Daycare is Expensive - Should I Stay Home?

[odctd]

Life Situation: MFJ, 2 kids under 3, Midwest MCOL

Gross Salary/Wages: $118,000 ($62,000 for me, $56,000 for spouse)

Individual amounts of each Pre-tax deductions: $23,560
401k Me - $6800 (3.5% contribution from employer regardless of what I put in)
401k Spouse - $7300 (3% Match)
HSA me with employer contribution - $2600
HSA me with employer contribution - $1508
Health Insurance Me + Kids - $3100
Health Insurance Spouse – $1584
Dental Me + Kids - $280
Dental Spouse - $234
Vision Me - $82
Vision Spouse - $72

Other Ordinary Income: None

Qualified Dividends & Long Term Capital Gains: None

Rental Income, Actual Expenses, and Depreciation: None

Adjusted Gross Income: $89,440

Taxes: $16,518
Federal me – $1952.86
Federal spouse – $3022.50
State Me – $1990.56
State Spouse – $1529.32
FICA Me - $4269.98
FICA Spouse - $3753

Current expenses: $78,593 (I track very closely my wife tracks very little. Shopping and food are the big question marks. For shopping and food I doubled my number which is probably on the high end.)
Mortgage Principal & Interest: $8588
Property Taxes: $3333
Mortgage PMI: $475
Home Insurance: $532

Daycare: $32,000

Term Life Insurance Me - $500
Term Life Insurance Spouse – $240
Whole Life Insurance Spouse  - $319

Utilities: $4390
Internet $960
Electric/Gas $1700 (has been going up with the second child now that we use more of the house)
Water $650
Phone Me $660
Phone Spouse $420

Cars: $5000
(2007 Year old Prius and 2006 minivan)
Insurance $949 for both
Gas $2100
Oil Changes $400
Registration for both $351
Parts and Repair for both $1200 (can vary – just replace rusted out exhaust on van for $800)

Student Loans Spouse $2900

Food (estimates - this is a focus point this month)
Groceries $6000
Other food $6000

Shopping
Target Kids $1500 (diapers and wipes are the main thing)
Target other $1000
Clothes $500
Glasses $120 (sinking fund)
Shoes $240 (sinking fund)
Misc $2960


Scholarship $500
Daily print newspaper $400
Local news site $100
Hobby Specific News $40
Spotify $144
Zoo Pass $220
Compost Service $200
State Park Pass $56
Hunting Licenses $120
Memberships to Advocacy and Hobby Organizations $400
Hulu $36
Netflix $96


Assets:
Retirement Me - $150000
Retirement Spouse - $41000
Savings Accounts/Savings Bonds Me - $7500
Savings Accounts/Savings Bonds Spouse - $20000
Home Equity – $12500 (at original purchase price two years ago – realistically higher)


Liabilities:

Student Loans $26,000
   $13,000 @ 3.5%
   $13,000 @ 6%
30 year mortgage $160000 @ 3% 27 years remaining (paying minimum)
Credit Card – paid off every month but it has been getting harder since infant started daycare



Is it worth digging into savings to go down to one income while kids are young?

I would like to stay at home with our kids while they are young but we are in the red as is. Our daycare is great for our older child but the infant care leaves much to be desired. They also do not do as much outside time as I would like. (There is an outside forest daycare that we looked into but it was not in our line of travel and it was like $90 a day so way out of our price range).

There is possibly light at the end of the tunnel. Our toddler might get into a half day 3k program this fall ($5k tuition first year, free afterwards; $9k tuition including daycare before/after school and on school breaks).  We will find out by April if this is the case or if we are wait listed. There are no public 3k programs in our town so that is not an option.

Options
A) Continue as is and rein in spending (especially food budget).
B) Go down to one income and take kids out of daycare.
C) Pull kids out of daycare and get a night/weekend job. Wife probably won't go for this because marriage and family life would suffer.
D) Try to find a new daycare (Our price is the going price for center daycares and everywhere has waitlists. This daycare is close to home and on the bus line so it works great for us).


If we really trim the budget and forgo luxuries we could get just about break even on one income. Our focus this month is slashing the food budget to see how low we can go sustainably. I don't know how sustainable going to the bone is long term. We are thinking about a 3rd kid in a year or two but that remains to be seen.


I would be the stay at home parent. My spouse enjoys her job and is working on a big project and also working towards a supervisory position. I could take or leave my job.

Would you consider it worthwhile to dig into savings a bit for a few years to stay home with kids?

[economista]

I'm curious about what savings you would dig into? It appears that you only have $27,500 in liquid savings that could be used to help float you along until you go back to work. I don't think that would be enough unless you make a really drastic cut your spending (outside of cutting out daycare).

