hoping. 

Can anyone give me some insight into what I can expect tax wise and if you all think that going down to just my hubby's income will be sufficient? I would love to be a stay at home mom, just not sure what to expect. 

JoanE2012

Sorry, I have no experience into tax implications.  But have you worked out a more precise budget?  What would be your take home vs your expenditures?  You mention mortgage, but nothing about other expenses (ie utilities, phone, etc)  Have you considered extra baby expenses?  How would your health insurance change?  What about your retirement savings?  How healthy is your emergency fund?

ErikaB123

Very good questions- I should have elaborated more thoroughly. As far as other expenses, we spend about $300 on food$60 electric $30 gas $100 water $50 trash. It's the "extra baby expenses" that I am not sure of since this is my first child. I know diapers are a huge expense. I plan on breastfeeding so formula will not be needed. My healthcare is incredible- I won't pay a cent for the birth. If we go down to just my husbands we will probably spend about another $150 a month for his insurance policy. Our retirement/ savings is over 55k. I realize we won't be saving 2k a month with the baby but we still would like to be saving some. Hope this helps out. 

ErikaB123

We don't pay for our cell phones and our internet is $60 a month. 

Wulfgar

It sounds like you are basically saving your after tax pay checks already.  If your husband is making roughly $75k that means that you are bring in roughly $25k.  All you need to do is come up with a good working budget for when the LO comes.

As for formula not needed, I would not count on that.  Our first was so hungry that we had to supplement with formula.  Also, depending on how fast your LO grows, you will out grow clothing quickly.  My oldest is in child small at 4 years and my youngest is in 9 months at 4 months old.  You do basically need to budget for child clothing for the first 18 years especially around growth spurts where they quickly out grow everything that they wear.

ErikaB123

Wulfgar, thank you for your input. I am clueless as to what it cost to raise a child so any insight you have is appreciated. You are correct, I only bring in 25k but I also only work part time right now. I am thinking that since my income is so much less than my husbands, we won't take that big of a hit once baby is here if I stay home. Part of my reasoning is that our tax situation will change big time having an extra dependent and also with my husband being the sole provider. 

AprilZ81

Your situation is VERY  similar to ours (except I'm not pregnant, just not working due to a layoff).

I think you can do it, but you I would recommend that you start living on one income NOW and save all of your income as an additional safety net for after the baby arrives.

You can use the next few months to fine tune a budget (and go ahead and pretend you have baby expenses and put that money into a baby account) so you can see how it feels.  It will be an adjustment but it will help.

Some things will naturally change after the baby.  You most likely won't want to go out every weekend for dinner but you might be bored and want to go out for coffee with friends more.  

hoffse

Yeah I mean the way you figure this out is you look at your take-home income, subtract yours out, and then see what's left.

PP's are correct that you need to account for changes in health insurance, retirement, etc.  I think retirement would be the biggest concern for me.  How old are you guys?  $55K may or may not be on track for your ages.  If you are in your 20's or early 30's, you guys should be saving 15% of your gross income, or about $15,000 per year right now.

If you only work part-time,it might also be worth looking to see whether you could get your hours to coincide with a mother's day out type program so that you don't have to quit completely.  Those are typically much less expensive than daycare, and then you wouldn't have to give up your income completely.  

hoffse

I will add that your taxes should go down if you husband changes his withholdings correctly.  But I wouldn't spend the next few months factoring this in.  Take what you're making right now and just subtract it from your take-home budget to get your baby budget in order.  Then let any extra money from the taxes be a nice little bonus when the time comes.  

cbee817

What is your part time schedule? Do you work 4 hours/5 days a week or a full shift 2-3 days a week? I feel like the latter of the 2 may allow you to send LO to day care 2 times a week and then you'll still be able to keep your job and be home with your baby. The tax benefits aren't that great- our biggest break is actually the FSA day care account we have (can contribute up to $5,000/year pre tax to pay for day care expenses).  

