advice needed....

[jimmyengland]

looking for advice. wife and i are 29 live in pa. recently had a baby (9 months). we have been to a few different daycares for different reasons.... first off he was in a regular daycare and got very sick at about 2/3 months. then once we got him fixed there was a program thru my work where we could take him to there daycare for 6$ per day and it was excellent care - but this was only for the transition back to work (8wks). once we got done with that we took him back to the initial daycare. after being there for a few wks we realized this wasnt the place for our son.... due to the fact that it seems like they just chuck him in a swing all day, he would come home with rashes due to lack of diaper change etc etc. so my wife posted on fbook that we were going to look for alternative care. we stumbled accross one of my wifes old friends from college who said she would love to watch him. we fig this was the perfect scenario we know the girl she stays at home with her kids used to be a school teacher everything seemed on the up and up. so a few months in he comes home with a massive bruise on his face and when we ask the babysitter to explain she cant.... long story short we found out from another friend that she had had her daughter taken away which she refrained from telling us.... so needless to say we took him out of there. long story short now here is my situation - my wife desperately wants to stay home but im not 100% sure we can reallly afford it. I have laid out my bills and income below.

Income - 48k
mtg = 650
student loans = 200
cell = 85
cable/internet/phone = 120
water/sewage = 50
groceries 500
elec 70
gas 70
car ins = 60
gas 4 car = 75
bus pass = 80

so roughly 2k in bills. right now i am witholding 0 with an extra 50 and i clear like 2300.

my questions r. since my wife would no longer be working can i claim 2 on my taxes? and if so how much will this likely change my paychecks by? any ideas of what she could do from home where we wouldnt have to put the baby into daycare? (we have thought along the lines of maybe a blockbuster or something where she could work a few nights a wk). do you really think that i can afford to support my family just on my income? as you can see from above this leaves me basically 300 per month for misc items and the budget i have listed does not incluse items such as birth control, doc visits, clothes, entertainment. it amost seems like on a dual income we can live the dream but on a single income we r not far above the poverty line... any suggestions/ideas welcome.

[terces]

How about wife earning extra money by offering daycare/babysitting of her own? I did it for a couple years so I could afford to stay home with my kids.

[kork13]

The first thing you should do is immediately fix your tax exemptions. I'm a single guy and I claim 2.5 exemptions (2 exemptions for Jan-Jun, 3 exemptions Jul-Dec). As a couple with a young child, I GUARANTEE that you should be claiming at least 5 exemptions. When you become a parent, there are ALOT more tax benefits for you. Just as a general piece of advice, you should re-evaluate your exemptions every year and anytime your family has a major event (birth, death, marriage, divorce, etc). Use the IRS withholding calculator, plug in all of your numbers (be aware, some fields ask you to estimate your 2010 totals through December, others ask for current totals to date), and they'll tell you what you should be claiming for the rest of the year. That could very easily net you an extra few hundred dollars PER MONTH. As you're set up right now, you would probably get a massive tax return next Spring, which is bad news -- you can use the money now! Don't loan it to the government for free!

Adjusting your taxes is the biggest thing you can address immediately. Otherwise, try to look ahead. If your wife were to stay home to care for your son, she could start learning how to cook frugally, which could save you probably another $100 or more per month in food costs. Plus, there is the obvious (and significant, IMO) benefit of her being able to raise your son as the primary caretaker as opposed to a hired help, which as you unfortunately have already experienced, you can't always trust.

Honestly, you have a good income, and your expenses are by no means unreasonable. With a closer look at where your money's going, you should be able to afford being a single-income family no problem. My only question is this: where's the $1700/mo going between your ~$4000 gross and $2300 net income??? That's 42% of your paycheck! Unless a fair chunk of that is going to a 401k and/or a health insurance/HSA plan, something seems terribly wrong.

[jIM_Ohio]

looking for advice. wife and i are 29 live in pa. recently had a baby (9 months). we have been to a few different daycares for different reasons.... first off he was in a regular daycare and got very sick at about 2/3 months. then once we got him fixed there was a program thru my work where we could take him to there daycare for 6$ per day and it was excellent care - but this was only for the transition back to work (8wks). once we got done with that we took him back to the initial daycare. after being there for a few wks we realized this wasnt the place for our son.... due to the fact that it seems like they just chuck him in a swing all day, he would come home with rashes due to lack of diaper change etc etc. so my wife posted on fbook that we were going to look for alternative care. we stumbled accross one of my wifes old friends from college who said she would love to watch him. we fig this was the perfect scenario we know the girl she stays at home with her kids used to be a school teacher everything seemed on the up and up. so a few months in he comes home with a massive bruise on his face and when we ask the babysitter to explain she cant.... long story short we found out from another friend that she had had her daughter taken away which she refrained from telling us.... so needless to say we took him out of there. long story short now here is my situation - my wife desperately wants to stay home but im not 100% sure we can reallly afford it. I have laid out my bills and income below.