I'm not going to go through line by line but your cellphone spending jumped out as super high for me. If you switch to mint it could be $15 per month for each of you. You say you are in a MCOL location but buying a house 2 years ago for $172,500 jumps out to me as being LCOL. Ideally you could feed your family on less than $1,000 per month. For reference I live in high-mid COL (Denver) and my (very modest) house was purchased for $620,000 in 2021. I have a 4 year old and a 3 year old and we keep our groceries + other food under $1,000 per month. Maybe with only one person working you could go down to one vehicle?

You don't have a lot of fat to trim, so I'm not sure you have enough wiggle room to cut expenses enough to make it more than a year on your spouse's income + your savings. Plus that would leave you without an emergency fund, which would be very scary for me as a parent.

[odctd]

Thanks for looking.
Savings - this is probably more dreaming than reality. I can finesse the numbers down to just about even on the spouses salary but there would be a small deficit that would eat into savings.

Phone - I recently switched to a smart phone from a dumb phone. With the dumb phone I experimented a budget MVNO from each and while all worked well in the city they dropped service when going to see family. I am using US Cellular now which works everywhere I need it to. I haven't found an MVNO that uses their towers. I will review my data usage to see if I need unlimited so this could drop $10 mo/$120 year

Cost of living: I plugged my city into NerdWallet to compare to Denver and you are 9% higher than us. So maybe Low Cost of living is correct. We bought a small house in an untrendy area.

Vehicle - Yes if one of us stopped working we would consider dropping a vehicle. This would save $2500 a year.

[EverythingisNew]

Money wise it is better to continue working in your situation. You don’t have enough savings and it would be tight to live on $56,000. Try only paying for daycare from your income and paying for everything else from your spouse’s income. I think you will be in the red in 1 month although I didn’t take the time to calculate your monthly expenses.

Some things I see that you could cut: the phone bill. Can you shop around? We pay $720 per year for 2 lines with T-Mobile. Also what is “scholarships $500”? If you are donating to a college, I would cut that until you don’t have student loans! Consider cutting the daily newspaper unless you really enjoy this or cancel and resubscribe on a discount offer… newspapers constantly have deals!

Consider canceling the life insurance. If you die and have children, they will collect your SSI until they are 18. It’s social security survivor benefits. We have 3 little kids and don’t have life insurance. When we thought about it one of us dying would be similar to a divorce because the SSI is similar to child support payments… BUT it would be better financially than divorce because you don’t have to split assets or run two homes. We don’t have divorce insurance, so why have life insurance? Don’t forget that you are already insured by SSI for this situation if you have worked 10 years.

Vision insurance every other year? We do this and the skipped years fly by!

I imagine that the reason that you are not altogether on family insurance plans is because you aren’t allowed to include the spouse if they are offered insurance though their workplace… this would be cheaper if only one of you worked!

If you work to cut your expenses this year, I think your case study will improve quickly and you could be a stay at home parent!

[merula]

Your effective take-home is $77,922 (gross less pre-tax and taxes), so you are in the red but only slightly.

If you quit your job and pulled your kids out of day care, you could expect to save about $50k a year just from doing that ($32,000 day care, $11,235 taxes*, $6,800 your 401k).

*On just your wife's salary you'd qualify for the federal EITC, so rough math you'd pay negative $2k federal with the refundable portions of the child tax credit, but I didn't want to count on that. I also don't know anything about your state so I left your wife's state taxes and FICA in there.

Question: it looks like you and the kids have health and dental through your employer; was that because it was less expensive or had more coverage than your wife's? I would add any additional costs for that back in.

You could probably find another 6k by buying less stuff (Target/clothes/misc), cancelling some subscriptions, getting a cheaper phone plan and figuring out something with food spending (although if that's actually $12k a year between groceries and restaurants, IDK if you'll find much more without going super mustachian).

Your current savings is what I had as an emergency fund when my kids were very young and I was the sole breadwinner, just because there's much more uncertainty in that situation. I was probably too conservative there, but even so it doesn't sound like a good idea to dip into savings.

[ixtap]

One thing often missing from such calculations is the effect time out of market can have on long term career growth. This is hard to quantify, but a promotion could make up for any money spent on daycare.

Not every choice is about the money, but it isn't looking like you can justify your choice as financially superior even without career growth factored in.

