Reader Case Study: Stay Home With Baby or Return To Work?
Welcome to this month’s Reader Case Study! Case studies are financial dilemmas/questions that a reader of Frugalwoods sends to me requesting that Frugalwoods nation weigh in on. Then, Frugalwoods nation (that’d be you), reads through their situation and provides advice, encouragement, insight, and feedback in the comments section. It’s a way for us to support and assist one another on our diverse financial journeys. Since many of us don’t discuss money with our friends in a conventional setting, I find that having these conversations online provides a wonderful resource.
Last month was our first in this recurring series and I was BLOWN AWAY with how incredible your responses were. From in-depth advice, to compassionate encouragement, to offers to connect via email, you all seriously impressed me. Julie–last month’s case study subject–wrote to tell me how much she appreciated your help and I completely concur. If you’re wondering what type of conversation a case study generates, check out the comments on last month’s post. It was a case study on how to be helpful with a case study!!! Thank you to everyone who offered Julie advice.
I want to share an update from Julie: she was offered a full-time position at the firm she was previously temping for. Plus, she reduced her monthly expenses below $1,400, while her income went up roughly $300 per month. She also paid off her car and her school will contribute to her tuition starting in April. Hooray, Julie! These are some amazing changes!
I probably don’t even need to say the following because you all are the kindest, most polite commenters on the internet, but, please note that Frugalwoods is a judgement-free zone where we all endeavor to help one another, not to condemn.
With that, let me introduce you to Kelly, this month’s case study subject!
Kelly wrote to me:
My husband Joe (34) and I (38) have four daughters–Olivia (9), Mihret (6), Ada Mae (3), and Eliza (3 months). We raise pastured beef and pork on 24 acres in mid-Michigan. When my husband took over grocery shopping for our family a few years ago, he said he wasn’t going to pay $10 a pound for organic meat. He suggested we find some cows and pigs and do it ourselves. And so, we did! We make $5,000 on the animals after all associated costs are deducted.
In addition to our farm, Joe and I each make $72K/year working for the federal government. Joe will be able to retire at 50 with a full pension, TSP (that’s a 401K for federal employees), and benefits. I’ll be able to retire at 56 with the same. His pension will be $3,400 per month and he hopes to have at least $500K in his TSP before retiring.
Joe was a Marine and I went to college. We met at work and have been married for 4 years. I never thought I would get married and so, earlier in my life, I decided to have children on my own… hence our 9 and 6-year-olds :). In our expenses, you will see $600 per month for school. We live in a very rural (read: zero diversity) area and our older daughters are African-American. We send all of our children to a private school in the city so they can be exposed to various colors and cultures. This is not an expense we are willing to cut out as education and diversity are priorities.
We also own a vacation cabin in northern Michigan, purchased in April, where we go at least once or twice a month. We’ve been renting it out one week per month at the rate of $900/week, which covers the mortgage. Our hobbies include hiking, swimming, canoeing, skiing… basically anything outdoors, and our vacation cabin is in an area where we can participate in those activities. The cabin is fully updated, maintenance-free, and located in a forest, which means we have zero lawn/landscaping expenses.
We do not have childcare expenses because our employer allows us to offset the days we work so that one of us is home. Once or twice a week when our work days overlap, a grandparent comes over.
Kelly’s question for you:
- Should I/could I stay home for 5 years until our youngest is in school? I’m currently on maternity leave and am debating whether or not to return to work.
- If I stay home, where should we cut costs?
- If I continue working for a short period of time to increase our savings, what amount should we have in the bank to ensure we don’t get in a bind?
- Several considerations:
- If I do quit my job, I wouldn’t be able to go back to the same position and when I returned to the work force I would most likely make considerably less, say $60K.
- If I do not return to work, my pension will be $1,000/month as opposed to $1,600/month if I return.
- Additionally, I am a licensed substitute teacher and could substitute on my husband’s days off, which would mean a continued stream of income while also ensuring that a parent was in the household raising the children. I’d earn $100/day as a substitute.
- Other possible income streams: watching another child in our home (around $300/week) and/or raising more animals on our farm.
- We currently contribute to 529s and ESAs (college savings funds for our daughters). If I quit, we wouldn’t be able to.