Income - 48k
mtg = 650
student loans = 200
cell = 85
cable/internet/phone = 120
water/sewage = 50
groceries 500
elec 70
gas 70
car ins = 60
gas 4 car = 75
bus pass = 80

so roughly 2k in bills. right now i am witholding 0 with an extra 50 and i clear like 2300.

my questions r. since my wife would no longer be working can i claim 2 on my taxes? and if so how much will this likely change my paychecks by? any ideas of what she could do from home where we wouldnt have to put the baby into daycare? (we have thought along the lines of maybe a blockbuster or something where she could work a few nights a wk). do you really think that i can afford to support my family just on my income? as you can see from above this leaves me basically 300 per month for misc items and the budget i have listed does not incluse items such as birth control, doc visits, clothes, entertainment. it amost seems like on a dual income we can live the dream but on a single income we r not far above the poverty line... any suggestions/ideas welcome.

There is not enough information above to know how to set withholdings. This is based more on your refund size than take home vs expenses. In addition your wife has worked 3/4 of 2010, so whatever anyone figures out now would get you thru 2010, but may not apply for 2011. Tread lightly.

If you list
gross income (what your gross pay is)
your total income on tax return (section 1)
your total adjustments and deductions
your taxable income
the tax you owe

then it may be possible to estimate.


My gut instinct is to not make a quick decision
you can do this if you net $2300/mo take home and expenses are $2000

A few bills jumped out at me- $500 for groceries is high, we have twin 2.5 yo and spend $350/mo.
$200/mo for student loans? what is the payoff amount and interest rate?

Here is what I would do

1) have wife and you move hours around (for example one of you start work at 6am and come home at 3pm, other start work at noon and come home at 8pm). Then try to find someone for only 3 hours in middle until a better solution is known.

2) in meantime, if you can live on only your income, use wife's income to
a) build up savings
b) pay down that student loan

3) look for a more stable daycare provider. If you know of people with kids your age, ask them who watches their kids during day.

4) If you need to find someone to watch 1 kid, try looking for a college kid which needs some income, if you can squeeze the hours needed (meaning not a solid block of 8 hours) its possible you could find someone which needs the money and study time and can also feed kid and change diapers 2-3 times during day. My wife did this for 2-3 years during college and speaks highly of the experience.

[NJDebbie]

I think that it will not be easy but doable.

[MonkeyMama]

Are you saying that you clear $2300/month net?

Yes, figuring out the tax situation can help immensely. When my spouse stayed home with our first child, I was grossing $50k per year with a much larger mortgage. VERY doable. My take-home was much higher, particularly when we raised my tax exemptions when my spouse stopped working.

2011 tax rates are up in the air (at the least, set to revert to $500 child tax credit, higher tax rates, etc.). Just to be clear, my thoughts will only apply to 2010. Taxes have been very favorable to single wage families over the last decade.

Child tax credit is a $1 reduction in tax. Making work pay reduces taxes by $800. Your Fed taxes on $48k would only be $1k, after credits. (Assuming no other income or deductions - just standard deduction and exemptions). Not sure on your state.

If no state taxes, you should be able to clear $3600/month.

I have this conversation with people all the time - who don't understand how little we pay in taxes with only one of us working. Most people are unwilling to give up the big tax refunds though. The $3600 calculation accounts for social security taxes, and the $1k per year you owe the Feds. You would get no refund at the end of the year, but you wouldn't owe, either. This is in line with my take home when I made the same wage in 2003.

I'd estimate about 8 exemptions. If your net was higher than $3600/month with 8 exemptions, I would scale it back. I do not know if you have other deductions from your check - 401k, health ins., etc., would lower that $3600 figure too.

As far as your wife, she could do babysitting/childcare. IT's the obvious solution.

I personally never felt comfortable with daycare options for babies. BUT, found a wonderful wonderful lady to provide care to our children between ages 2 and 5. Loved her to death, but she moved. She is like family to us, still. I wouldn't give up hope. I just wanted to say you will find a lot more options when your child is a little older. Definitely do your homework before choosing another childcare (background checks, references, etc., etc.). I've always had issue leaving my kids with anyone until they could communicate better (in case anything was going on). I share just to say you may find this spot to be very temporary. Staying home for just one year may give your family tremendous peace of mind.

[MonkeyMama]

P.S. Savings with a spouse home goes far beyond taxes. If she can home cook meals, and if she isn't doing that already, there is a huge potential for savings there. That is just one of many examples. LEss wear and tear on the vehicles, etc., etc.

[snshijuptr]

My sister is a stay-at-home Mom and she makes a bit of extra money by sewing clothes for her daughter and to sell on ebay. She also buys and sells whatever her latest obsession is (baby clothes, purses, etc) on ebay. She shops major sales and then resells most of it. It pays for her hobbies.

