With the increase in the number of two-income households over the past few decades, more families are in need of child care during the work week. Having a baby is expensive enough, with the costs of basics like formula, baby food, and diapers. When you add in the cost for child care services, you realize how much having a baby affects your cash flow situation. This makes planning for it even more important.
Your child care costs will depend on multiple factors, including the part of the country in which you live, if you are in an urban or rural area, the kind of service you want from the provider, and whether you prefer a day care center or an in-home setting. A typical range for day care services can be between $100 and $400 per week, per child. Infants require a lower staff-to-child ratio, so the cost of infant care is typically greater than it would be for toddlers.
Some child care providers may have additional services that could increase your child care costs, including supply fees, staff training charges, and even paying for staff vacation time and holidays when the center is closed. When that happens, there can be an added cost to find a back-up day care.
For many families, child care costs are the second-largest monthly expense in their budget, trailing only the home mortgage. So how does a young couple plan ahead for such a shock to the family finances? Here are some ideas:
1. Eliminate extra debt so your budget can absorb the cost for day care when it’s time for parents to go back to work. You’ll be in a better position if you are free from things like credit card balances and student loans.
2. Do a dry run. Test your fiscal readiness by determining the weekly child care expense you expect. Then before the baby is born, get in the habit of setting aside that money and try living within the new budget. It may not be easy, but it’s better to find ways to make room for child care costs before you actually incur them.
It’s important to note that some families decide to go down to one income when their children are young. These families find that it doesn’t pay for the lower earner to work full time only to see nearly that entire paycheck go to the day care provider.
Of course, money is not the only factor in deciding whether to work during the ‘child care’ years. Future earning potential and a fulfilling career are also important factors to take into account when making the decision. Part-time work or flexible hours may also help limit your day care costs. Consider talking with a financial advisor who can help you sort through all of the options.
William “Drew” Watson, CFP®, is a Financial Advisor and Private Wealth Advisor with Ameriprise Financial Services, Inc. in Owensboro, KY. He specializes in fee-based financial planning and asset management strategies and has been in practice for 20 years. To contact Drew’s office by phone, call 270-684-8424, or by mail, send correspondence to 111 West 3rd St, Owensboro, KY 42303. Please visit Drew’s website at www.williamawatson.com.