[odctd]

EverythingIsNew - I think trying to live on my Spouses income is a good idea. I will talk to her about trying it for a few months to see how it goes.
Scholarships - I fund a small scholarship the high school I went to. I consider it my "cable bill" since I have never paid for cable. I would have to rethink that if we drop to one income.
Life Insurance - If one of us died we wanted enough to pay off the house and to be able to stay home until the kids are in school. These are 20 year $500,000 term life policies. We will re-evaluate but I think we will keep these for a few years yet.
Phone - I am going to review this - it is a common response. Spouse is still on her families plan, I just got a smartphone again and pay $50/month (plus tax) for unlimited data. I am going to review my data usage.
Newspaper - I like it but should probably call to cancel to see if they will lower the price. Otherwise cancel and wait a few months to sign up again.

merula - I knew the taxes would change on one income but I wasn't sure how much. Thank you for the estimate.
Health and Dental. My employer was slightly cheaper, the difference was about $500/year.
Spending - this is a priority this year. We started doing a 72 hour wait list before buying "stuff". Hopefully our oldest will be out of diapers in a few months which will save us $50+ a month.
Food - $12k is grocery and eating out and bars on date nights. There is some fat to trim here. We are going to try and get it down this month.

Thank you both for taking the time to review.

[merula]

It probably makes sense to keep the term life insurance, but I'd take a real hard look at the whole life, especially since you're not maxing out other tax-advantaged savings vehicles.

[odctd]

ixtap - I am not very career driven, I don't see any promotions in my future. There are raises but what I am doing now is a bit of a dead end. My spouse is the one with the drive and opportunity to climb the ladder which is why I would be the stay at home parent.

merula - I agree with you 100% about the whole life. It is a cluster because when spouses parents were getting divorced FIL tapped into the life insurance to pay expenses. I guess in the split he agreed to repay it but he never did (he is now saving to retire and plans to work pretty much til he can't. My thoughts are that he pays it now and we take care of him later or we just write it off and hope he can save enough so he doesn't have to live with us down the line). I believe the surrender value is $5000 or so. My spouse is paying the minimum on the loan which is $4000 or so I believe. I have asked her about cashing it out (especially during the two calendar years when we had the kids so the tax hit would be less) but she, for reasons I don't fully understand, hasn't done so yet. I will bring it up again.

[AnotherEngineer]

Wow, your daycare line item does jump out! You have the usual big expenses dialed with a modest home and reasonable vehicles.

I would suggest trimming your expenses way down as a trial before leaving your job. You need to cut at least 20% to make it close to viable. Look hard at entertainment, phones, internet, food, etc first. Staying at home may not give you as much space to bargain grocery shop and prepare frugal meals as you expect, for instance.

I assume you have looked around at daycare options? We love our parents-involved preschool that is very cheap but also requires more parental responsibilities.

Is there a part-time job and daycare solution?

The big thing I see is just figuring out how to bring in more. Have you looked into other jobs to move up? Look for a flexible side gig that would minimize time away from spouse and kids. I bring in $5-8k/year in credit card and bank bonuses at a modest level, for instance (look at Doctor of Credit).

FWIW, we have made it work with three kids and one income for 10 years, but admittedly that income was a bit higher than yours.

[odctd]

AnotherEngineer

I think I will talk to my spouse about a trial run of lower expenses to see if we can make this work.
Daycare options are tight here with long lists. We are pretty lucky we found the spot we did. We could ask around for an in home spot but those are also pretty hard to find.
Part time work would be an option. I will have to look into this more. My spouse wouldn't necessarily want me gone nights and weekends.
Raising Income. - I don't think I have much of an increase in my current position. I would have to change my job. My wife is hoping for a yet to be created supervisory position but she process is glacial. Her raise discussion should be happening next month so we will know more then.

Thank you for taking the time to review.

[Laura33]

First, I agree with others:  you cannot afford to stay home if it means drawing from savings.  You need every penny you have as an emergency fund -- particularly if you decide to remove the safety net of having a second job.

So if you want to stay home, figure out what you'd need to cut from the budget to do so.  Run all your taxes -- federal, state, SS, etc.  Subtract from clothes, gas, eating out, etc. to account for some of the lower costs you'd have if you were at home.  Figure out how much extra the insurance would be through your DW, or if you have some sort of cheaper Obamacare option and/or state support (some states do have health insurance programs for kids from lower-income families).  You need to start with hard numbers instead of guesses and estimates.

Then comes the hard stuff:  you have a lot of miscellaneous stuff, like hobby spending, news access, eating out, etc.  Which of those are you willing to cut to be home with the kids?

The really good news is that if you're home with the kids, you can take charge of making those cuts.  You can control how much you guys spend on groceries, and how often you go out to eat, by taking over the menu planning and grocery shopping and cooking.  You can control the Target spending by being the guy who goes to Target.  And even better, you're the guy who likes to track spending, which is a lot easier if you're the one doing that spending.  Being at home puts you in the driver's seat to save as much money as you want to, based on the lifestyle that you decide to create.  It is a job in and of itself; you just get "paid" by spending less and freeing up money for other things.