It's really a personal choice- it seems like you have more flexibility than most since your income is much less compared to your DH. Are you planning on having your kids close in age? That could be another deciding factor because your day care costs will more than double when you send 2 (most day care centers charge more for babies than toddlers and pre-k kids). My girls are 20.5 months apart and we pay about $20,000/year on full time day care for both of them. Our combined income is about $140K so for us, it didn't make sense for one of us to leave the workforce for 7 years. 

Do you have a decent e-fund? Is DH's job relatively stable? Do you have any other debt besides your mortgage? Are you planning on cloth diapering/do you have good consignment stores for clothing? Babies are expensive- they fly through clothes, diapers, there are a lot of doctor visits during the first year. Are you having a shower- is family offering to buy the larger items (crib, mattress, car seat, stroller, etc). Sit down with DH and really go through your finances- try to live the next 3 months as if your income was gone- see if everyone feels comfortable with just DH's income. 

Finally, I'm sure you didn't mean it, but day cares do not raise peoples' kids- they spend way more time at home and with their parents than anyone else. Day care is necessary for a lot of people and it's the best thing a parent can do for their kids when they have to work in order to give their children a happy and healthy life. 

Good luck to you- keep us posted! 

smerka

We were in your situation 6 years ago. We have made it work. No real vacations during that time and I could use a new vehicle, but we are holding our own. And that's with a kid with autism so we pay about $100 per week in copays for therapy. Both my kids will start full day kindergarten in the fall (Irish twins) so I am starting to think about working more. Based on your income, you will likely qualify for the $1,000 child tax credit and the extra exemption ($4,000 this year)

smerka

I highly recommend www.consignmentmommies.com to find resales in your area. You can find all kinds of baby equipment and clothes for cheap. Buy your crib and carseat new, but everything else can be used. And resales are perfect for infant clothes. Babies grow so fast that frequently the clothes have been worn once or twice. Frequently sales will let first time moms shop early for best selection. I sell all of my kids clothes when they are done and I frequently buy the next size and still come home with some extra money.

MommyLiberty5013

Wulfgar said:

It sounds like you are basically saving your after tax pay checks already.  If your husband is making roughly $75k that means that you are bring in roughly $25k.  All you need to do is come up with a good working budget for when the LO comes.

As for formula not needed, I would not count on that.  Our first was so hungry that we had to supplement with formula.  Also, depending on how fast your LO grows, you will out grow clothing quickly.  My oldest is in child small at 4 years and my youngest is in 9 months at 4 months old.  You do basically need to budget for child clothing for the first 18 years especially around growth spurts where they quickly out grow everything that they wear.

Such a smart guy! I love this all and totally agree.

I think you staying home is totally doable and for other non-monetary reasons, I think it's a fabulous idea!

I do agree with the formula thing. One other point on BFing is that as much as some moms want to BF and try to BF, sometimes it doesn't happen...the milk they produce isn't enough or isn't fatty enough. Other times, moms do well BFing and then after some time they lose supply/production. For example, with me personally, my body only took me as far as 8 months with my first child for BFing. I just wasn't making enough milk to give my son what he wanted and needed. So, we began formula at that time until he was 1 and then we switched to whole milk. My DD was 9 months BFing and DS was 7 months. So in each case we had 3, 4, and 5 months of formula usage until each child was 1-year-old.

Every mom and mom's body is different, though. You may not have any trouble.

Regarding clothing - Target does a FANTASIC job of marking down their infant, toddler, kid clothing as the season ends. Stuff gets up to 50% off. Sometimes 70% off. If you plan ahead and know to go to Target as a season concludes, you can buy ahead for the next year. For example, DD is in 3T now, but I saw a 5T fleece jacket on sale yesterday for $13.00 - marked down from $20-something. I bought the three kids' snow pants for $8 a piece at the end of the winter and now they are all set for winters to come....here in MN kids' snow pants can retail full-price as high as $30! I do this with pants, tops, shorts, dresses, and accessories in addition to outerwear!