[jimmyengland]

to answer some of the questions above... i earn 2310 (net) every two wks. so it is not technically per month as i would have the two extra paychecks in the yr. right now i pay ~130$ in healthcare benefits for me and my son per paycheck. i also contribute 6% to my 401k with a 4% match. i am witholding married 0 with an extra 50.... i know this is not enough exemptions and that we are going to get a massive refund this yr. i was lazy and i was also using it to build my emergency fund... i know i could be making this count right now and u will all prob think i am nuts... i have switched it today to withold 1 while my wife is still working.

[jimmyengland]

jim dont really see too many of your options working out for me to be 100% honest altho i value ur opinion. 200 per month on my student loan is what it is.... my loans are thru a company in the uk. the actual interest rate is set based upon inflation in the uk and is currently set at 0% yes thats 0 thru till oct. they reduced it so many people were defaulting on there loans bcos of the state of the economy. the prob is they base my payments off of my income so altho each yr i make more money they seem to take just as much. so there is absolutely nothing i can do about the student loans. as far as the shopping goes i have had my wife really cut back and i really do not think its that bad. when you take into consideration that 20$ for formula and 10 for diapers per wk. so thats 120 of the 500 right there.

we cant work opposite shifts... its just not an option we both work in deadline driven environments. we have a temporary plan to get us thru to feb. at that point then she will most likely stay home.

[jpg7n16]

The first thing you should do is immediately fix your tax exemptions... Use the IRS withholding calculator, plug in all of your numbers (be aware, some fields ask you to estimate your 2010 totals through December, others ask for current totals to date), and they'll tell you what you should be claiming for the rest of the year.

Absolutely use the link Kork provided.

Here are the basic stats I have for you guys. Using standard deductions, and not even including deductions for the student loan interest - so this is the most conservative estimate, when in fact your taxes should be lower. Here goes:

Total Income: $48,000
Standard Deduction: 11,400 (Married Filing Jointly)
Personal Exemptions: 3,650 each = 10,950 (you, wife, kid)
Taxable Income: $25,650

Taxed at 15% bracket (per 2010 Tax Rate Schedules: Marginal Ordinary Income Tax Brackets for Year 2010 schedule):

(25,650-16,750)*15% + 1,675 = $3010 income tax owed for the year.

Then for SSI: 48,000 * 7.65% = $3672 FICA taxes owed.


Your $48k minus 3010 and 3672 = $41,318 of income for the year. (aka $3443.17/month) Which is well more than the $1960/month in bills you have listed.


You should have about $1500/month to work with after all bills have been paid.

[jpg7n16]

Oh sorry - looked up PA state income tax rates which are listed as 3.07% of all income (The Tax Foundation - State Individual Income Tax Rates, 2000-2010)

So add $1473.60/year to the tax burden (48k*3.07%). Works out to $122.80/month.

So you should still have around $1375 each month to work with.

[MonkeyMama]

(25,650-16,750)*15% + 1,675 = $3010 income tax owed for the year.

Then for SSI: 48,000 * 7.65% = $3672 FICA taxes owed.

These are all the same calcs I had, but you can deduct $1k for child tax credit, and $800 for making work pay credit. $3010 - $1800 = $1200. I presumed there would be a property tax deduction, in addition to standard deduction, etc., etc., so came up with $1k. (But this may be a good number for long term planning - as a lot of this may go away in 2011).

I think OP will find tax refund to be bigger than expected, with child this year.

[minnie1928]

Oh sorry - looked up PA state income tax rates which are listed as 3.07% of all income (The Tax Foundation - State Individual Income Tax Rates, 2000-2010)

So add $1473.60/year to the tax burden (48k*3.07%). Works out to $122.80/month.

So you should still have around $1375 each month to work with.

PA also has local income tax rates too. They vary from area to area.

Keep in mind also, that if you wife stays home that she might be able to lower some of the other costs (clothing, groceries, etc) by paying attention to sales that she otherwise didn't have time to watch.

[kork13]

I think OP will find tax refund to be bigger than expected, with child this year.

MUCH bigger, probably. Because even if the bouncing baby boy doesn't come until 31 Dec, the tax benefit counts for the ENTIRE year. As you both have mentioned, if he's been having taxes withheld throughout the year, he's going to have a massive return, even in spite of his wife working.

I'm curious, btw... How many withholdings do you have set for your wife's paycheck? I have seen it where one spouse claimed all of the exemptions and the other claimed none -- is this the case?

i know this is not enough exemptions and that we are going to get a massive refund this yr. i was lazy and i was also using it to build my emergency fund...

This bit is a little confusing... By having such a low withholding, you're receiving LESS of your paycheck each month than you should be. Or are you planning to use the tax refund to be the start of your EF? If so, it's easy to say that now, but harder to do when you get the check for $5000+ from Uncle Sam. In any case, the best thing you can do to help your EF is to actually receive the money from your paycheck that you should be getting, and put it into a savings account. The government doesn't give interest on your income tax overpayments. A bank (if you were to not loan the gov't the cash) will.