One other factor:  if your wife is the one with the career growth potential, you guys may be more successful long-term if you quit and take over the house-and-kid stuff, because that frees up her time and energy to focus on that career and get those promotions.  There are certainly enough couples where mom stays home and dad works, and who have discovered that dad can go farther in his career than he could have if both of them were juggling work and home and kids.  There's absolutely no reason why that wouldn't work regardless of the genders involved, as long as the two of you are aligned in your goals and roles, and you both dedicate yourselves to succeeding at your chosen jobs.

[GilesMM]

Finances aside, it would make a VAST difference to your kids to be raised by their mom instead of strangers.  I would work out a plan to do it!

[Captain FIRE]

One thing often missing from such calculations is the effect time out of market can have on long term career growth. This is hard to quantify, but a promotion could make up for any money spent on daycare.

Not every choice is about the money, but it isn't looking like you can justify your choice as financially superior even without career growth factored in.

+1
Long term career hits: Missed promotions/raises, fewer years/less money to social security, less ability to put away retirement money (IRA) that you can't get back
Plus getting back into the workforce after a break can be difficult, and sometimes people have to take a step back. You aren't as attractive to employers, and have stale skills in some cases.
Financial dependence on one spouse can be problematic in some instances (e.g. controlling/abusive), dependence on one job (e.g. worries of layoffs)
Limited adult interactions if you're not careful, feelings of isolation

Pros: Time with kids, less stress over household maintenance (admin/chores of day to day life), less stress over managing work/sick kids

Finances aside, it would make a VAST difference to your kids to be raised by their mom instead of strangers.  I would work out a plan to do it!

Ok, let's knock off the judgement. You still raise kids even if you are working. Let's also not forget the benefits of daycare: experienced professional educators, some studies show fewer behavioral issues and better social skills, as well as better academic readiness for kindergarten.
But it's not clear if the poster is a female or male, so let's not make assumptions. All we know is spouse is female.

[merula]

[Ok, let's knock off the judgement. You still raise kids even if you are working. Let's also not forget the benefits of daycare: experienced professional educators, some studies show fewer behavioral issues and better social skills, as well as better academic readiness for kindergarten.
But it's not clear if the poster is a female or male, so let's not make assumptions. All we know is spouse is female.

Thank you, this bothered me as well and you've said it better than I could. I've been the wife of a SAHD for nearly 12 years, and I've noticed that these kinds of comments never seem to advocate for dads quitting their jobs.

[roomtempmayo]

I think your budget is too close to bridge the gap from the daycare savings to your lost salary.  Even considering the tax savings, I don't see ~$20k worth of fat to cut.

However, if the student loans are federal, you could put them in an Income Based Repayment plan, and you'd have very close to a zero payment.  It's not a sustainable plan for paying them back unless you want to go down the forgiveness route, but it would buy you breathing room for a few years so could stay home with the kids.

Daycare savings + tax savings + paying near nothing on the student loans + cutting all the fat could probably close the budget hole.  It's just a question of how badly you want to stay home and what you're willing to kick down the road to do it.

[AnotherEngineer]

AnotherEngineer

I think I will talk to my spouse about a trial run of lower expenses to see if we can make this work.
Daycare options are tight here with long lists. We are pretty lucky we found the spot we did. We could ask around for an in home spot but those are also pretty hard to find.
Part time work would be an option. I will have to look into this more. My spouse wouldn't necessarily want me gone nights and weekends.
Raising Income. - I don't think I have much of an increase in my current position. I would have to change my job. My wife is hoping for a yet to be created supervisory position but she process is glacial. Her raise discussion should be happening next month so we will know more then.

Thank you for taking the time to review.

I have no idea what fields you are in, but I was encouraging you both to look around to see what is out there to raise income. The modern way to get a raise or promotion, for better or worse, is to jump companies and leverage offers for increases with your current company. To be cynical, a glacial raise process could just be stringing her along. However, without FU money or much of a safety net, you need to be cautious with looking and making demands. 

Also, I think the group is saying that you would benefit from making those cuts right now anyway.

[odctd]

Thanks everybody for taking the time.

Our plan now is to see how much we can realistically cut (especially the food and phones) and then re-evaluate later this year after my spouse gets her raise and to see if daycare rates go up.

[Captain FIRE]

FWIW, daycare costs WILL go up. It’s just a matter of how much. For my daycare it’s been 3% (usual) up to 8% (one painful time).