Can I afford a sabbatical?

[lifeisexpensive]

Life Situation: 29F, 29M, 2 kids (3 yrs and 5 months), IRS filing status: married, MCOL southwestern U.S.

Questions:
I am considering leaving my job with a voluntary severance package to spend time with the kids while they are young. Severance is half a year’s salary + full year of health insurance premiums paid. I would ideally stay home one year, get the oldest settled into preschool and then begin a job search (with family watching the youngest so childcare cost isn't part of the equation). Anticipating being out of the workforce for 1-2 years.
The idea is my husband’s business would replace my income for expenses, we would likely pause saving, and then have our current savings to fall back on if the business doesn’t perform as expected.
Is it crazy to voluntarily leave a low six figure, somewhat flexible job (WFH 3 days/week) in this market (and with our expenses)? I have marketable skills and experience but I am still worried about re-entry into the workforce. On the other hand, life is short, the kids are only young once, and I am burnt out from parenting + working + losing a young sibling recently and the option to get paid to leave seems appealing. Or should I continue grinding and make a plan to take a career break in 3-ish years? We also may or may not want a 3rd child. Any input is appreciated!

Gross Salary:
Me: $110K plus ESPP earnings (~$2.4K/yr) & RSUs ($8K)
H: Self-Employed, so variable but so far this year ~$80K (money reflected in business accounts in assets, not moved into our account and not reflected in below income numbers). Prior year $10K due to some big one time expenses. Before that, made ~$100K as a W2 employee.

Pre-Tax deductions annually:
Me: Max 401(k) $23K, Contribute $4K to HSA, $.6K for medical deductions

Taxes: withholding is ~$15.6 annually. ~18% combined for all Fed/state FICA. 2023 total tax rate was 12.3%

Net Salary:
Me: ~$77K

Monthly Rental income:
House Hacking: $3,575 (see large mortgage expense & utilities)
Rental House Net Income: $800

Other random income annually ~$4100 (~340/month)
examples: received $1500 for insurance payout, $1500 for consulting, and $1100 in interest/rewards

Monthly Net Income w/o husband business income: $11,132
Monthly Expenses: $12,843 (includes IRA and 529 savings, this year funded out of cash savings since this year and last year were our lowest earning years due to husband growing new business, time off with baby, etc.)


Current Expenses:
I know there will be lots of face punches (well-deserved). There has been lifestyle inflation like getting house cleaning help with being in survival mode w/ a death in the family, complicated pregnancy and trying to survive the newborn stage.

Category   Monthly
TOTAL   $12,843
Mortgage (P&I)   $4,072
Charitable Giving   $1,583
Food and Dining   $1,170
Roth IRA contributions   $1,167
Utilities (electric, water, internet   $545
House (maintenance, etc)   $388
Travel   $435
Property tax   $417
Health (OOP max, prescriptions)   $417
Kids 529   $333
Kids Expenses   $333
House Cleaning   $325
Gifts   $300
Misc.   $250
Auto Insurance   $194
Life Insurance   $181
Home Insurance   $167
Gas & Maintenance   $162
Pets   $100
Phone   $100
Entertainment   $100
Clothes   $60
Gym   $45

Liabilities: $1.22M
Primary mortgage: $945K left @ 2.875%, 28 yrs left
Rental mortgage: $275K left @ 3.625%, 26 years left

Assets: $2.36M
401(K): $225K
2 Roth IRA’s: $112K
HSA: $35K
529: $26K
Cash HYSA: $60K
Brokerage: $107K
Business Account (liquid): $95K
Vehicle #1: $15K
Vehicle #2: $15K (both vehicles bought used within the last year & paid cash. Each 4 years old with under 100K miles, value reflected is about $5K less than we paid to reflect fees)
Primary home: $1.2M (conservative 85% of estimated sales price to account for fees)
Rental home: $470K (85% of est. sales prices to account for fees)


Net Worth: $1.14M

[the lorax]

Hi, sorry about your sibling, that's rough

Have you looked at what your expenses might be if you become a SAHP? Are there childcare costs in your list that would then be eliminated? Would you be able to cut/reduce the house cleaning?

