Second household income may not be worth it
By Cindy Krischer Goodman
Knight Ridder News Service
MIAMI — Even as Bertha Martell hand-washes and irons her husband's work shirts to save money on dry cleaning, she still contemplates whether she will have to go back to work in the fall as a teacher to make ends meet. Martell, a mother of four, will again have to figure out whether it pays for her to work.
It's a calculation that many people in and out of the workforce make. But some of us are so busy commuting, dropping off kids at daycare and trying to please the boss that we fail to do the basic math to see whether all the effort is worth it.
As the economy sinks deeper and job layoffs continue, it just might be time to figure things out.
In some cases, when you look at how much money a second wage earner brings home and take into account what he or she spends to earn it, the outcome is that the second income just doesn't pay.
Cleary, every family differs in how much its working members earn, the number and age of dependents (including elderly parents), spending habits and the motivation for working. Many squeak by on minimum wage and work just to put food on the table, while others work because both parents enjoy their jobs.
But most people work because they think they can't afford not to.
Financial experts say although every family's financial portrait differs, if the second income earner grosses less than $30,000 a year, the family might be better off with that spouse at home.
Consider this example: From a $30,000 annual salary, subtract $9,300 in income taxes. Next, take out $1,200 for work clothes and dry cleaning and $3,000 for dining out, lunches and fast food. Then subtract $3,100 in home maintenance, repairs and housekeeping that dual-career couples often pay someone else to do.
Now, take off $2,500 in parking fees, gas and higher insurance costs. Figure in another $1,000 for cell phone, computer and other miscellaneous costs.
Now, the biggest expense: childcare. Subtract at least $4,500 to $6,000 per child per year, depending on the child's age. Those costs may include morning care, after-school care and summer camp.
Using these calculations, the $30,000 salary resulted in about a $5,400 a year benefit to the family.
Denise Topolnicki, a former editor at Money magazine and author of "How to Raise a Family on Less Than Two Incomes," says living on one income is easier than many realize. She said people often overlook how much they spend on miscellaneous items to make their lives easier because they're frazzled from work. Think takeout food and overtime for the baby sitter. She believes that people become convinced they can't make it on one income until they make an effort to track all their discretionary spending for a month.
"If you write down where the cash goes, you might be surprised at the cuts you can make without living a dreary existence," Topolnicki said.
For some parents, the solution is opting for two incomes — with both parents working from home. Keith Thorne and his wife, Lori Druck, work as real-estate agents from their home in Pembroke Pines, Fla. Even then, says Thorne, for those with young children, daycare still is necessary to get work done.
Luana Mobley Corral, a certified financial planner, said the biggest deterrent to giving up one income is debt.
"If you have debt, begin building a plan to eliminate it. Sit and do a budget on what is left to live on with one salary if you use the second salary to pay down debt. Work toward eliminating the debt before you quit your job," said Corral, with Associated Investor Services in Fort Lauderdale, Fla.
Corral says couples must work together to build a budget and may have to make financial sacrifices such as fewer vacations, a smaller house or a more modest car.
"The bottom-line numbers sometimes reveal a spouse makes only a few thousand for so much added stress. It may be better for one person to stay at home or look for part-time employment," Corral said.
Anne McCoy said she struggled with the thought of removing herself from a career path. "You just can't hop back in and be at same spot," McCoy said.
Eventually, she chose to give up her $65,000 position with a trust company to stay home with her newborn son. But she has come up with another way to put money into the family bank account. She's working as a bookkeeper for her husband's business, Commercial Coating Systems, a flooring contractor in Miami Shores, Fla. She puts in several hours a day and earns $20,000. She brings her son into the office while she works and has no overhead costs.
Most importantly, she says, she's helping her husband earn more and doing a job he would have had to hire someone to do.
Even for two-income homes without children, discovering a second income really doesn't contribute much financially can free one earner to go back to school or launch a home-based business. Still, some families may require two incomes to meet the overall expenses of paying for higher education, retirement or helping older parents deal with financial burdens.
As Corral points out: "Sometimes it has nothing to do with money but with one's sense of self-worth; the idea that they are contributing to the household income. That's a psychological barrier a stay-at-home parent would have to overcome."
