Lately, there’s been a lot of talk about tech companies offering more and more paid parental leave to enable women, and men, to stay at home with their young children.
If you’re lucky enough to work at Netflix, great. But it’s going to be a long time before most other companies offer a year of paid parental leave. For the rest of us, the choice to take a career break to raise a family can be as momentous as the decision itself to start a family.
Taking an extended, unpaid leave of absence will likely have a long-term financial impact. For instance, not working until the little darling starts kindergarten could cost you as much as a house, Fortune reported.
And it almost goes without saying that kids are expensive. The estimated cost to raise a child born in 2013 (the most recent statistic available) to adulthood ranges between $176,550 and $407,820 depending on household income, according to the U.S. Department of Agriculture. The more money you make, the larger the expenses tend to be.
When contemplating whether to step out of work for a bit, we try to weigh the pros and cons, both financially as well as what’s in the child’s or family’s best interests… not to mention our own happiness and sanity. While you may be looking forward to a period of domesticity, it’s wise to think about how it will affect your career and family budget.
With careful planning, you can successfully manage the financial implications of your choices, whatever they may be.
Looking ahead
As a wealth planner (and parent who chats with dozens of moms on the soccer field), I’ve observed that when women contemplate their options, they generally focus on the here and now — the immediate financial impact of leaving the workforce, the stress associated with finding excellent child care, the concern around getting it all done, just to name a few! I encourage women to, instead, look at their options through a long-term lens. I have personally found that doing so lends itself to arriving at decisions that support overall personal, financial and family goals.
Here are five things to consider when charting your course through career life, home life or some combo of the two:
1. Your future salary — It’s important to not just weigh the costs of child care vs. your take home pay and benefits today. Also think about the long-term effect on future wages if you take an extended leave. A 26-year-old woman who earns an average salary of about $30,000 would lose $467,000 between lost wages, wage growth and retirement benefits over her working career if she takes five years off for caregiving, according to a recent study by the Center for American Progress, reducing her potential lifetime earnings by 19%. This scenario underscores the importance of estimating both the short- and long-term implications when deciding how much time off to take.
2. Long-term savings — For many families, the lost income means a tougher time saving for retirement and other long-term goals. Once baby’s here, it can get even tougher to set aside savings. And now you have to plan for paying for college, too. If you’re still within the “thinking about it” and pregnancy stages, consider putting more in your investment accounts now, because time will be on your side to make up for lost contributions in the coming years.
3. Outsourcing — One of the big questions you might ask yourself when thinking about managing work and family is, “How can I possibly do it all?” Outsourcing may be the answer. I find that many are focused on the immediate costs associated with hiring someone to handle jobs such as laundry, grocery shopping, errands or house cleaning. I encourage people to consider how spending money on these activities frees up time to do other things important to you, such as spending time with your family, advancing your career, studying for a higher degree, or simply hitting the gym from time to time. In other words, rather than focus on the cost associated with hiring someone to help you, think of outsourcing as an investment in your future.
4. Earning opportunities — Raising a family doesn’t have to be an all-or-nothing proposition. If your employer allows, consider working part-time or from home. If flexible work arrangements aren’t offered, develop a business plan that outlines why one should be considered for you. Alternatively, think about pursuing consulting work or starting that home-based business you’ve dreamed about. Even if the path you choose today results in lower earnings, remaining connected with colleagues and professional networks, taking classes, and adding new skills to your resume will position you well for a more comfortable and financially advantageous re-entry to full-time work at some point down the road (should you decide that’s right for you).
5. Professional advice — Decisions around work and family are arguably some of the toughest ones to make. And, if you are anything like me, just when you think you have it all figured out, family needs evolve, job demands change, or a new opportunity presents itself — leaving you to figure things out all over again.
Luckily, you don’t have to go through this process alone. While only you can decide what is right for you and your family, a good financial advisor can assist with sorting through some of the uncertainty. Not only will an advisor help you understand what is affordable today, she can also analyze the long-term financial implications of the various options you are considering. While dollars and cents are not the only drivers behind these important decisions, seeking professional financial advice makes perfect sense to help you feel confident with the choices you make.
(Lisa Colletti, JD, CFP, works in New York as director of planning and a principal of Aspiriant. Los Angeles-based Aspiriant provides independent investment management, wealth planning, family office and wealth management services across the United States.)