If spending money on kiddo stuff is a bit burdensome for you, try Craigslist. Many, many parents have oodles of gear they are dying to get rid of that's still in awesome shape. Swings, rockers, bouncers, play yards, strollers...in the fall I sold a matching Fisher Price swing and bouncer set for $20 on Craigslist!!! Basically, don't buy into the idea that you have to have brand new items for baby! If it's clean, nearly new, and from a non-smoking home, you're golden!!!

ErikaB123

Wow thank you all for bringing up very good points. A bit more info for you- my husband and I just turned 29, we bought our house at 27. We live in SoCal where the weather year around is about 70 degrees, so our heating bills never really change much. It is very expensive to live in our area, we bought our 2bd 2ba for $400,000. We do plan on having a second child soon after the first one (at most 2 years apart) and I realize we may outgrow this house soon. 

Knowing that our age is 29, do you guys think 55k in savings is enough at our age? In our checking we have another 6k. We do not have a 401k set up yet which we have been looking into. I own a few stocks which gives us another 7k. 

My main reason for wanting to stay at home is because I was raised with my mom at home (though she worked from home) and I loved always knowing she was there. The other thing is that my income is only 25k because I work about 30 hours a week in a special needs classroom with fixed hours. I am thinking that if it takes my entire income just to put my kids into daycare, it isn't worth it for me to go back to work. 

I still feel there are some variables we just won't know until the baby is here. As many of you pointed out, we may need to buy formula. I will be having 2 baby showers coming up and hopefully we will get some of the larger items from family. 

Thanks again ladies for all your input! 

ErikaB123

hoffse said:

Yeah I mean the way you figure this out is you look at your take-home income, subtract yours out, and then see what's left.

Yes, obviously this is an easy calculation to make. What I am trying to figure out is how our taxes will change. Once my husband changes his W2 form, he will be taking home more per paycheck with a dependent on there. Also trying to figure out approximately what to expect to spend on baby per month. 

hoffse

hoffse said:

Yeah I mean the way you figure this out is you look at your take-home income, subtract yours out, and then see what's left.

Yes, obviously this is an easy calculation to make. What I am trying to figure out is how our taxes will change. Once my husband changes his W2 form, he will be taking home more per paycheck with a dependent on there. Also trying to figure out approximately what to expect to spend on baby per month. 

I really wouldn't try to get this figure down to the dollar.  Your taxes probably will change a bit but not as much as you are expecting.  It is better to be conservative in these estimates.  What you will probably be able to take is an extra personal exemption.  Your incomes are probably too high for the EITC - even just on your husband's income it's likely too high - and your income is probably too low to really affect your taxes all that much if you quit.  It's possible that your income pops you guys up to the 25% bracket for some very small portion of your AGI, but it's probably not for very much at all. 

Personal exemptions are worth a whopping $4,000 per person in 2015.  It's just a deduction so it's not worth very much when it comes to actual tax savings.  And I hate to tell you this, but the less you make the less it's worth. 

So I'm guessing you guys are going to save a minimal amount of taxes.  And what you save on taxes could very well be offset (or more) by what you have to spend on health insurance when you switch to your husband's. 

So that's why I suggest you look at where you are now and see if you could afford it with the increased health insurance costs and your loss of income.  I'm not being blase when I suggest that, I'm saying that your tax savings are going to be minimal enough that they shouldn't be a major consideration here.  

As for ongoing costs, scroll down this board a little bit and you'll see multiple posts where people discuss that.  The problem with giving you a number to work with is that it's very area dependent, and it also depends a lot on your employer.  For example, when H and I have kids the big cost for will be health insurance.  That will go up around 4-5x what we pay right now.  But our employers subsidize daycare as a perk, so our costs for that will be cut in half, and we live in the SE where costs tend to be lower to begin with.  The costs for diapers, wipes, etc. tend to be minimal compared to daycare/loss of income or health insurance.

