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Best Ways to Be Smart About Childcare Costs

Written by Alex Resetar | Jan 30, 2019 10:00:14 AM

Astronomical. Sky-high. Staggering.

Childcare costs are some of the highest family expenses there are. A 2017 study put the average rate for a child in daycare at $10,468 each year, and for a nanny at $28,905 annually.

Even if your income is reasonable, that’s still a huge chunk of it.

While there may not be ways to dramatically decrease the cost, there are methods to be smart about managing it. We cover several options for you here.

Plan Early

If you’re expecting a baby (or coming up with a new plan for childcare), lay out some plans. Discuss with your partner what your ideal childcare situation would be. There are plenty of options:

  • Commercial daycare center
  • In-home nanny
  • Home-based daycare center
  • Friend who’s a stay-at-home mom
  • Babysitter to make up some gaps
  • Nanny sharing
  • Family members

If you’re not sure, visit a few places or meet those who could provide care. Compare how each place or person made you feel, the standards of care they provide, the schedule and food and pricing.

Once you have a good idea of who or where you’d like your childcare solution to be, ask about discounts. Daycare centers often have options for certain companies, for those who work for companies that are a member of the local Chamber of Commerce, or discounts for multiple children. A nanny share doesn’t mean both/all families pay the same rate, but that together, the families pay a total, reasonable rate. Some nannies or babysitters who are looking to gain experience might be more comfortable with a lower rate than those with a formal education in early childhood education. A friend might be comfortable trading off some childcare.

Budget It

Once you know approximately how much you’ll be spending, start living that way now. Open a savings or low-risk investment account and begin socking that money into it. You’ll have a nice nest egg tucked away to cover childcare, child birth, time off work, and many other related expenses. It’s a lot easier to manage weekly or monthly childcare costs if you get used to living without it before you have to.

Work Options

Talk to your human resources department to learn about leave policies. In Pennsylvania, most employees are covered by the federal Family and Medical Leave Act, which provides 12 weeks of unpaid time for the birth or adoption of a child. There are some stipulations – you must work for a company with at least 21 employees and have worked at least 20 hours/week in the previous year. You must also have worked at your current company for more than a year.

Along with leave options, it might be a good time to discuss or consider some flexibility in your work life. Can you decrease your work hours (and therefore, your childcare costs)? Perhaps you could move into a role with more flexibility, or one that allows telecommuting. If you’re looking to change jobs, you could try to prioritize places with on-site childcare or high levels of PTO (or both!) to help with those costs.

Tax Breaks

Many employers offer a Flexible Spending Account. This is an account in which you can deposit part of your paycheck pre-tax and use those funds to pay for childcare expenses. If you’re married and filing jointly, you can deposit and use up to $5,000 each year ($2,500 if single filers).

There’s also the Child and Dependent Care Credit, which is applicable if you paid for childcare to work or to look for work. The credit is calculated by taking a percentage of your costs. Total expenses used for the credit can’t exceed $3,000 for one child or $6,000 for two. Note: Any dollars used from a Flexible Spending Account counts against the amount used to calculate the credit. So if you use the full $5,000 from an FSA, you are only eligible to gain a credit on the $1,000 left (if you have at least two kids).

There’s also a federal program to provide help with childcare costs: The Child Care and Development Block Grant Act. It gives subsidies for low-income families. Check out this site to find out what agencies in your area can connect you with this assistance.

Decrease Childcare Costs

While the hit to your wallet is going to be intense for a few years, it is possible to be savvy about your childcare expenses. Do your research, ask for discounts, know what options you have at work, and use the tax benefits to your advantage. And just think – in a few years your cash flow will be so much better!