You have to think about your lifetime financial security, not just your month-by-month snapshot. Then the financial impact depends on how long you’re planning to be at home, and on your field – an accredited teacher can probably jump right back in after a decade; an IT professional is going to be hopelessly behind in just a few years. It depends on your work history, age, education, what you already have in retirement savings.

And of course you have to look at the stability of your one job, not just salary – my first career was in sales, which was wildly variable over time. My partner, on the other hand, is an engineer who has had the same job since he was an undergrad. The future value of his salary goes up just because it is so dependable – most of my former coworkers have been laid off and their new jobs don’t pay as much because advertising sales are way down overall.

It’s especially useful for families to fully calculate whether or not the popular “2-Income” approach {mom & dad both working}… really improves the family situation overall. Lots of families seem to automatically & falsely conclude that having Mom work– ‘always’ significantly increases family net income and well being.

Computing “Real Hourly Wage” requires careful review of nominal gross wages versus take-home pay.

FICA taxes are VERY deceiving. Under the ‘Federal Insurance Contributions Act’ (FICA), 12.4 percent of your earned income {up to $106,800 annually} must be paid into Social Security, and another 2.9 percent must be paid into Medicare {no wage limit}. These are highly regressive taxes that kick in on the very first dollar anybody earns.

A worker “seems” to pay ‘only half’ the FICA bill (6.2% Social Security + 1.45% Medicare)… with the employer “contributing” the other half. But in reality the worker pays the full FICA percentage of 15.3% (= 12.4% + 2.9%) automatically withheld from his gross wages.

So if Mom goes to work to help make ends meet — she instantly pays 15.3% FICA tax on every dollar earned.

Then she pays Federal Income Tax, probably State Income Tax, and Local Income Tax in some areas. If she wants to actually spend anything left… she’s hit with at least a 6% sales tax, and much higher taxes on water/telephone/electricity. Should she heroically save any remaining wages in a bank account — the government taxes that interest as ordinary income.

Factor in a family second-car for a working spouse… and the cost/benefit analysis looks grim for average families, unless Mom earns very good wages.

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Same thing with work around the house. You might be tempted to pay a neighborhood kid $10/hr to cut your lawn until you find out that your real rate of $13/hr means you really should be doing it yourself!

Just something to think about…

This question highly pertains to real estate and location. I’m willing to pay a premium to live i nthe city center, than in the burbs due to the commute, frustration, and expense. For others, they don’t mind. Each his own.

It is empowering if one can truly grasp the power of this calculation… if nothing else, the exercise thereof will always be personally eye opening.

My wife and I have goals… and suffice to say that the challenging truths delivered in this post are an essential ingredient to reaching those goals!

Thanks Bob, great insight as usual.