Planning Ahead for Child Care Costs

By Gary Dunco, CFA, CFP®, CRPC®, APMA®, Private Wealth Advisor, Ameriprise Financial

Saukville, Wis. - With the increase in two-income households over the past few decades, more families need child care during the work week. Having a baby is expensive enough, with the costs of basics such as formula, baby food and diapers. Add in the cost for child care services, and you realize how much a new baby affects your cash flow situation. Planning ahead becomes even more important.

Your child care costs depend on multiple factors, including the part of the country where you live, whether you are in an urban or rural area, the kind of service you want from the provider, and if you prefer a day care center or an in-home setting. A typical range for day care services can be $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 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. In those situations, finding back-up day care can incur additional costs.

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 credit card balances and student loans, for example.

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 watch 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 help limit your day care costs. Consider talking with a financial advisor who can help you sort through all of the options.

Saukville resident Gary Dunco, CFA, CFP®, CRPC®, APMA®, is a Financial Advisor and Private Wealth Advisor with Ameriprise Financial Services, Inc. in Brookfield, Wis. He specializes in fee-based financial planning and asset management strategies and has been in practice for 32 years. To contact him, please call (262) 785-1010, visit his office at 16650 W. Bluemound Road, Suite 800, or go to http://www.ameripriseadvisors.com/gary.b.dunco.

Ameriprise Financial Services, Inc. Member FINRA and SIPC.

Source: New York Mercantile Exchange © 2015 Ameriprise Financial, Inc. All rights reserved.