Could you look at your current expenses with your partner and agree reductions in some areas and give it a few months to see if you can make those work before deciding whether to take severance or is it a limited opportunity? Could you ask for a one year leave of absence (if you enjoy your role but just need a proper break)?

I'm not sure I understand your income types sorry but if you can cover your expenses between those random sources and your partner's income and if they are on board with that then it looks like you can take a sabbatical. Kids are only little for a short time indeed and parenting littlies plus having burnout is bad, let alone coping with a bereavement too. It's pretty normal for people to take a break when kids are young so that's easy to explain when you do want to work again so I wouldn't get too hung up on that unless you work in a field where your skillset would date particularly quickly.

[MaybeBabyMustache]

I'm so sorry about the loss of your sibling.

How new is your DH's business? It makes me personally uncomfortable to give up a stable, six figure, somewhat flexible job when DH is in a "new" self employed business, as all of your eggs are in that basket. How predictable is his income? What are his growth projections based on?

Do you have the option of an unpaid leave of absence at your work? Is that an option you can pursue, noting the death of your sibling & just needing some time? That would give you time to clean up some of your expenses & thoughtfully consider your next step.

[lifeisexpensive]

@the lorax Thank you for your thoughtful reply! You're right - our next steps need to be auditing expenses. Family provides childcare so that isn't part of the equation (we do tend to pay for bigger gifts for them in lieu of childcare), but house cleaning could be cut. And oldest is almost potty trained so excited for saving on diapers! Timing wise, I have about 30 days to decide on the package. I appreciate the input on not overthinking the resume gap - I do think my field would be one with relatively easy re-entry so I shouldn't let that fear drive my decision making

@MaybeBabyMustache thank you - the loss coupled with the joy of a new baby has been an emotional roller-coaster. This is his 2nd year in business. He was in the same industry for 7 years prior to going out on his own. But I agree with you, it makes me nervous to have all our income in one risky basket. His numbers seem solid and conservative (essentially doing the same level of sales he did this year and not accounting for any growth), but mentally I probably need to accept that our cash savings + severance would be used up if his business doesn't perform. I would hate to trade work stress for financial stress though & I do like the idea of looking into unpaid leave so will explore that more. Thank you for your feedback!

[Louise]

Go for it! I did the same thing. However, our expenses were lower, but our income and assets were lower too (we qualified for the saver's credit for a few years).

The only thing I might caution you about is that you might find your sabbatical extending a lot longer than a year or two. I left work when my child was a toddler and never went back. My intention was to find something PT, but that never happened. Our lives really were a lot easier with a parent at home and it was very difficult to give that up. I've been home for over 12 years now. Giving up my income was worth it for us, but we were also helped by a nice bull market.

[Laura33]

You can afford to take a sabbatical with the severence.  That would give you time to see how your DH's business continues to perform, and if you can make it longer-term.  The thing that concerns me the most is that you have so much of your net worth tied up in real estate; you have about a year and a half in expenses covered without accessing the retirement accounts.  That's pretty significant by normal standards, so congratulations on that.  But as a percentage of your overall NW, it's pretty low, and that makes taking a longer-term break (voluntarily or involuntarily) riskier. 

What I'd like to know is what kind of MCOL area requires a $1.2M+ house?!?!  Is that part of the house-hacking you mentioned?  It seems like you're using that income to pay the mortgage, which is great, but what's the plan if that income dries up?

What I'd suggest is that if you do take the sabbatical, you focus your "free" time (hah, IKR?) on cutting those monthly expenses.  $1200 in food?!  That's ridiculous.  Is the life insurance term, and if so, for how much?  Cost seems high for your ages.  Do you plan to continue the substantial charitable giving while you're on sabbatical?  Maybe that is something that you could volunteer your time for instead when your DH is off work or relatives can take the kids.  Your kids are teeny; what do they do that requires over $300/mo.? 

