Most new parents are shocked when they discover the cost of childcare today. With prices per child often near $1,000 per month, the total can become extremely expensive for those with multiple small children. The rising cost of childcare can force parents to question whether it’s more economical for one parent to forgo working and raise their children until they can attend elementary school.
Unfortunately, not everyone can afford to stop working for an extended period. Many families depend on two incomes, and most single parents need to work. However, there are steps you can take to lower childcare costs and better plan for the ongoing expenses.
1. Start as Early as Possible
Often, when people discover they are expecting, their minds (and wallets) focus on the immediate costs, such as clothing, diapers, a crib, etc. While these items are crucial, this is also the best time to begin saving for childcare.
As with any savings plan, time is your best friend. The sooner you begin putting money aside, the more time it has to grow. Even if you don’t have much to save initially, every bit will help. Two ways to maximize your savings are:
- Open a separate savings account specifically for future childcare expenses. Putting the money in a different account will make you less likely to dip into it for frivolous expenses.
- Automate your savings with payroll deduction or automatic transfers. Putting your savings plan on autopilot is a great strategy to save consistently without worrying about making transfers regularly.
2. Ask About Scholarships or Grants
Many daycares and preschools offer scholarships and grants to help offset costs. When touring different facilities, ask if they provide these types of financial aid and how to apply. Grants often go through a longer approval process, so it’s best to apply well before the coming school year.
3. Take Advantage of a Dependent Care FSA
Check with your employer to see if they offer a dependent care Flexible Spending Account (FSA) as part of their benefits package. This type of account is a pre-tax savings account where funds can be used specifically for dependent care costs, such as daycare, preschool, and summer camps. The major benefit of this type of account is that the funds put aside are not subject to payroll taxes, which helps lower the overall cost of childcare.
While dependent care FSA rules can change annually, most childcare costs are eligible for dependents under the age of 13 years. If you know you will be paying for childcare throughout the year, a dependent care FSA will help reduce your taxes (and, subsequently, the amount you spend on childcare).
4. Consider Tax Breaks
Depending on your income and filing status, you may be able to qualify for the Child and Dependent Care Credit on your taxes. This credit is a federal tax benefit that assists families with childcare costs while the parent or guardian is working or looking for work. The credits can change annually and are usually around $2,000 per child per year. Speak with a CPA or tax advisor to learn if you’re eligible for this tax benefit.
5. Research Daycare Services
Most daycare centers have variable pricing dependent upon many factors. For instance, many facilities price their services based on a child’s age. So, while you may pay more for the care of a newborn, your cost will drop as the child ages. Some daycares will give you a discount if you have more than one child enrolled – which could mean significant savings if you have multiple children.
Additionally, be sure to research any other services the daycare offers, such as meals included. Then, you can determine if it’s more affordable to make your child a lunch daily or pay for the onsite meals.
6. Look into Other Options
As childcare costs continue to rise, more employers are trying to help offset these expenses for employees. Some employers offer discounts if you utilize a daycare near the office, while many large companies have started to include daycares for their employees onsite as an extra perk.
You might also consider a nanny. Depending on the work schedules of you and your partner, a nanny may offer more flexibility, help lower costs, and provide your child with that one-on-one care you prefer.
We’re Here to Help!
Becoming a parent is one of life’s greatest moments. While you may have your hands full with your little one, we’re ready to help put your savings for childcare costs on autopilot.
Please give us a call or email us to learn how to use payroll deductions or automatic transfers to automate your savings plan.