Yearly Take Home (Net) Income
|Kelly’s annual take-home||$72,000.00|
|Joe’s annual take-home||$72,000.00|
|Vacation cabin rental (1 week per month at $900/week)||$10,800.00|
|Income from animals||$5,000.00|
|Primary residence mortgage, taxes and insurance||$1,100.00||$148K remaining, $100K in equity, 3.25% interest rate|
|Vacation cabin mortgage, taxes, and insurance||$850.00||$134K remaining, $30K in equity, 3.25% interest rate|
|Groceries & household supplies||$400.00||This sounds low, but we don’t buy any meat or eggs|
|Gas for cars||$400.00|
|Auto insurance||$250.00||We have a 2008 Toyota Corolla, a 2005 Ford Freestyle, and a 1998 GMC Sierra, all paid off|
|Violin and piano lessons||$250.00||For the two oldest girls|
|Student loan payment||$150.00||$18K remaining; 1.5% interest rate|
|Vacation cabin electric||$150.00|
|Cell phones (2)||$100.00||Provider is Sprint|
|Farm maintenance||$100.00||My father-in-law works part-time at a car parts supply store and we get everything free or wholesale.|
|Primary residence electric||$80.00|
|Additional $100K life insurance policy||$12.50|
|Clothing for adults||$8.33||I estimate we spend around $100/year on clothing for Joe and me. All of the kids’ clothes are hand-me-downs or gifts from my mother-in-law who loves to shop.|
|Drama club for kids||$6.25|
|TOTAL each month:||$5,467.08|
|Life insurance through employer (Kelly)||$700,000.00|
|Life insurance through employer (Joe)||$700,000.00|
|Mutual Fund (Kelly)||$4,000.00|
|Mutual Fund (Joe)||$1,200.00|
Mrs. Frugalwoods’ Recommendations
First of all, I have to gush over how adorable Kelly’s family is! Plus the farm! I swoon. I get the feeling that Kelly really wants to stay home with her youngest. And before we go any farther, I think it’s important to realize that part of that decision is non-financial and much more related to her desire to be a work-at-home mom. As someone who made this decision myself earlier this year, I completely understand the emotional argument and the desire to be at home with your baby.
Kelly’s ideas for taking on substitute teaching or raising more animals or doing home daycare would certainly help the family’s finances and I commend her for thinking creatively. Plus, the fact that they’re able to avoid childcare costs whether she works or not is fantastic. All this being said, I’m a bit cautious about her not going back to work simply because their non-retirement savings are pretty small.
With their income level, and their relatively low spending, they should be able to sock away more into non-retirement savings. According to the above net take home total ($159,800) and yearly spending total ($65,604.96), Kelly and Joe should be saving $94,195.04 every year, but that’s not reflected in their assets. As a person who didn’t carefully track my spending for many years, I 100% know the feeling! Thus, my first recommendation to Kelly is to judiciously track their spending every month (I use and recommend Personal Capital, which is a free expense-tracking tool). No frugality optimizations will matter until they know where every dollar is going each month. It’s also possible that Kelly and Joe just recently began earning at this level and hence, haven’t had the opportunity to save at such a high rate. If you’d like to know more about how Personal Capital works, check out my full review.
Savings Accounts Side Note
One of the easiest ways to optimize your money is to keep it in a high-interest savings account. With these accounts, interest works in YOUR favor (as opposed to the interest rates on debt, which work against you). Having money in a no (or low) interest savings account is a waste of resources because your money is sitting there doing nothing. Don’t let your money be lazy! Make it work for you! And now, enjoy some explanatory math:
- Let’s say you have $5,000 in a savings account that earns 0% interest. In a year’s time, your $5,000 will still be… $5,000.
- Let’s say you instead put that $5,000 into an American Express Personal Savings account that–as of this writing–earns 1.70% in interest. In one year, your $5,000 will have increased to $5,085.67. That means you earned $85.67 just by having your money in a high-interest account.
And you didn’t have to do anything! I’m a big fan of earning money while doing nothing. I mean, is anybody not a fan of that? Apparently so, because anyone who uses a low (or no) interest savings account is NOT making money while doing nothing. Don’t be that person. Be the person who earns money while sleeping. Rack up the interest and prosper. More about high-interest savings accounts, as well as the ones I recommend, here: The Best High Interest Rate Online Savings Accounts.
What I suggest is that Kelly and Joe buckle down and have an uber frugal month. Then, based on that level of spending and how sustainable it would be–from both a lifestyle and a financial perspective–they can seriously consider whether or not Kelly should return to work. A key element of this exercise will be to determine if they can comfortably live on Joe’s salary alone. Without Kelly’s income, they’d bring in $87,800 per year. With the above listed spending, they’d be able to save $22,195.04 per year, which should be sufficient for them to boost their investments, their savings, and contribute to their daughters’ 529s.
Ok Frugalwoods nation, what advice would you give to Kelly? She and I will both reply to comments, so please feel free to ask any clarifying questions!
Would you like your own case study to appear here on Frugalwoods? Send me your story via email (firstname.lastname@example.org) and we’ll talk.
Updated May 26, 2017 with Kelly’s decision:
I made the decision to return to work for now and am working 12-14 hours a day 3-4 days a week.
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