My husband and I were having the ubiquitous “uneven-distribution-of-household-labor” discussion. I laid down an empty ultimatum – either help out more or I’m quitting my job. My husband said, “Okay. Quit.” Um…what? Definitely not the response I was expecting. But it got me thinking...was it feasible? Could we actually afford for me to quit?
We tend to think of our gross salaries as what we need to keep the house running. I was absolutely stunned when I took a look at the actual numbers. I did some math and it was amazing how much less my income actually contributes to the household in terms of real dollars.
The biggest hit on any second income is taxes. As deductions are the same regardless of one income or two, the second income is taxed in its entirety, less actual out-of-pocket expenses. So you already know to take off your 10%, 25% -- or even 35% if you’re really raking it in. What is often not considered is the eye-popping loss of household income when the second salary bumps the couple into a higher tax bracket. Then both salaries are hit at a higher percentage rate.
For example, let’s take a fictitious couple, Jen and Bob. Let’s say Jen makes $50,000 and Bob makes $40,000. If Jen was the sole breadwinner, their numbers would be like this:
Income: $50,000
Exemptions: 7,000
Taxable income 43,000
Taxes @ 15%: 6,450
Net: $36,550
With Bob’s $40,000 salary bumping the couple into a different tax bracket – one that’s 10% higher – we now have this scenario:
Jen:
Income: $50,000
Exemptions: 7,000
Taxable income 43,000
Taxes @ 25% 10,750
Net: $32,250
Bob:
Income: $40,000
Exemptions: NA
Taxable income 40,000
Taxes @ 25% 10,000
Net: $30,000
Total income: $62,000
Yes, Bob’s salary adds a very significant $30,000 to the household, but Jen’s income drops by $4,300 from Bob working.
If a couple has small children, the added cost of care really slams the second income. Let’s say Jen and Bob just had twins. Child care can cost around $12,000 per year per child – even more depending on where one lives. For families with children in need of any type of child care, the second income becomes even more tenuous. To stay in the mid-range of the hypotheticals, let’s say Jen and Bob are lucky and they found full-time care for two infants for $18,000.
Combined income: $62,000
Childcare: 18,000
Net: $44,000
But wait! Those little bundles earn child care credits as well as two more exemptions, so we get to add a little back:
Previous net: $44,000
Credit: 3250
Net: $47250
With taxes and children only, Bob’s $40,000 salary is now contributing less than $12,000 a year to the home. And there are still other hard costs involved in working, such as commuting. The average US commute is 16 miles in each direction. That’s 32 miles per day. With a car getting 20 miles per gallon and gas costing $3.30 on average, that’s over $100 per week in fuel.
Second net income
(less taxes and childcare): $12,000
Less fuel: 1,200
Net: $10,800
And that doesn’t include dollars spent on wear and tear on the car, tolls, parking, as well as additional insurance for heavy mileage. Then there are other hard costs of dual income homes, such as work clothing, business accessories and electronics for work (such as Blackberries). And even the most disciplined brown bagger will have an occasional lunch out with co-workers. These numbers add up to expenses that shrink the bottom line for the home.
Then there are the soft costs of dual-income homes, as well; the extra nights of carry-out and the extra expense of prepared foods because there isn’t time or energy to cook. There are costs incurred because no one has the time or energy to shop around for better prices on everything from insurance to groceries to bank fees. Even without those costs, for this fictitious working couple with two children, a $40,000 second salary has dwindled to just over $900 a month in additional income.
Yes, these numbers are hypothetical and don’t take a lot into consideration – not everyone has two pre-school aged children. Not everyone commutes. Some people don’t ever order pizza and always prepare every meal at home because their budgets make these behaviors a necessity. And most of us need that $900 extra per month to survive, regardless of how much money has to head out the door before the rest even hits the bottom line. However, the numbers can also swing the other way. Some families have three pre-school aged children; have 50 mile commutes; get worse gas mileage.
For us, once we did the math, I probably could have quit – for a while. But there were other considerations; what happens when childcare is no longer an issue? Then that salary really adds up. Taking time off during those preschool and after-school care ages can damage a career. There is also the significant issue of security. My husband’s business had a good year, making my quitting something to possibly consider – but what would happen during a bad year? My staying in the work force provides more than a little extra income; it offers peace of mind.
Regardless of why one works, whether it’s love of career or necessity to pay the bills, it’s a worthwhile endeavor to determine the true cost of one’s job. At the very least, you’ll know where all that money went.
Do you know the real dollars your salary brings into the home? And would you quit if it were an option?
How much does it cost you to work? It's the dual-income conundrum.
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