I've been debating going back to work full time for the past few years. However, the same arguments -- and the same costs -- keep deterring me from attempting to make the crossover back to the working world again. It's not the work involved, since it would likely be easier than trying to make it as a self-employed individual caring for two small children during the day. However, there are some huge costs involved in making this transition.
Let's say that somehow -- after being out of the general workforce and working for myself for the past six-years -- I somehow go back to a full-time gig making $40,000. I don't think it's too likely in this economy, but let's just say it happens. Sounds great, right? Well, not so fast. There are a few major expenses involved in returning to the workforce that can negate even a seemingly decent salary.
Taxes, Taxes, and More Taxes
Let's face it; the more I make, the more the government takes in taxes. So let's say I go back to a "regular" job rather than stay self-employed, caring for the kids, and just squeaking by. Well, that would put my federal tax rate (after deductions), at around 15 percent conservatively speaking after combining this income with my wife's. Then we have state income taxes which would be about 4.5 percent after deductions. Add in payroll taxes at 6.3 percent, and I fork over a total of about 25.8 percent of that $40k pay or about $10,320.
Childcare can get ridiculously expensive. Right now we have a baby and a five-year-old. Even with the five-year-old attending half-day kindergarten, full-day costs of care for the baby alone could near $15,000 in our area. Well, that just cut another 37.5 percent off that potential $40k salary.
Based upon my past commutes of about 25 miles roundtrip each work day, and with gas averaging around $4 a gallon here in the Chicagoland area, transportation costs for going back to work can start to add up quick. Five days a week, 50 weeks a year, and averaging 15 miles per gallon fuel mileage, I'd be facing about $1,666 a year in fuel costs. Add in another $600 for vehicle insurance, $500 for parking, at least $500 for maintenance and upkeep, and with costs of used vehicles high after the Cash for Clunkers program ate up the used car inventory, I'd probably be looking at a cost of $1,000 per year broken down over 10 years to purchase a newer used vehicle. This would bring my annual total for work-related transportation costs to right around $4,266.
So what's left for living expenses after I take all those work-related costs away out of my potential annual salary? Well, not much. When we take that $40k salary and subtract out $10,320 for taxes, $15,000 for childcare, and $4,266 for transportation, I'm left with $10,414 for the remainder of life's little costs. It doesn't sound all that bad, but as a self-employed individual, I can save almost all those work-related costs -- except what I pay in additional payroll taxes. And while my income is reduced, it's enough to live on without all these additional work expenses.
So, I guess there is no real right or wrong answer since by not going back to work outside the home full time, I don't get higher payments toward Social Security (take that for what it's worth) or company sponsored 401(k). It is however an interesting way to approach a job search. Returning to work outside the home might be worthwhile once the kids are both in school full time; but for right now, and knowing the costs involved, it's hard to seriously contemplate returning to such a position.
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The author is not a licensed financial professional. The information provided in this article is for informational purposes only and does not constitute legal or financial advice. Any action taken by the reader due to the information provided in this article is solely at the reader's discretion.