They don't stay babies forever.  Eventually they go to school.  Will you guys be able to use the public schools?  Or will you need to go private?  That's a big consideration.  And what about college?  Are you going to help with that?  If so, you might want to look at college savings calculators now.  The projected costs for even the public schools 18 years from now is expensive enough to give anybody heartburn.  

Given your income and ages, $55K in retirement is pretty good.  I would absolutely make sure you can keep that level of contribution up with a baby though.  You guys are a little ahead of the curve, but not so much that you can afford to lower your contributions by much.

vlagrl29

I absolutely think you can SAH based on your DH's salary - it's not like you were making a ton of money anyways.  I stay home with DD and wouldn't have it any other way.  They are only little once. It can be a tough job but so worth it.  My mother also SAH with me and it was great for me as well. I do work part time with the music lessons and gigs, but DH and I just talked last night and I will most likely stop teaching when we have #2 and just do the gigs.  It will be our last baby and I don't want to be too stressed out with 2 kids and owning my own business.  I want to be able to enjoy the newborn stage as most as I can next time.  They are only that tiny for a very short time.

ErikaB123

Hoffse, I really appreciate your response, you brought up great points that I will definitely be going over with my hubby. I know it's going to be tight, but I do think it's possible. We know how to live cheaply and are good savers. I know the baby will change many things and it is possible that I will have to continue working. Perhaps I can take a leave of absence for a year and return to work with fewer hours. The one thing about my job that makes it extremely valuable are the benefits. The hours are also very accommodating to having children (7:40-2:40). I guess time will tell us much more, but I think you're right in telling me to not count on tax changes in figuring out our budget. Thanks again. 

smerka

Just so you know, when we added two kids and I started staying home, our income taxes plummeted. I mean to the point where we became part of the 47% who pay nothing in income taxes. We got all of our withholding back plus a couple hundred dollars, meaning the govt was paying us. Now we also have ridiculous property taxes, a mortgage, and a couple years of education credits. This year those education credits were pretty low, so we actually had to pay a bit, but I am pretty sure our tax was still only a couple hundred dollars.

ErikaB123

smerka, just wondering if it's because of your income level? I kind of doubt that if I stop working and we are on only my husbands income it will help much because I think he still makes too much (75k)? 

smerka

Our AGI has been around $65,000. Our itemized deductions are pretty high because our property taxes are around 9,700 in addition to mortgage interest, charitable donations, state income taxes, etc. The Additional Child Tax Credit is refundable, which is how we wind up with an extra couple hundred dollars. You should be able to run the numbers on tax software pretty easily, but it can be really hard to predict with any certainity because a couple hundred dollars can swing the numbers. Yes the US tax code is messed up.

hoffse

smerka said:

Just so you know, when we added two kids and I started staying home, our income taxes plummeted. I mean to the point where we became part of the 47% who pay nothing in income taxes. We got all of our withholding back plus a couple hundred dollars, meaning the govt was paying us. Now we also have ridiculous property taxes, a mortgage, and a couple years of education credits. This year those education credits were pretty low, so we actually had to pay a bit, but I am pretty sure our tax was still only a couple hundred dollars.

Yeah this makes me a little stabby.

H and I are higher income earners,but still.... our federal tax bill alone is going to be around $45K for 2015.  That's after all of our deductions are accounted for, and it doesn't include our state and local income tax (yes, we pay local income taxes too) or property taxes.  It also doesn't include social security, etc.  

Joy!

smerka

Don't get me wrong. The tax code is messed up when a family like mine pays nothing in income tax. But it is also kind of hard to feel sorry for you when your tax bill is around the median family income for your state (AL, right?)

AprilZ81

smerka said:

Don't get me wrong. The tax code is messed up when a family like mine pays nothing in income tax. But it is also kind of hard to feel sorry for you when your tax bill is around the median family income for your state (AL, right?)

