Press "Enter" to skip to content

Becoming a Single Income Family

I noted in a previous article on Financial Independence my wife recently left the workforce to become a stay at home mom. Moving to a single income family has a massive impact on take home pay. However, it may not have as large of an impact on savings rates as it initially appears.   You also may be able to mitigate this loss in some ways.

Stay at Home Mom

So, in our case my wife made the decision to be a stay at home mom after some period of working with our 2 kids in daycare. As such any change in our cash available for savings, or even net family inflows, must take into account the impact of day care costs. Before the change in my wife’s status we were paying approximately $25K a year in daycare.  This cost comes off by her no longer working.

In addition, tax expenditures are also offset from my wife’s previous salary. So, let’s assume we are in the 25% tax bracket. How far we are in that tax bracket defines how much of her pay is taxed at 25%. Assuming we’re sufficiently into the bracket then lets call it all 25%. Add in a FICA (Social security and medicare) withdrawal rate of 7.65%. Added together thats another 32.65% reduction in pay.

Financial Impact of Wage Loss Net Daycare Expenses and Taxes

So, first there is a hypothetical point where her working nets us 0, or the break even point.   This would be ~$37K or in our case $25K/(1-32.65%).

The Cost of Day Care/(1-your total tax rate)= Break Even Point

Beyond this point she actually starts to make money, however, it is not a 1:1 increase due to the tax rate being a percent. Apply your pay rate to the equation below to determine your actual benefit of working.

(Pay-(Day Care Cost))*(1-Tax rate)= The Actual Financial Benefit of Working

At $50K with our current day care costs, we would have $8.5K left. At $75K, the net would be $25K. At $100K, the net would be $42K. That is kind of depressing when you think about all the work someone might put into jobs at these pay rates. At the average American pay rate of $50K we would only need to replace $8.5K in inflows after taxes to remain whole.

Long Term Impact

Now, one could argue that there is a larger potential impact here in my wife’s long term earnings rates.   This may be more or less important depending on the job being left behind.   If that role had limited advancement opportunity, she were considering a career change, or if she did not want to advance then this would not be a concern. Given I practice stealth wealth, I’m not going to tell you where on the scale we really are, but I will talk to you about some of our mitigating steps for the reduction in inflows.

Income Alternatives

  • The first step was my wife decided to do some freelancing via Upwork. With my wife’s engineering background she should easily be able to find a freelance technical writing gig for $25 dollars an hour. At 5-10 hours a week this will net anywhere from 6,500-13,000 dollars a year. This also may allow my wife to keep her resume up to date, mitigating some of the concerns around future earnings.  At this point, the average American Household is now whole.  I will assume for these purposes she manages to average 7 hours  a week year round, so $9,000.
  • The second step is to look at more ways to bring in free money/coupon cut for our existing purchases. I estimate our costs and income will change to the positive by about $1,000 a year between the tools like Swag Bucks for cash back/video watching  (which tends to net about 50-100 dollars a month), and cost cutting from coupons.  While these steps could have occurred before, my wife now feels like she has enough time with the kids to spend more time on these other tasks.
  • The third step I took was to refinance our mortgage.  I’ll talk about my no closing cost refinance next week, but this nets us an additional $1,300 in savings a year.
  • The final action was to get myself a raise. By my wife being a stay at home mom, I will be able to further focus on my career which should allow me to increase my salary.  I was able to meet with my manager and negotiate a salary increase recently and this should cover any remaining financial gaps.

Blogging as a Hobby

One final item you may be asking about, in theory, this blog might also be one of these open ended opportunities.  I am currently not viewing it as more then break even entertainment so it is not included as such.  That being said you never know.

So net here we have a relatively safe recovery of $11K a year (excluding my salary increase). With just the information I’ve shared the typical family would already have offset their reduction in pay and come out $3.5K ahead! On the high end at 100K there would still be a 21 K gap. However the wild card of the improvement in my career can close more of these gaps.  Also, other freelancing on my part could close holes.

Single Income Family Mitigation

Where does that leave us? Simply with a question that led us to my wife’s decision. Is it worth the stress of a full time job that would pay somewhere from $50-$100K a year for a total take home of between $0-$29K depending on where you started? If the answer is no, and you can survive on the lower take home then going to a single family income is an easy decision. To answer this final question, we lived the last 4-5 months on 60% of my salary. Success here shows us that we should have no concerns.

