A couple of months ago on Corporette, we discussed how much you should spend on housing costs, and today we’re going to talk about something that often looms just as large in the minds of working moms: the cost of daycare. Lately, the news seems to be full of articles about the cost of daycare (e.g., “U.S. Parents Are Sweating And Hustling To Pay For Child Care,” NPR), so we thought this would be a great time for a discussion. How much are you spending on daycare? Is the cost of daycare more than you expected?
For a quick review, the recent Corporette post covered the 50/20/30 rule for budgeting, which recommends that you spend no more than 50% of your take-home pay on fixed costs, use at least 20% for saving money and reaching your financial goals, and spend no more than 30% of flexible costs. How does the cost of daycare fit into the ratio? In the comments on the post, several readers shared their childcare numbers, and their responses ranged from 10% of their take-home pay to 30% (for a child with special needs). The average childcare spending among readers who shared information was about 18%.
The Care.com 2016 Cost of Care survey found some striking statistics:
- “54% of families said they spend more than 10% of their household income on child care — and 1 in 5 said they spend a quarter of their income or more.”
- “21% of respondents say they’ve waited to have children specifically because of child care costs. This statistic increases to 26% for millennial parents.”
- “More parents (74%) are budgeting for child care costs — 92% of them even started budgeting while they were pregnant!”
Signing up for a dependent care flexible spending account through your employer can help a bit. Here’s the simplified version: Each year, a household can contribute up to $5,000 to a dependent care FSA for daycare, after-school programs, and summer day camps (not sleep-away camps) in order to pay with pre-tax dollars. You need to submit claim forms to be reimbursed for all of the funds by the end of the plan year or you lose anything left in the account.
What is the cost of daycare for your family, either as a dollar amount or percentage of gross or take-home pay? Do you have a dependent care FSA? How much was cost a factor in your choice of childcare: nanny, au pair, home-based daycare, daycare facility, family members, etc.? How has it affected your job or career decisions?
- 5 Steps to Create a Child Care Budget [Care.com]
- Don’t Forget to Budget for Childcare [Parenting]
- Choosing Child Care: What New Parents Should Know [NerdWallet]
- Daycare Costs — 9 Ways to Save Money on Childcare Services [Money Crashers]
- The Ins and Outs of the Child and Dependent Care Tax Credit [Turbotax/Intuit]
- Filing Tax Form 2441: Child and Dependent Care Expenses [Turbotax/Intuit]