@smerkka What is your point?  You were pretty much bragging that you had two kids and pay nothing in federal income tax.  47% of Americans don't pay federal income tax.  That means that 53% of Americans pay 100% of the tax bill.  It gets frustrating (to me anyway) because if 100% of Americans paid just a little bit of tax then the tax rate wouldn't need to be so high.

hoffse

smerka said:

Don't get me wrong. The tax code is messed up when a family like mine pays nothing in income tax. But it is also kind of hard to feel sorry for you when your tax bill is around the median family income for your state (AL, right?)

I'm not asking people to feel sorry for us. We can afford it.  But between taxes, social security, and retirement, over half of our gross income is not reachable to us.  Obviously the retirement portion of that is optional - but only sort of, because neither of us will receive pensions.  H and I really don't oversave for retirement by any significant degree.  

That's before you factor in debt.  Once the debt - which has enabled us to earn our incomes - is factored in, we live and save on about 20% of our gross income.  

I just think that if we as a society have decided that incomes should be taxed, then anybody who earns an income should pay into it to some degree.  I actually do think that higher income earners should pay more.  I recognize that a dollar to me is worth less than a dollar to somebody who makes half of what I make  - but having that many people pay nothing is ridiculous, and it makes tax reform very very difficult.  That's why I get stabby whenever I read that figure.  The tax system needs to be seriously overhauled, but good luck convincing half the population that suddenly they need to start ponying up.

What really irritates me is that all that money goes to the government to be frittered away on whatever.  I really wish there was some option to send part of it to charities that do grassroots work locally (such as homeless shelters, etc.) and receive a 100% tax credit for some portion of your donation. Frankly, those groups are going to do a better job at managing those problems than the government can, and our dollars would go farther.  If I had the option to send maybe half of my tax bill to local charities, I would do that in a second.  I bet every person on this board would as well. 

smerka

First of all. I am not bragging that I don't pay anything in income taxes. The OP asked how quitting her job might effect her tax situation and I answered with what happened to us. I don't feel 100% comfortable knowing that we are pay very little in income taxes. But we pay a lot in other places, like our property taxes. And we still pay state income taxes.
We will get hammered in the years to come because I plan to go back to work and we will eventually lose the deductions for the kids and mortgage interest. The first thing I would change about the tax code is to make the ACTC non-refundable for people with incomes above a certain amount. The EIC incomes ranges would be a good amount to use. That would prevent families like mine from having negative tax liabilities.

smerka

Another thing that is annoying about the tax code is that it rewards people who make bad financial decisions. Have a lot of kids? Here's a deduction for each one of them. (Kids are a bad move from a strictly financial standpoint. Thankfully most parents don't make the decison about having kids based solely on financial reasons). Buy more house than you should or get a high interest rate because you have a crappy credit rating? Here, deduct all of that interest.
On the other side of the coin, the tax codes does reward low income people who save for retirement. It would be pretty nice if they were to expand the income limits for that credit.

vlagrl29

I think it's best if the OP asks her CPA what tax bracket she will be in when her income is subtracted out of the equation.  with as little as she makes it might not make a huge difference and they may still be in the same bracket or they may be in the bracket just below their current status.

I talked to our CPA a couple months ago to prepare for 2015 taxes. DH will be taking out some capital gains for his down payment in the studio - about the same as he did in 2014 (15,000ish), but it won't put us in the higher tax bracket thank god.  we pay enough self employment taxes as it is.

noffgurl

smerka said:

Another thing that is annoying about the tax code is that it rewards people who make bad financial decisions. Have a lot of kids? Here's a deduction for each one of them. (Kids are a bad move from a strictly financial standpoint. Thankfully most parents don't make the decison about having kids based solely on financial reasons). Buy more house than you should or get a high interest rate because you have a crappy credit rating? Here, deduct all of that interest.
On the other side of the coin, the tax codes does reward low income people who save for retirement. It would be pretty nice if they were to expand the income limits for that credit.

