Should I stay home or use daycare?
Should I Stay at Work or Use Daycare?
We are Sarah and Michael Thompson, a couple in our mid-thirties living in Denver, CO, with two children: Lucas, our 2-year-old son, and a new baby on the way. Recently, we’ve been grappling with the question of whether Sarah should return to work after maternity leave or stay home to take care of our children. This decision has enormous financial and personal implications, so we turned to StartingOutPlan’s self-guided financial literacy software to help us navigate the options.
Building Our Personal Financial Scenario
We began by entering our current financial situation: Michael earns $75,000 annually, and Sarah, who previously took a year off for Lucas, earns around $45,000. We also have to account for daycare expenses for both children. Daycare in our area costs $1,200 for Lucas and will be around $1,000 for the new baby. Our existing rent is $1,700 a month, and we currently have $12,000 saved for emergencies, which has already been depleted after a year of living on one income.
We would love to buy a home someday, and this is a big part of our dilemma. Sarah is in line for a promotion, but this will not be the case if she has to take off again for more than a few months. Her promotion will give her a $55,000 salary in a year and, likely another raise to $70,000 in 3 years. It will be very difficult for her to reestablish this track at work if she takes off again.
We will start with our baseline, which is Sarah staying home for the next year and then returning to her current salary with no promotion. Next, we will look at our best long term scenario and see how things look if we endure a tough year with day care and Sarah's present salary, knowing that she will get the promotion in a year and possibly get the next salary bump in 3 years. Our final, more practical scenario is for her to return to work part time, which will require less day care, specifically after school care, but she will not be eligible for her promotion.
Baseline: Sarah stays at home for another year
In this scenario, Sarah decides to stay home full-time, with no additional income. We’ll be relying solely on Michael’s salary to cover all expenses, including a reduced daycare cost for Lucas as he transitions to part-time preschool. This option gives Sarah more time with the children but delays her reentry into the workforce, with the added complication that when she does return, it will be at her previous salary level.
In this baseline, our savings will be depleted and we will not be able to afford our new home and our retirement goals will be at risk given the exhaustion of our savings.
We are definitely in a tight spot, but we have to find a way to thrive. It would seem that if we have to struggle, we would prefer Sarah to be working and have the potential for more money in the future. So, lets go into the StartingOutPlan workshop and add Sarah's two future upgrades in salary, modify the child care costs, and turn off the "What If She loses her job for a year?" action. Here is what we saw in the
What We Saw
The numbers here look spectacular. This is clearly the optimal scenario if finances are the only consideration. In practice, this scenario will be very challenging in the first year physically, emotionally, and financially. The upside, of course, is that things will get better quickly when Sarah sees her raise. If she moves up to the logical position based on this promotion, she will be making $20,000 more annually in 3 short years. If we can find a way to get by in this first year, Sarah will stay at her job a couple of months after the baby is born with the expectation that her career will continue to grow. However, returning to work means we will face high daycare costs for both children. Factoring in taxes, transportation, and after-school care for Lucas as he grows older, the expenses are tight, but this is clearly a winning scenario long term.
What We Saw
The software highlighted that while we’d have a slightly higher disposable income with Sarah working, the increase wasn’t significant enough to completely justify the additional stress and expenses. However, the real payoff comes in the long-term. With Sarah’s career trajectory and potential salary increase, our financial goals—such as saving for college, vacations, and retirement—are more achievable.
Scenario 2: Sarah Stays Home and Works Part-Time
This scenario models Sarah staying home but picking up part-time work to help with household expenses. Her earnings from a part-time job are estimated to be $2,000 a month, which would cover a portion of our expenses. Daycare costs would drop since Sarah would be home with the children, but we’d still face tight finances with fewer opportunities for long-term savings and growth.
With Sarah working part-time, the financial strain is less severe, but the trade-off is her career. In four years, she would need to re-enter the workforce, but without the potential salary increase. The projections show that while this scenario keeps us afloat, it doesn’t allow much room for long-term goals like saving for college or taking vacations.
What We Saw
Scenario 2: Sarah Stays Home and Works Part-Time
This scenario models Sarah staying home but picking up part-time work to help with household expenses. Her earnings from a part-time job are estimated to be $2,000 a month, which would cover a portion of our expenses. Daycare costs would drop since Sarah would be home with the children, but we’d still face tight finances with fewer opportunities for long-term savings and growth.
With Sarah working part-time, the financial strain is less severe, but the trade-off is her career. In four years, she would need to re-enter the workforce, but without the potential salary increase. The projections show that while this scenario keeps us afloat, it doesn’t allow much room for long-term goals like saving for college or taking vacations.
What We Saw
Without Sarah’s income, we’re cutting back on all non-essential expenses, which leaves us very little flexibility. This scenario makes it difficult to meet our long-term goals, like building an emergency fund or saving for the kids’ college. However, the personal benefits of Sarah staying home and focusing on family are hard to quantify.
Making the Decision
After reviewing all the scenarios, we realized that staying home full-time would put significant financial pressure on us and limit our ability to save for future goals. While staying at work offers more financial stability and long-term growth, the immediate financial gain isn’t as large as we’d hoped. However, Sarah’s career potential and future salary increase make it the best option for meeting our long-term financial goals, even if it means tight finances in the short term.
The Importance of Comprehensive Planning
It’s important to note that this case study presents a simplified financial scenario. In a more accurate personal financial scenario, we would incorporate as many details as possible, including specific expenses, financial goals, and the details of all debts and assets. This comprehensive approach ensures a more precise and tailored personal financial scenario.
The Role of Professional Advice
Despite our confidence, we recognized the value of professional advice. StartingOutPlan had equipped us with a solid understanding of our financial situation, but we decided to consult a financial advisor to validate our plan and ensure we hadn’t overlooked anything critical. This step reinforced our decision and provided peace of mind.
Conclusion
Using StartingOutPlan's self-guided financial literacy tools, we were able to build a comprehensive personal financial scenario that gave us the insights needed to confidently decide whether Sarah should stay home or return to work. The software's scenario-driven approach provided a clear, holistic view of our options, highlighting the power of technology in making informed financial decisions.
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