Chasing the Fionist Dream

Mazal tov on your precious new baby!

Have you ever thought to yourself – or heard someone say:

“With the cost of daycare so high, it just makes more sense for me to stay home.”

This is a particularly common misconception, especially among parents of two or more small children under three who are not yet eligible for public school.

In some places, daycare can cost upwards of 4,000 shekels per month. Multiply that by two or three and it may well be equal to or greater than your take-home salary each month.

In this case, wouldn’t it make financial sense for one spouse to stay home with their children for a few years instead of paying daycare tuition?

The answer is… no.

There are countless reasons to prolong your absence from the workforce and stay home with your little kids. You get to see them grow, be there for all of their firsts, set their schedule the way you want it, and raise them exactly as per your own parenting philosophy. But your family’s finances aren’t one of these reasons. Taking a break from work to stay home with your children will never ever save you money.

Why?

Because your net salary is only one part of your income. Not only will taking extended leave from work leave you with less cash flow today, it can leave you with less money later too, both when you return to the workforce and even in retirement.

How is that possible?

Let’s break this down and look at each stage in depth.

1. Today: Your family’s total monthly income is less. Being a stay-at-home parent means that your family must live on one income instead of two. If you are a woman and get pregnant again during your period of staying home, you may not be entitled to paid maternity leave following your next birth. Even if the cost of daycare is equal to or greater than your net salary, you’ll miss out on all of those deposits into your pension account (and keren hishtalmut if you have one). That money is income too.
   
   That said, no matter your income, make sure to check out the subsidized daycare options in your neighborhood. Thanks to them, it’s very likely that you will not have to spend your entire income on childcare.
   
   
2. When you return to the workforce: Your earning potential can be less. Your colleagues will have gained new skills, professional development, and opportunities for advancement that you missed while you were out. You may also have a hard time landing a job after being out of the workforce for so long, meaning that your stint out of the workforce may be longer than you had intended.
   
   
3. When you retire: You will have less money to live off of in retirement. Not working means that you are not contributing to your pension (and keren hishtalmut if you have one). Thanks to the power of compound interest, a few years of missed pension payments could leave you with hundreds of thousands of shekels less in your retirement account.
   
   How does that work?
   
   Our hypothetical friend Sarah earns 10,000 shekels per month as an employee at her Israeli workplace. She has no keren hishtalmut and no seif 14 in her contract. By law, she and her employer deposit a combined 1,800 shekels per month into her pension account. With an average 6% annual gain, she amasses 68,766 shekels over the course of three years. Over the next 30 years until her retirement, these three years of pension payments grow to 394,957 shekels – money she wouldn’t have had she taken those three years off of work.
   
   Our other hypothetical friend Danielle earns 10,000 shekels per month as an employee at her Israeli workplace. She has both a keren hishtalmut and Seif 14 in her contract. This means that she and her employer deposit a combined 3,083 shekels per month into her pension and keren hishtalmut accounts. With an average 6% annual gain, she amasses 117,780 shekels over the course of three years. Over the next 30 years until her retirement, these three years of pension and keren hishtalmut contributions balloon to a whopping 676,468 shekels! Thank you, compound interest. 💪

So what are we trying to tell you? Are we against taking extra time off of work after the paid portion of parental leave ends?

No. Not at all. Fiona chose to extend both of her maternity leaves for a few unpaid months before returning to work. Had she wanted to take off longer, we would have calculated our options and found a way to make it work.

We believe in living life intentionally and making choices to best serve your own values and passions. If you want to go back to work after your parental leave ends, go for it. If you want to stay home for several extra months or years, more power to you. Like any other major life choice, the decision to take a break from work should be made after considering all of your options, your values, and the implications on your future.

We hope that this post empowers and enlightens you. Understanding the bigger picture can help you make informed decisions about your future. Reach for the stars and live your best life.

Did you or your spouse take extra time off of work after the birth of a child? Why did you make that decision?

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