There are many people here who have been financially successful on a single income, but the way that happens is when the WOHP's "job" is to bring in the money and the SAHP's "job" is to spend a little of it as possible.  And that's a lot of effort.  So if you do this, don't go into it thinking of it as a break from work.  Go into it thinking of it as changing from one job to another.  Then do your best guess to figure out whether that new job is something you'd enjoy doing, and whether your "pay" (cost savings + time with kids + no commute/work stress) is worth it to you.  (Personally, I realized that if I stayed home, I'd be doing all cleaning and shopping and chauffeuring and laundry and such myself, and those are my least favorite things about being a mom.  I kept my job instead, because at least then we split the burden of the stuff we both hated.  ;-)).

[lifeisexpensive]

@Louise Thanks for the vote of encouragement to go for the sabbatical! And for the word of caution around potentially not wanting to go back to work. I could see that as a potential outcome if the math works out, a lot will hinge on DH's business performance during my sabbatical.

[lifeisexpensive]

@Laura33 Thank you for the detailed reply! Especially since it sounds like you ran through this analysis with all the other factors that go into being a mom.
 You're right - we do have a significant portion of assets tied up in real estate. We have tried to somewhat correct this by selling the house we lived in prior to this one rather than making it a rental (but then used the money towards the down payment for current house) and contributing to retirement and brokerage accounts and not focusing on more real estate. Over time, I'm hoping the asset allocation will work itself out (probably not my best strategy but we don't want to sell the rental when its cash flowing and has a low interest rate).
Our area may be closer to HCOL, although the $1.2M did get us an acre in town with additional dwelling unit on the land and its a relatively newer home so less maintenance costs. The idea is that eventually (7-10 yrs) the in laws will be living with us so the house is set up as ADA accessible for them and for everyone to have space. Until then, we are able to rent out the additional swellings to make the net housing costs more reasonable and comparable to a SFH in our area. The rent should continue as we prioritized good people/"neighbors" over maximum rents (haven't raised it in 2 years and it was competitive when we listed it 2 years ago)
We will lower charitable contributions to around $10K/year (to continue with some of the organizations we want to support). I like your idea of volunteering time in lieu of money, will also be good for the toddler to join me in that.
The $300 is $100/month for unlimited toddler classes at a place near us (and I actually just cancelled this), and then diapers for 2 kids and formula. The diapers should lower with potty training and the formula cost will eventually drop off too. We do lots of free activities (library, etc) but an annual membership to just one place for the kids + me will run around $300 for the year. (life really does feel expensive!)
The food we definitely need to cut - I had been buying quick meal stuff (think microwaveable individual rice bags) with the justification that its cheaper than eating out but now that I am recovered post c-section, I am ready to get back to using the rice cooker :) I also want to separate out paper goods since that's wrapped into that number and I should track non-consumables separate.
The life insurance is for 30 year term policies, but we are paying for the "return of premium" rider on mine so the policy is slightly more expensive than without that. Plus, my husband's policy was quoted as tobacco since he used nicotine (dip) at the time, and now he can't get re-quoted as a non tobacco user for another 5 years (although he has since quit nicotine). I will be shopping this around when his 5 years is up.
I really like your take that my job will become saving money + time with kids. That's one of my big concerns is that right now we have an equitable split of household chores with both of us working and I don't love the cleaning + laundry part of running the home. I already do all the cooking and life admin stuff so while this probably won't be a relaxing sabbatical and I do think its wise to re-frame this as switching to a different job, just dropping work stress should give me some breathing room. I do think having to shoulder more of the house cleaning will eventually be the kick in the pants that sends me back to work :) Thanks again for the detailed reply and ideas on areas to cut spending!!

