The financial cost of quitting your job after a baby

This post highlights the financial costs of quitting your job after a baby. It is not a stay at home versus working parent post. My examples relate to the UK, however, you can apply the same principle wherever you live.

You can’t place a value on being there for your children, so the financial costs of quitting your job after a baby should not be the only ones you consider. There are non-financial aspects to weigh. However, for some people, it is not an easy decision to take. Here are a few of the financial costs of leaving your job after a baby

Income

This is more than obvious. If you quit your job, you lose the income you would have earned. If you are used to living on 2 incomes, you need to ensure that you can now cope with one. Of course, you should take into account the cost of childcare in the short term. This is because you are only losing your income less childcare cost if you have to pay for childcare. 

Childcare costs are a greater factor if you are on a low income and have more than one child close together in age. You might end up paying 2 lots of childcare before they start school.  However, this will be in the short-term. Unless you are planning to go private, you will find that your childcare costs will reduce when your children start school.

When and if you decide to go back to work, wraparound care can still cost quite a bit for school-age children. You can be a bit creative with this if one parent drops off and the other finishes early to pick up. After-school clubs could also work out cheaper even though they run for shorter durations. Whatever you decide, make sure it works for your family. This includes your ability to provide for them.

Increments/progression

Pay increments and promotions forfeited are a financial cost of quitting your job after a baby. This is why I often advise that having your foot in the door by going part-time is a good option. You will be able to make of for lost time much quicker if you have your foot in the door. One criticism of part-time work is that you are not as visible as full-timers and might get passed up for promotions. However, you will have more visibility than when you are not at work. If you stay relevant and add value, you can ask to increase your full-time equivalent when you are ready. Changing jobs will also be easier as it means you won’t have a gap to explain on your resume.

Employers pension

If your employer runs a contributory pension you will lose out on their contributions. Your employer will only contribute if you do. If you leave your job you will lose that extra help in building your pension.

State pension

At the time of writing this blog, anyone with 10 qualifying years on their National Insurance record qualifies for a state pension in the UK. The 10 years do not have to be chronological. You can also get national insurance credits for your time as a stay at home parent, provided you have registered for child benefit for a child 12 years and under, whether you are receiving it or not. To get the full state pension you need to have 35 qualifying years.

According to GOV.UK, if you have fewer than 30 qualifying years, your basic State Pension will be less than £134.25 per week but you might be able to top up. You can request for a state pension forecast here to decide whether to increase what you get by making voluntary national insurance contributions. In summary, If you don’t qualify for a full state pension you lose the difference between the full and what you get.

Opportunity Costs

Opportunity cost refers to the value of missed opportunities the income lost would have afforded you. It is just something for you to think about. It is not just the value of income given up when you stop working that should be considered. The value of what the income would have helped you achieve is a cost. Will working give you extra income to invest, overpay your mortgage, and save for retirement? All of the extra benefits that you would have gotten from earning an income will be lost and is, therefore, a cost.

The above is not exhaustive but should cover the main financial aspects to consider when making a decision to stop working. Like I’ve mentioned, the non-financial aspects should be taken into consideration as well. If you are reading this because you are expecting your baby, good luck with making the right choice for your little one/s and family. Check out our blog post to boost your income. This is useful if you want to start a side hustle while you are at home with your baby/children.