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I prepare taxes for about 40 or 50 friends and relatives each
year. One of the couples I prepared taxes for this year lost a
lot money by having the wife work part time. She worked at
Walmart as a cashier a few hours a week. She gets paid $5.65 an
hour and worked about 380 hours in 2000 and earned $2147.
It seems like this would be helpful to the family by giving them
a little extra spending money. However, I decided to figure
their taxes using only her husband's income just to see what it
cost her to work. She didn't like what I found.
Remember, she earned $2164. After deducting $134 for social
security tax and $31 for Medicare tax her income was down to
$1999. The biggest hit on her income was that they received $764
less in earned income credit, just because of her salary. This
brought her income down to $1235 for 380 hours work. That is
$3.25 an hour after taxes.
Since she only lives 4 miles from her work, transportation didn't
cost too much. Also, grandma takes care of the kids for free
while she is at work, so there is another big savings. If she had
to pay for child care, her income would be almost nothing.
Whether it's Mom or Dad that stays at home, you need to check
things out to see if you can do it financially. Don't
misunderstand, it is going to require a lot of sacrifice by the
entire family. It may be necessary to make deep cuts in your
budget.
Let's start by attempting to find out just how much of that
second income is really coming into the home. There are many
things to consider.
Taxes and other withholding from the second paycheck can take
as much as 20% to 30% of your paycheck. That alone could reduce
a $10 an hour job to $7 or $8 an hour. I have found that when
you file your taxes at the end of the tax year, you end up
paying a lot more. In addition to this, those eligible for the
earned income credit wind up getting quite a bit less back than
they would if they only had one income.
Chances are that your second job is going to cost more in extra
gas and car expenses. Sometimes a second job requires a second
vehicle. If you use a second vehicle for that job, the payments,
taxes and insurance is costing you a bundle.
If you are paying for professional child care, I don't need to
tell you how much this deducts from that second paycheck. It's
hard to put a dollar amount on child care because the methods
of child care and cost vary so widely. However, unless you are
having Grandma watch the kids for nothing, then you could be
spending hundreds of dollars a month.
There are also a lot of incidental expenses involved in a second
job. This ranges from needing special clothing for the job to
those extra toys you buy the kids because you feel guilty that
you can't be there.
I would say that somewhere around 50% or less of your income from
that second job is all that is actually money coming into your
home. If this is the case for you, then all you have to do is
find ways to cut enough from your budget to make up for that
money that actually is being generated by your job.
The best way to do this is to get a piece of paper and jot down
what your earning and what your job is costing you. It may be
best to use an average for about 2 months for these figures:
1 Enter Your Gross Monthly Earnings
2 Enter The Monthly Deductions From Your Paycheck Stubs
3 Enter Your Monthly Transportation Costs
4 Enter Your Monthly Child Care Expenses
5 Enter Your Other Incidental Expenses
6 Now subtract the expenses in 2 through 5 from your earnings in
item 1
This will be the approximate amount that you will need to cut
back in order to be able to stay at home.
There are literally thousands of ways of cutting your expenses
in order to make staying at home a reality. The best place to
start is by surfing the internet using key words like saving
money, frugal, saving on groceries, budgets, cutting spending,
etc.
I've listed several links below to some of my favorite money
saving web sites:
At Home Parent
http://www.athomeparent.com
The Frugal Shopper
http://www.thefrugalshopper.com
The Dollar Stretcher
http://www.stretcher.com
Saving Advice
http://www.savingadvice.com
Debt Smart
http://www.debtsmart.com
Better Budgeting
http://www.betterbudgeting.com
Thrifty Fun
http://www.thriftyfun.com
Cutting your expenses enough to stay at home and still maintain your current lifestyle may be difficult, if not impossible. It may be necessary to make some major changes. Only you and your spouse can determine if the overall effort is worth it.
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