In case it’s not obvious, child care comes with a hefty price tag.
If you haven’t had children yet, or if you’re expecting your first, you may not be thinking about those costs just yet. Many parents, however, say they wish they had begun planning for child care expenses much earlier.
In a recent survey by Savinly of 2,000 parents across the country, nearly 55% reported that child care cost more than they anticipated. And 63% said child care expenses influenced their choice about whether to have more than one child.
So what can you do? Where should you begin? Is it realistic to locate affordable child care?
If you have a baby on the way or plan to soon, here are practical ways to cut down on child care costs.
6 Strategies for Handling Child Care Expenses
1. Begin Researching Early
Your work schedule will play a major role in what you pay for child care. A stay-at-home parent will generally spend far less.
But for single parents working full-time and dual-income households, you should start looking into costs right away. Also keep in mind waiting lists: popular daycares in cities often have waiting lists that range from 12 to 24 months. Infant openings are especially scarce, so waits can be even longer.
When you finally find a spot, prepare for sticker shock. Almost 44% of those surveyed spent at least $1,000 per month on child care, while only 17% paid under $500 per month.
Historically, daycare centers were cheaper than hiring a nanny. Yet that gap is narrowing; a 2021 Care.com survey found just a $14-per-week difference between two kids in daycare and employing a nanny.
Another option gaining traction is a nanny share, where multiple families share a nanny who either cares for all the kids together or divides time between households. This splits hourly costs and can lower expenses.
Whether you’re considering a daycare center or hiring a nanny, start exploring your options now.
2. Ask Your HR Team
If this is your first child, you may not be aware of child care benefits your employer could provide.
With more companies adopting remote work, child care perks are becoming a more common recruiting tool.
Some employers already offer robust programs. Bright Horizons Family Solutions administers employer-based child care services and benefits for clients like Amazon, Apple, Facebook and General Motors. Over 100 of their clients used a backup care service last year, which lets parents bring a child to Bright Horizons in last-minute situations.
Our survey found 66% of parents would consider changing jobs for a company that provided child care assistance. With 70% saying they felt anxious about what child care would look like in 2022, employer benefits can be a big relief.
3. Explore FSAs
Even as stipends and on-site care grow, flexible spending accounts (FSAs) remain a widely available benefit.
Many employers offer both health and dependent-care FSAs. With a dependent-care FSA, you set aside a portion of your paycheck pre-tax and submit receipts after paying for child care to receive reimbursement.
The main advantage is contributions are made with pre-tax dollars, lowering your taxable income.
Currently, single filers and married couples filing jointly can put up to $10,500 per year into a dependent-care FSA, while married filers filing separately can contribute up to $5,250.
Keep in mind that educational expenses like school tuition and tutoring aren’t eligible. Overnight camps and extracurriculars such as music or sports lessons are also excluded from dependent-care FSA coverage.
A common drawback of FSAs is the “use it or lose it” policy—unspent funds may be forfeited at year’s end. However, pandemic-related guidance allowed rollovers for some plan years, easing that restriction for 2020–2021 and 2021–2022.
Remember to report FSA contributions on your federal return and re-enroll annually.
4. Build a Sinking Fund
Forty percent of our respondents said they had gone into debt because of child care expenses. That’s a difficult position.
One way to avoid debt is to set up a sinking fund, which lets you spread the cost of a large expense over time. For instance, if your HVAC system likely needs replacing in a few years, you might set aside $300 monthly so you have the funds when the time comes.
After two years—24 months of $300—you’d have more than $7,000 for a new HVAC. If you want to contribute less each month, start saving further in advance.
For child care, say you anticipate $700 per month, or $8,400 annually. What can you begin putting away now, before your child arrives or before enrollment begins, to cushion that upcoming cost?
Even if you don’t match the full monthly fee, any saved money will reduce your financial strain and stress when child care starts. The key is planning and getting a realistic sense of your future child care expenses.
5. Consider Opportunity Cost and Make Adjustments
Parents in our survey reported making tough trade-offs because of child care costs:
- 26% said they moved to a different home.
- 25% had to rehome a pet.
- 38% picked up a side gig.
- 29% reduced work hours.
- 15% took out a second mortgage.
- 28% borrowed from friends or family.
Some of these choices are drastic; hopefully yours are less severe. That’s where evaluating opportunity cost helps.
Opportunity cost asks, “What else could I do with this money?”
If childcare is becoming a primary expense, review your spending to see what’s less essential. For example:
- Could you cancel a gym membership and exercise at home?
- Which monthly subscriptions (streaming, boxes, etc.) could be cut?
- Can dining out drop from four times a month to two?
- Which extracurriculars—golf, spa treatments, shopping—can be reduced?
- Might trading in a vehicle to lower monthly payments be sensible?
These may be temporary cutbacks until you secure longer-term solutions like FSAs. The goal is to rank your expenses by priority (a budget helps) and shift discretionary spending toward child care.
List your expenses, prioritize essentials—housing and food first, then transportation, child care, and so on—then see what less-important items can be reallocated to cover child care.
6. Hunt for Tax Credits
If you’re a new or soon-to-be parent, stay informed about available tax credits.
In 2021, many families received an extra boost from the enhanced child tax credit, which offered up to $3,600 for children under 6 and $3,000 for kids ages 6–17. Half of that was distributed in monthly payments from July through December 2021, with the remainder applied as a credit on 2022 tax returns.
An often-overlooked option is the child and dependent care tax credit. If you pay someone to look after your children while you work, you may qualify depending on factors like the children’s ages and your income.
For 2021, qualifying expenses increased to $8,000 for one child/dependent and $16,000 for two, and the refundable percentage rose from 35% to 50%. To check eligibility for the child and dependent care credit, see the IRS website.
Tax rules can change yearly, so keep up with benefits that could make child care more affordable.
What to Do Next
As a new or expecting parent, it’s normal to feel overwhelmed about childcare arrangements. Almost every parent faces this stress at some point.
Research your choices, ask your employer about benefits like stipends and FSAs, and consider sinking funds and temporary lifestyle changes. You want the best for your child—and you’ll find a path that works.
Child care is undeniably expensive, but with planning you can make it more manageable.
Methodology: Savinly used Pollfish to run a national survey on child care costs with 2,000 participants completing the survey Sept. 8–10, 2021. Responses were weighted so each response represents the U.S. population.
Alex Monroe is a senior writer for Savinly.
