It’s no secret that kids cost quite a bit, but the actual dollar amount is a bit mind-boggling. Case in point: According to a 2014 report from U.S. Department of Agriculture, middle-income families will spend nearly a quarter of a million dollars raising a child from birth to age 18. Child care is a major cost associated with kids — especially young ones — and depending on where you live, monthly child care expenses can rival a mortgage payment (and then some).
But it’s worth the cost. Quality child care not only is important for a young child’s health and safety, it also can enhance their developmental skills and expose them to new experiences. Taking the time to understand and plan for expected and unexpected child care expenses can go a long way toward helping your family avoid sitter sticker shock. Use these six tips to get started.
Figure out your finances.
If you and your partner are planning to have children, sort through your finances before a baby arrives and turns your world upside down. Having open, honest conversations about your ideal child care situation is the best way to ensure you won’t be blindsided by the price tag associated with raising kids today. Think about what is right for both of you in terms of your careers, earning potential, living situation, expenses and values. The decisions you make will guide your budget and saving decisions.
Research child care options.
The range of child care options available today — and the range of costs — can be overwhelming to say the least. From relative care and daycares to nannies and nanny shares, what you choose to do will impact your expenses. Keep in mind that waiting lists and screening potential caregivers add extra time and uncertainty to the process of determining child care, so make sure you start early with an understanding of the pros, cons and costs of various solutions.
Weigh the costs and benefits.
Some options may be pricier than others, but the benefits of one type of child care over another may outweigh (or at least balance out) the expense. While a nanny will likely cost your family more than a daycare, nannies will often take on extra work around the house — think laundry and light housework — helping to save your sanity in the long run. They also make the morning rush a little less hectic for families, particularly when kids are young. No prepping bottles, packing the diaper bag or dressing baby.
Build your emergency fund.
It’s money management 101: Having an emergency fund is key to not finding yourself in a financial jam. Socking away plenty of money will ensure you’re covered when the unexpected (inevitably) happens — like your child’s daycare closes or the nanny comes down with the flu. With a healthy emergency fund, dealing with unplanned child care costs may be stressful for you, but it won’t be a shock to your bank account.
Understand your employee benefits.
More employers are recognizing the necessity of offering child care benefits if they want to retain high performing employees who also happen to be parents. Most major companies in the U.S. do offer some kind of employer-sponsored child care benefit, though these perks vary and can range from offering onsite daycare facilities to partially offsetting the cost of back-up child care to providing paid time off specifically to care for sick dependents. Make an appointment with your company’s HR department and make sure you’re taking full advantage of the child care benefits available to you.
Understand your tax obligations and breaks.
If your family is employing a nanny, don’t make the mistake of paying her “under the table.” Not only is it illegal, it could end up costing your family thousands in fines — a cost you can easily avoid by understanding the Nanny Tax.
But it’s not all about what you owe: If you pay someone to take care of your children while you work, you may qualify for the Child and Dependent Care tax credit. According to the IRS, “You may be able to claim the credit if you pay someone to care for your dependent who is under age 13… to qualify, you must pay these expenses so you can work or look for work.” Make sure this credit isn’t overlooked come tax time (it often is) — it reduces your tax bill dollar-for-dollar, meaning it’s often a bigger savings than a tax deduction.
Planning for child care may seem complicated and overwhelming, but it’s not impossible to manage these expenses. If you’re looking to better understand the tax laws, put together a budget or simply get your finances in order, consider consulting a financial planner who can help ensure you’re not blindsided by the costs associated with raising kids.