How to Budget for Childcare

When it comes to recurring expenses for your little one, childcare is likely to be the biggest. Even if you stay home and don’t pay for childcare, you may be giving up a significant part of the income you’ve been used to. Making a decision about how to budget for childcare can feel weighty and unfamiliar, especially if it’s your first time.

It’s unlike buying a car, where you can lean on experience you’ve had with other cars in the past, and you know how to hone in on the features that are worthwhile to you. In this case, you’re deciding who’s going to help you care for your child — to feed, change, and love them when you’re not there. It has to do with a relationship with one of the people on earth closest to you — your child. On top of that, it’s often connected to your own relationship with paid work, which isn’t always straightforward either. No wonder it can feel complicated.

So how do you begin to think about this important decision?

While this might seem completely different than any other budgeting decision you’ve made before, you can still build on the same principles. Just like budgeting for any other part of your life, ultimately you’re aiming to land at the intersection of what’s important to you and what your real-life options are.

Let’s think through this step by step. If you’re budgeting and parenting with another person, make sure to talk through the process together. This decision will have a big impact on your budget and your daily lives, so it needs to be made jointly. And if you’re parenting solo, it can still help to talk through this with someone you trust.

1. Recognize your ideal — and hold it lightly. Why does it sound ideal to you?

While your dream childcare arrangement probably won’t happen, it’s helpful to acknowledge what your ideal would be. Maybe you’d love for your parents to move into town and watch your kid full-time while you work full-time so your kid can be raised with the same values as you were while you continue to progress in your career. The point here isn’t to grasp onto that ideal, but rather to understand why you wish for it, and also to allow yourself to grieve if it doesn’t happen. Perhaps your folks’ health isn’t up to full-time baby care and they have other plans for their golden years. That’s okay, and they can still be part of your child’s life in other ways.

2. What are your real-life options?

Figure out what options are actually available to you. Do you need to work, or do you have the option to stay home? In terms of paid childcare, check out what kinds of home daycares, larger daycare systems, or shared nannies are available in your area. Even if one of you plans to stay home, think about how you might get a break from 24/7 caregiving, such as through a childcare swap.

For each of the arrangements you want to explore…

  • Find out how much it will actually cost each month. Prices can range anywhere from free to more than your monthly rent, so do your research by checking websites or making phone calls. You can also see if you qualify for childcare subsidies.
  • Estimate how much your income will be affected if the arrangement involves working less or stopping altogether.
  • Make up a mock budget with these numbers and see if you can make your expected income cover your projected expenses (including childcare, rent, and everything else.)

Once you figure out which arrangements you can choose while still balancing your budget, you’ll know which options are realistic for you before you go to the effort of meeting caregivers or visiting daycare centers.

3. Given your options, what are your priorities?

If you have more than one option left, go back and revisit what’s important to you. Perhaps you’d like to work full-time because you want to maintain the adult interactions you have at work. Or perhaps you want to stay home to be the one who’s there for all of your kid’s firsts. Or maybe it’s a mix of both. Maybe you’d prefer a small daycare where you can get to know the caregiver better. Or maybe you’d prefer a larger system because it’s less likely that you’ll need to call for backup childcare. Whatever you choose, remember that every family does things differently. You can focus on what will work for yours.

4. Build it into your budget.

Make a monthly Envelope for childcare in Goodbudget, and make sure your monthly Fill adds to it too. If you need to adjust other Envelopes in order to make your budget work, make those changes now. While you’re doing that, also remember to update other recurring expenses that might change with your new child. If you’re not sure how much to budget, ask your friends how much they spend on things like diapers, clothes, milk, and food.

Tip: Having an additional dependent can affect your taxes, so look into how that might affect your budget — each household’s situation will be different. This is also a good time to find out whether you’re eligible for a Dependent Care Flexible Spending Account (DCFSA), which may be offered by your employer. It allows you to use pre-tax money to pay for childcare (and eldercare).

5. Try it out. Stay flexible.

As with most things when it comes to kids (and budgets, for that matter), try out the childcare arrangement you’ve chosen and see how it goes. If it doesn’t end up working well for you and your kid, you can always make adjustments. The same goes for the way that childcare affects your budget. If you find that the mix of income and expenses doesn’t quite work for your family, you can make some tweaks, like changing your spending, or consider bigger changes, like changing jobs.

No matter what childcare arrangement you land on, the most important thing will still be that your kid knows you love them. And by taking the time to plan ahead, you’ll be able to focus more of your attention on your growing family.

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