At first glance the idea that there could be a disadvantage to having a second income seems outrageous. After all, who doesn’t need more money? However, when you properly examine the situation, you may well find that earning more money does not necessarily mean that you have more disposable income. On the flip side, exchanging your play dates for business meetings may not be everything it’s cracked up to be either.
It turns out that the decision to add a second income is no open and shut case. Several factors come into play including;
1. Your tax bracket
2. The cost of working
3. The opportunity cost of staying at home
4. The soft issues
Your tax bracket
In some instances adding a second income can bump you into a different tax bracket and really make a dent on what you have left. A quick way of testing if this may be your case is to check the disparity between the two incomes. Usually, the greater the difference between the two incomes, the bigger the chance that adding the second income will cause more harm than good to your bottom line. The reason behind this is that the second income is not counted as an entirely different taxable figure, but is simply added on the top of the larger income. Thus the smaller income generally ends up being heavily taxed under the progressive system. If the second income was taken away the percentage drop in income would be relatively small compared to the percentage tax savings. Therefore, if this were the only consideration, the results would seem to point to forgoing the second income in favor of the tax savings. Of course, life is never this simple, which brings us to the next factor.
The cost of working
When considering whether or not to add a second income you may consider the money you will save on childcare, but you should take the time to tally up what your contribution at home is really worth. Consider the cost of getting lunch on the outside for every member of the house, house cleaning, maybe transportation for the children and of course the clothes you would need to look presentable at the office. When you have tallied up all the expenses to be incurred you may just realize that if you do decide to go out to work, it won’t be for the money.
The opportunity cost of staying home
There is a popular trade-off of leaving the work-force that every person has difficulty coming to terms with; the fact that exiting the world of work for an extended period sets you back when you decide to reenter. If you are considering rejoining the nine to five after staying home with the children you may find that you will have to accept a position that may not even match the job you left all those years ago. Advancements in technology, changes in the business environment and the qualifications necessary continue to evolve while you were at home molding your little ones into fine youngsters. Unfortunately, your hard work at home does not score points in the outside world. If you are thinking of going back to work, first consider if the kind of job you would accept, then reassess the situation.
The soft issues
When it comes down to it, the decision of whether or not to go back out to work is rarely ever a strictly financial one. You may feel the need to interact with people outside of the home or to be involved in an activity that is not centered on the house and this may be the major driving force. On the other hand, when you work the figures you may find that your contribution at home is much more valuable than what you would be able to fetch on the current job market, so you may decide to stay at home.
You may have columns of figures for or against the choice to add a second income but the decision is deeply personal, and whatever you decide must be right for your situation.