Budgeting for childcare

Written by
Peter Dunn

There was a huge response yesterday when I posted my ideal household budget. I got a lot of great feedback, and one of the most frequently asked questions was, "How do you account for childcare?" The first thing that you need to know is that the ideal household budget didn't have a "piece of the pie" dedicated to childcare, therefore you must create that piece from scraps of other pieces. In other words, you must reduce spending in other major areas such as transportation, dining out, gifts, and entertainment. The biggest financial mistake that anyone can make is increasing spending in one area without decreasing spending in others.

There are more financial angles to the childcare question than you might think. One of the toughest decisions a parent can make is how to deal with childcare. There are an incredible number of factors that go into making this decision, but we will limit our discussion to two primary considerations.

  1. Should you stay home or should you work and pay for childcare? - Some people work because they want to, others work because they have to, and yet many people work because they THINK they have to. One of the most frequent financial miscalculations that I see involves the "should I stay home" question. If you have ever found yourself saying, "why am I even working? My entire check is going to childcare," then you need to take a very hard look at your budget. Many people say this, but few address it properly. If you find yourself in this position, then you probably haven't properly adjusted your budget. You MUST reduce spending drastically in other areas if you are feeling that a majority of your income is going to childcare.For many families, adding a childcare expense can be like adding another mortgage. So here is a simple way to figure out if you should stick with two income, or drop down to one. Oh, and before we get going much further you should know that staying home to care for your child isn't primarily a mother's responsibility. The following scenario is parentally neutral.
  2. Let's take a family where the 2nd person's income is $2,200/net month. I say "2nd" because I am trying to distinguish this person as the lower income-earner. Now, let's assume that childcare costs $1,100/month. How should this family think through their decision? They have two options:
  3. a) They can reduce their household spending by $1,100 in order to account for the new childcare expense.
  4. b)They can reduce their household spending by $2,200 in order to account for staying home.
  5. There are, of course, some additional considerations such as health insurance, but in a nutshell (why the hell is everyone always in a nutshell?) the above "a or b" scenario is the best way to answer this tough question. Unless, your childcare costs too much.
  1. Are you looking for the cheapest childcare or the best childcare? - I hate when people say that "there are no wrong answers" to a question. However, in this instance, I truly don't think that there is a wrong answer. Assuming a certain level of quality care, the cheap option isn't necessarily a bad thing. Obviously I don't want you to put your kid in a drawer and go to work. But don't be ashamed of accepting a baseline of quality, and then seeking out the most affordable option. At the same, don't be afraid to seek out the highest quality daycare that you can find. Well, that is if you can afford it. Too many times we just justify terrible financial decisions by invoking the name of our children. Yes, I had that Whitney Houston album. I know that "the children are our future" and that we need to "teach them well, and let them lead the way." But that doesn't meant that you have to compromise your entire financial future for something you could get for less money. And this is exactly why I didn't put childcare on the ideal household budget. You shouldn't necessarily pay more for childcare based on your income.

If you are a parent, then you know that childcare can quickly become your #1 priority, but that doesn't mean that you should just throw money at it. Make sure that you are reducing spending in other areas so that your ideal household budget doesn't take a hit.

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