So, ultimately the moral of this story is that the key to making the transition is to execute side hustles and plan for the impact of the lost income. Do you have other side hustle suggestions for a stay at home mom that might have 5 -10 hours a week when the kids are napping or asleep?

Note: This post contains Affiliate Links.  The content was written before learning of these companies Affiliate programs, but that does not change that I will receive some renumeration for some of these if you follow through with creating an account.

8 Comments

  1. Mustard Seed Money
    Mustard Seed Money October 14, 2016

    My wife stays at home to take care of her special needs sister and our son.

    She is an extreme grocery shopper. She saves us tons of money by shopping at Aldi and shopping deals each week via the mail circulars that we get. That has saved us atleast $100 on groceries each month.

    Other than that we haven’t done too much else. But then again we had cut down a lot of our expenses before we relied on a single income.

    I look forward to hearing more about your financial journey on a single income.

  2. Finance Solver
    Finance Solver October 15, 2016

    I have absolutely no qualms of being a stay at home dad if my future wife had made more money than me. That being said, that doesn’t mean that I’m going to be spending all my time doing nothing work-related. I will look for side income opportunities and freelancing opportunities if it does come out that way and will not be complaining at all while doing so!

  3. Mrs. Defined Sight
    Mrs. Defined Sight October 15, 2016

    I thoroughly enjoyed this article. I am so glad you have crunched the numbers, and have a well-thought out financial plan for making this life-changing event. 1 point to factor in – your kids will only be little for so long. In a few short years, they will be full-time in school, and your wife could maybe have the time for a full-time career back. So enjoy these years while they are little….they will fly by.
    Your wife sounds like a well-educated person. With an engineer’s degree she could be hired as a contractor for any private, or state job. They need extra skills for certain projects all the time. If she keeps a beefed up resume, and circulates it with the right connections, she could be a stay at home contractor cranking out a few hours after the kiddos go to bed or Saturday mornings.
    Other suggestions for the side hustles – or I like to call them side services (it’s not what people what…think about what they need!) An example would be daycare. Your wife is already watching 2…could she take on 1 more kiddo full-time or even part-time? Sometimes the kiddos might get a long better too during the day when there is a friend coming over!

    • fulltimefinance@fulltimefinance.com
      [email protected] October 16, 2016

      Thanks for the comment and words of encouragement. Ironically this week another group at her work approached her about potentially contracting. I’m actually beginning to wonder if we’ll come out ahead on all this in addition to her getting more time with the kids. It just goes to show if you plan ahead there is likely a solution.

  4. Michael @ Financially Alert
    Michael @ Financially Alert October 18, 2016

    Nice article! We’ve done the opposite in our household. I’ve left the typical 9-5 working environment and my wife chooses to continue working (she’s a school teacher and super passionate about her subject – biology). Anyhow, offsetting the nanny costs was huge and the impact of being home with my children is priceless to us. It’s definitely been a shift, but one that has far more positives than negatives. As far as side hustles, I get to dabble late at night once the kiddos are fast asleep. 🙂

    • fulltimefinance@fulltimefinance.com
      [email protected] October 18, 2016

      Nothing wrong with doing it as the male or female. In our case I somewhat enjoy working and she feels bad missing time with the kids. So here we are.

  5. Zack
    Zack October 10, 2017

    My wife is an accountant and makes considerably more than I do as a teacher. We were paying a ridiculous amount to get our son into a daycare we were comfortable with. My wife couldn’t bear being away from our son for so long and was able to negotiate a salary reduction to work from home 4 days a week. My mom stepped up to watch our son that 5th day and daycare expense solved! Don’t forget to factor in driving costs. Removing my wife’s commute saved us a large portion of her salary reduction. Fast forward a year and her work gave her a raise putting her back to her original salary but she is still working at home saving us thousands in daycare and transportation costs!

    • FullTimeFinance
      FullTimeFinance October 10, 2017

      Sounds like it worked out very well for your family. Your right, a commute can also play a big role.

Leave a Reply

Your email address will not be published. Required fields are marked *