6 ideas to help parents save on child care

Editor’s Note: This story originally appeared on The Penny Hoarder.

In case you didn’t know, child care doesn’t come cheap.

If you’ve never had children, or are having your first child on the way, you may not be thinking much about these expenses yet. But many parents will tell you that they wish they had started preparing for child care expenses much earlier.

In a recent The Penny Hoarder poll of 2,000 parents nationwide, nearly 55% said childcare was more expensive than expected. And 63% said the cost of child care was factored into their decision to have more than one child.

So what are you doing? Where do you start? Is it even possible to find affordable daycare?

If you have a youngster on the way, or planning to do so soon, here are some ways to save money on child care.

1. Start your search now

Obviously, your work schedule as parents will be a big factor in your child care expenses. Stay-at-home parents will spend much less.

However, for single parents working full time and in two-parent homes where both work, you’ll need to start researching costs as soon as possible. And watch out for waiting lists. It is not uncommon for popular child care providers in urban areas to have wait lists of 12 to 24 months. Most places have less space available for infants, so these waits can be even longer.

Once inside, be ready for the shock of the stickers. Almost 44% of our survey respondents spent at least $ 1,000 per month on child care, and only 17% spent less than $ 500 per month.

Traditionally, a daycare is less expensive than a nanny. But this gap is closing, according to a survey carried out in 2021 by Care.com. According to this survey, there is now only a difference of $ 14 per week between the cost of having two children in daycare and hiring a nanny.

A shared nanny is also a new trend in which multiple families use a nanny who either looks after all the children at once or splits the time between the two. This saves money on hourly costs by dividing the expenses.

So whether you are looking for a daycare or a nanny, now is the time to start researching your options.

2. Check with your HR department

If this is your first child, you may not be aware of the childcare benefits your employer offers.

With more and more companies going to work remotely in 2020 amid the coronavirus pandemic, the next new benefit to come in front of potential employees could very well be child care.

Some companies are ahead of the game. Bright Horizons Family Solutions manages employer-sponsored child care and employee benefits, with clients that include Amazon, Apple, Facebook, and General Motors. Over 100 of their clients chose a backup custody option last year, a service that allows someone to bring their child to Bright Horizons when they are in a last minute deadlock.

According to our survey, 66% of parents would consider changing jobs for a company offering childcare assistance. With 70% of them saying they ‘feel stressed’ about what child care will look like in 2022, it’s easy to see why a workplace edge would help them relax. .

3. Search the FSAs

As allowances and on-site childcare increase as a benefit, a flexible expense account (FSA) is still a more common option.

Many workplaces now offer a flexible expense account for health care and dependents. With Dependent FSAs, you withhold a certain amount from your paycheck while paying out of pocket. After paying the child care expenses, you file a claim, with receipts, and you are reimbursed later.

What makes this type of FSA so attractive is that it is funded with pre-tax dollars, which reduces your taxable income.

Single filers and couples filing jointly can currently contribute up to $ 10,500 per year to a dependent FSA, while married couples filing separately can contribute up to $ 5,250.

Note that tuition fees like tuition and tutoring are not eligible. Night camps and extracurricular activities like sports or music lessons are also not covered as expenses in a dependents’ ASP.

The downside to FSAs is that they are usually “use it or lose it”. If you haven’t used all the money in your account by the end of the year, you’ll lose it. However, because of the pandemic and the resulting unused FSA money, the IRS relaxed its restrictions and allowed the rollover of FSA accounts for 2020-2021 and 2021-2022.

Remember that your FSA contributions will have to appear on your federal income tax return and that you will have to re-register each year.

4. Start a sinking fund

Forty percent of our survey respondents said they were in debt because of the cost of child care. It is a difficult situation to live with.

One potential way to avoid getting into debt is to create a sinking fund, which is a relatively easy way to pay off a large expense over time. For example, you know that your HVAC unit has a few years left. So you set aside $ 300 per month in savings to pay.

After two years – 24 months of savings of $ 300 – you’ll have over $ 7,000 to invest in a new HVAC system. If you want to reduce the amount you put in the fund per month, plan more ahead and start saving sooner.

So for child care, let’s say you expect to pay $ 700 per month in expenses. That works out to $ 8,400 over a year. How much can you set aside now, before your little one arrives and / or enrollment time, to alleviate those expenses later?

Even if it’s not the full monthly amount, you will reduce your financial burden (and related stress) with that monetary boost when the time comes. The key is to plan ahead and, to the best of your ability, know what to expect when it comes to your possible child care expenses.

5. Consider the opportunity cost – and adjust accordingly

In our survey, parents say they have to make sacrifices that are sometimes difficult because of childcare costs:

• 26% said they had to move.
• 25% said they had to find a new home for their pet.
• 38% had taken a sideways push.
• 29% had reduced their working hours.
• 15% had taken out a second mortgage.
• 28% had borrowed money from a friend or family member.

Some of them are extreme measures. Hopefully your choices are a little less difficult. This is where your “opportunity cost” comes in.

With the opportunity cost, you’re basically asking yourself, “What else could I do with this money?” “

If child care is about to be a high priority in your life, maybe it’s time to take a look around and determine if you’re spending your money on areas that aren’t as important. For example:

• Could you ditch the gym membership and start working out at home?
• What other monthly subscriptions (e.g. streaming services, box subscriptions) could you forgo?
• Could you reduce the number of restaurant meals from four times a month to two?
• What other extracurricular activities, such as golf, spa visits, or errands, can you reduce or eliminate?
• Is it time that a trade-in could possibly “reduce” the payment for a car?

These can be temporary sacrifices until you get other permanent options, like an FSA. The idea is, however, to prioritize the expenses in your life (a budget will help you too).

Take a look at your expenses, make a list of what’s most important – obviously starting with bills like accommodation and food, then move on to transportation, child care, etc.

After reviewing this list as a whole, determine what is not as high a priority as child care and how much of that expense you can spend on child care costs.

6. Look for tax credits

If you are a new parent or a future parent, be sure to stay tuned for available tax credits.

In 2021, many parents saw their incomes increase thanks to the American Rescue Act’s expanded child tax credit, which provided a total credit of $ 3,600 to parents of children under 6 and 3,000. $ to parents of children aged 6 to 17. Half of these payments are made in monthly installments from July to December 2021, while the remaining half will be paid as a credit on tax returns in 2022.

Another lesser-known but still useful tax option is the Child Care and Dependent Care Tax Credit. If you pay someone to look after your children while you are working, you may qualify, depending on factors such as your children’s age and your income.

For 2021, the amount of expenses eligible for this credit increases to $ 8,000 for one child / dependent and $ 16,000 for two children / dependents. The percentage of expenses eligible for the credit has also increased from 35% to 50%. To find out if you qualify for the child care and dependent care credit, visit the IRS website.

Tax laws can change from year to year, so make sure you are aware of the benefits that could help make child care more affordable.

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