[Laura33]

@Laura33 Thank you for the detailed reply! Especially since it sounds like you ran through this analysis with all the other factors that go into being a mom.
 You're right - we do have a significant portion of assets tied up in real estate. We have tried to somewhat correct this by selling the house we lived in prior to this one rather than making it a rental (but then used the money towards the down payment for current house) and contributing to retirement and brokerage accounts and not focusing on more real estate. Over time, I'm hoping the asset allocation will work itself out (probably not my best strategy but we don't want to sell the rental when its cash flowing and has a low interest rate).
Our area may be closer to HCOL, although the $1.2M did get us an acre in town with additional dwelling unit on the land and its a relatively newer home so less maintenance costs. The idea is that eventually (7-10 yrs) the in laws will be living with us so the house is set up as ADA accessible for them and for everyone to have space. Until then, we are able to rent out the additional swellings to make the net housing costs more reasonable and comparable to a SFH in our area. The rent should continue as we prioritized good people/"neighbors" over maximum rents (haven't raised it in 2 years and it was competitive when we listed it 2 years ago)
We will lower charitable contributions to around $10K/year (to continue with some of the organizations we want to support). I like your idea of volunteering time in lieu of money, will also be good for the toddler to join me in that.
The $300 is $100/month for unlimited toddler classes at a place near us (and I actually just cancelled this), and then diapers for 2 kids and formula. The diapers should lower with potty training and the formula cost will eventually drop off too. We do lots of free activities (library, etc) but an annual membership to just one place for the kids + me will run around $300 for the year. (life really does feel expensive!)
The food we definitely need to cut - I had been buying quick meal stuff (think microwaveable individual rice bags) with the justification that its cheaper than eating out but now that I am recovered post c-section, I am ready to get back to using the rice cooker :) I also want to separate out paper goods since that's wrapped into that number and I should track non-consumables separate.
The life insurance is for 30 year term policies, but we are paying for the "return of premium" rider on mine so the policy is slightly more expensive than without that. Plus, my husband's policy was quoted as tobacco since he used nicotine (dip) at the time, and now he can't get re-quoted as a non tobacco user for another 5 years (although he has since quit nicotine). I will be shopping this around when his 5 years is up.
I really like your take that my job will become saving money + time with kids. That's one of my big concerns is that right now we have an equitable split of household chores with both of us working and I don't love the cleaning + laundry part of running the home. I already do all the cooking and life admin stuff so while this probably won't be a relaxing sabbatical and I do think its wise to re-frame this as switching to a different job, just dropping work stress should give me some breathing room. I do think having to shoulder more of the house cleaning will eventually be the kick in the pants that sends me back to work :) Thanks again for the detailed reply and ideas on areas to cut spending!!

You know, you really should have mentioned this was post-C-section -- in my mind, you get a big ol' grace period where no one gets to criticize a single dollar you spend if it helps you make it through the day.  ;-)

[J.P. MoreGains]

I think you're in an awesome position already with your net worth. That's great work! I can see wanting to take a sabbatical when the kids are young - that would be unforgettable I'm sure.

It's tough with a family... lifeisexpensive. Myself I would be worried not earning and spending at that level.

I think about taking a sabbatical also someday but I also think about just getting this FI thing done with since last time I left a job it cost me and took me a long time to get back in a financial position. But that was mostly because I was irresponsible and didn't make a planned out decision.

Where you're at you seem really responsible and well on the path so maybe your portfolio and situation can handle it.

It could be an awesome thing to do to be around the kids a lot and then just work a couple more years longer than planned.

[lifeisexpensive]

@Laura33 Ha, I agree - we were definitely in survival mode & willing to spend to make life a little easier. But I'm ready to tighten the spending and get back to being frugal like we were before kids!

@J.P.MoreGains, it makes me nervous, especially when I do the math on compound interest and giving up a year of 401k contributions. But life is short and if I want to minimize regret, I think I need to go for a sabbatical and take the risk. And I'm okay with the trade off of working longer or possibly having to pivot fields and be more creative about what my return to work looks like.

Thanks everyone for taking the time to reply! I am 90% sure I am going for it & will make the final decision/submit the paperwork next week!!

[J.P. MoreGains]

Yes, make the decision that is right for you.

On the plus side you are really young and way ahead of the game... I'm 44 turning 45 in a month and my net worth is around 210k. You are way ahead of me.

If you could cut expenses that would have a big impact... drop the house cleaning, etc. By downsizing you could find out you could live well by spending less and the extra time you could be really productive.

But... having a family is expensive. My sister spends more on her daughter's birthday party than I spend in a month.

I'm on the ultra minimalist side though to make up for time and get to where I need to be.

Good luck!