A little off topic here, but it's funny you say that. When I worked as a tax preparer, I actually had a guy get furious with me because he wasn't getting as much back for having a kid as he thought. (I don't remember all the circumstances surrounding it, but I think he was expecting the EIC and his income was too high). He cussed me and his wife out right there in the office, asking why in h*ll did we have the d*mn kid then.

vlagrl29

noffgurl said:

smerka said:

Another thing that is annoying about the tax code is that it rewards people who make bad financial decisions. Have a lot of kids? Here's a deduction for each one of them. (Kids are a bad move from a strictly financial standpoint. Thankfully most parents don't make the decison about having kids based solely on financial reasons). Buy more house than you should or get a high interest rate because you have a crappy credit rating? Here, deduct all of that interest.
On the other side of the coin, the tax codes does reward low income people who save for retirement. It would be pretty nice if they were to expand the income limits for that credit.

A little off topic here, but it's funny you say that. When I worked as a tax preparer, I actually had a guy get furious with me because he wasn't getting as much back for having a kid as he thought. (I don't remember all the circumstances surrounding it, but I think he was expecting the EIC and his income was too high). He cussed me and his wife out right there in the office, asking why in h*ll did we have the d*mn kid then.

dad of the year right there.  what a winner she picked. (sarcasm font)

short+sassy

AprilZ81 said:

smerka said:

Don't get me wrong. The tax code is messed up when a family like mine pays nothing in income tax. But it is also kind of hard to feel sorry for you when your tax bill is around the median family income for your state (AL, right?)

@smerkka What is your point?  You were pretty much bragging that you had two kids and pay nothing in federal income tax.  47% of Americans don't pay federal income tax.  That means that 53% of Americans pay 100% of the tax bill.  It gets frustrating (to me anyway) because if 100% of Americans paid just a little bit of tax then the tax rate wouldn't need to be so high.

Boy, did I get an education today!  I had no idea this was the case.  That is abysmal and now you all have bummed me out, lol.

So, if I'm understanding correctly...not only am I in the 53% who pay all the taxes.  But then some of my taxes (though probably more state) go toward public schools to educate the children of the 47% who pay no federal...even though I don't and never will have a child?

Don't misunderstand, I wholeheartedly love public schools and don't mind my taxes supporting them.  I think good public schools help our society's future, as a whole, tremendously.  But still.

I also find it ironic that at the tender age of 15...a very child myself...I paid federal and state income tax from my little paycheck.  Yet full grown adults with full-time jobs can get away with paying nothing?  Argh!

I know this isn't the popular opinion and it would never fly in this country...since most voters have children...but even before this thread I have wondered why and thought it was unfair that parents get dependent deductions.  I mean, if someone chooses to have a child(s), that's great...but why does that deserve a tax break?  Maybe it made sense in the past when we wanted to grow the population, but it doesn't anymore.

Sorry to hijack your thread a bit, OP!

For your questions, for what it's worth, both my sister and a good friend are SAHMs in So Cal.  I'm pretty sure both of their husbands make less than what yours does.

In the case of my friend, her and her DH never have two dimes to rub together because of that choice.  In fact, their house almost went into foreclosure when she decided to not go back to work after she had her baby.  But that is what they were willing to do, if they had to, in order for her to stay home with their child.

In fact, despite the fact that her child is now old enough to go to elementary school, my friend is still choosing to not go back to work and to home school her daughter instead.  So.Hard.to.not.be.Judgy.

But, my point is, if you all want to make it work, you will make it work.  And you all are in a much better place than they were.  Her income was more than double yours and they didn't have much savings.

My sister and her DH have a nice, middle class lifestyle.  They actually have two children, but she stopped working toward the end of her pregnancy with the first.  At the time, she probably made in the neighborhood of your current income.  They are pretty good with money and had (still have) savings, though probably not quite as much as you all.  At least at the time my sis stopped working.  They have always rented, which is often more expensive.

My sister does pick up some extra income by babysitting a friend's child 2-3 days/week.  Something like that might be a nice option for you also.