There is no doubt about it: child care is expensive. Sometimes extremely expensive! For many young moms, the amount they spend on daycare is more than what they spend on their mortgage or rent.
A 2018 report from the Center on American Progress found that the average cost of infant care in the center was $1230 a month. And if you have more than one child you can end up paying close to double that amount.
While you can’t make child care cheaper (it costs a lot to hire highly-trained staff) you can learn how to make the most of your child care budget. On that front, we’ve got new moms covered. Learn more about how you can get the most out of what you spend on child care while not sacrificing quality.
Aim to spend around 10% of your income on child care
You may have heard the advice to spend around 10% of your income on child care. Where does this guideline come from?
Well, no one is quite sure, it’s a bit of an old wives’ tale in child care circles.
However, what we do know is how much the typical family does spend on child care. The Center for American Progress found that on average families spent about 10% of their income on child care in 2018. This is an 11% increase from 2013.
How much is 10% of your family’s income?
Exercise: total up your total income from last year (maybe consult your tax return to get the exact amount). Take 10% of that amount. Compare that to what you are spending or what you expect to be spending on child care. Is more or less, or pretty close to 10%?
When my children were in daycare I remember doing the above exercise and being shocked. I was nowhere near 10%…I was well over it. If you are a new or young mom it can be really hard to fit daycare into your budget along with housing, student loans, and health care. This was a good gut check for me to realize just how very much we were spending on child care. For us, it was worth it. I was very happy with the person who was caring for my children and I had no intention of changing that arrangement.
But it did make me realize the other places in my budget I WAS willing and needed to cut back so that I could make this arrangement work financially.
Dining out, vacations, new cars? Many of those niceties took a backseat to child care during that time. Like I said, for me, it was worth it. For you, it might not be. If you do feel like your current child care isn’t worth the price, read on to learn how you might lower your child care costs without sacrificing quality.
Use home-based daycares, particularly for babies
Daycare prices vary based on the type of care. A nanny is often the most expensive because you have to pay their full salary, plus any benefits. However, a nanny can be cost-effective if you have several children or if you share a nanny with another family.
Au pairs can be a more affordable way to get the benefits of a nanny without the very high costs. However, and this is a big, however, you need space within your home for your au pair to stay. Many families find they just have enough space to comfortably have an au pair.
Next in line is a daycare in a child care center. Center care is particularly expensive for babies because they have to keep teacher-child ratios (the number of teachers required for the number of children in the classroom) low. The cost of center-based daycare typically goes down as children get older but it is often still quite expensive. This is especially true of centers that are in big cities.
Daycares located in a person’s home are usually a more affordable option. Home daycares are a great option for young families with tight budgets. Taking out the need to pay for a building, as a center needs to do, reduces the amount to operate for a family child care provider. Family child cares can also choose the number of children they accept in each age group. This means they can meet teacher-child ratios while having a mixture of kids at each age.
Finally, the most affordable option is to use a family, friend, or neighbor for care. People in your social circle are often willing to help out with care for rates far below what any licensed care would charge. The drawback of this is that the care might not be consistent and may not be high-quality.
If you are looking to reduce your child care costs, you may consider looking for care in a less expensive type of care, like a family child care. Use our child care map to identify where to look to find new child care in your state. This tool will help you find the websites in your state that have information about licensed child care programs and the quality rating of those programs.
Take full advantage of child care tax benefits
What is the Dependent Care Flexible Spending Account?
Several tax benefits are available to parents to help them pay for child care. One of the primary ones you should know about is the Dependent Care Flexible Spending Account (DCFSA). Here are some of the details about the DCFSA and whether you can take advantage of it.
The maximum amount allowed is $5000 per year, per family.
Care expenses for children from birth through age 12 are eligible.
Both full-time and part-time expenses can be claimed.
Day camps, after-school care, and preschool are also eligible for reimbursement.
It is a benefit provided by your employer.
With the DCFSA, money is taken out of your paycheck pre-tax and is used to reimburse your post-tax child care expenses. Learn more about the benefits of the DCFSA in our comprehensive post on how to use it.
What is the Child and Dependent Care Credit?
Another tax benefit that may be available to you is the Child and Dependent Care Credit.
You can claim up to $3000 for one child and up to $6000 for two or more children. You claim the Child and Dependent Care Credit when you complete your yearly tax return. Something very important to remember about this tax credit is that if you use the DCFSA it reduces the amount you can get from this tax credit.
What that means is that if you claim the full $5000 as part of the DCFSA, you’ll likely see a much smaller benefit from the tax credit. That said, you always want to try and claim both. Most tax software and preparers will help you calculate the amount of the tax credit that you are eligible for.