Is a second income worth it?

Usually, people assume that having more money is better, but that's not always the case, Hamm says. When one or both jobs require a commute, child care is eating up income, or you're eating out more because nobody is home to cook, it might be worth considering having one parent stay home.

Mark Lennihan/AP/File
Metro North employees, in orange vests, help transfer westbound commuters at the transportation center in Bridgeport, Ct., to shuttle buses last month. When both parents in a family have to commute to work, Hamm says it might be worth considering whether or not it would be helpful to drop down to one source of income instead.

I had a very interesting conversation with a reader recently who informed me that she discovered it was much more cost-effective for her family for her to quit her $22,000 a year job and instead maximize their family’s frugality. Sandra agreed to let me share elements of her story with you.

First of all, this family had two early elementary students in the home and didn’t have any support structure around them. Because of their two jobs, there was no one at home when they got off of school, so they had to go to an after-school daycare each day, which cost their family $125 a week for 36 weeks a year. That’s $4,500. There was also summer child care, which was about $275 a week for 10 weeks a year – another $2,750.

Second, they both had to have cars for their commute. While they both drove old cars, she was still commuting about twelve miles a day, five days a week, fifty weeks a year. That’s 30,000 miles a year. If the car gets 30 miles to the gallon, that’s 1,000 gallons of gas alone, or $4,000. If you figure in all of the other maintenance needed for a car, plus depreciation of the car’s value, plus insurance, plus vehicle registration… it’s easy to put another $2,000 a year on top of that, giving them $6,000 in vehicle costs.

Third, the awkward hours meant that it was hard to always present a home-cooked meal. They used their slow cooker a lot, but sometimes it was much easier to go out or eat convenience foods because without very quick meals it was hard to have any family time during the week. She estimated that $50 was wasted on quick foods in an average week, adding up to $2,500 a year.

Finally, there were taxes. Her husband made $60,000 a year, so a quick tax calculator told me that they were instantly saving at least $2,500 a year in federal taxes by her not working. Depending on their state, there were likely some state income tax savings, too.

Adding those numbers up, you quickly get to a total of $18,250 in savings just from these factors. Since her job made $22,000 a year, all she had to do was find ways to save an additional $3,750 a year by being frugal and it made more sense for her to stay at home than to work, which she said was quite easy.

She reports that their finances are in better shape than ever before and their home life is a lot better, too, because she fills her days with taking care of household tasks and frugal projects. She does things like making homemade laundry soap, preparing all meals from scratch and making extra batches, planning meals carefully, and so on. The best part, she reports, is that she now has more family time than ever before.

Does she plan to return to work? Her plan is to return to the workforce when her children are old enough to stay at home alone.

Sandra’s story illustrates an interesting aspect of personal finance that isn’t always considered.

Quite often, it’s simply assumed that more money is the way to go when it comes to improving your financial standing and, thus, your life.

That’s not always the case. Here are some factors, when combined, that might point to a situation where one income makes more sense.

One income is substantially lower than the other one. When this is true, that second income is technically bearing much of the weight of the income tax in the family because it’s that income that is in the highest tax bracket in the family. Regardless of what it says on the pay stub, that income is bearing a 25% or 30% or even a 33% income tax hit at the federal level and possibly more at the state level. Why do I say that? If that second income goes away, there’s actually going to be more left from the first paycheck (or, more likely, in the form of a tax return).

There are child care costs being paid by the family. Child care eats away at a second income. It’s a pure drain that can be alleviated by having a parent at home whenever child care is needed.

One or both jobs require a commute. Staying at home doesn’t require a commute. You can easily eliminate a car in this situation, particularly if you live within reasonable walking or biking distance of services.

Family logistics mean you use a lot of expensive “convenience” services and products. Does your family ever eat out simply because it’s logistically easier? Do you sometimes grab fast food because it’s quick? Do you grab lunch at work because you don’t have time in the mornings to prepare a brown bag lunch for yourself? All of those are signs that family logistics – brought on mostly by that second job – are making your life more expensive.

The more factors you see here that cause you to nod your head, the more you should look at whether or not a one income household might fulfill your needs better and perhaps put you in better financial shape, too.

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