What percentage of a budget should go toward current childcare costs?

I am 25 years old and I make $50,000 annually in a state with a low cost of living. The statewide median salary is about $35,000 annually. I have a company-matched 401(k), relatively low debt, and low cost health insurance with an HSA. On paper, my financial situation is very stable. I have examined my bills to pin down all of my expenses and created a budget based on what I understand as the "correct" proportions. For example, I’m not spending more than 25% on housing.

Right now, I am only contributing 1% to savings. This is all that I can afford because of childcare expenses. My income has increase by 400% since I went back to work after having my son. However, the cost of childcare has been rising exponentially as my income has increased: I need greater flexibility and have higher work demands. Currently, 16% of my income goes to paying the baby sitter.

Is there a budget model that is advisable that factors in childcare, and accurately reflects the current cost of childcare for most families?

Asset Allocation, Women & Money
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January 2018

I’ve worked with a lot of people on figuring out childcare expenses, and every case is different. Because costs and circumstances vary so much on this issue, there isn’t a budget model that’s guaranteed to help in your situation.

My advice would be to step away from the statistics and percentages for a minute and exhaust every option for reducing your spending. It seems like you have your finances in order and earn a good living, so you don’t need to panic if you can’t find an immediate solution. If there isn’t a cheaper care provider, maybe you can work from home one or two days a week and save that way. Your company might have a hardship program, or you might be able to put a portion of your paycheck into a tax-free fund that goes toward childcare. There could be a non-profit organization with scholarship funds available for your child that could at least ease the burden a little.

You probably won’t find a quick and easy way to cut back on childcare expenses (aside from your kids becoming adults). However, if you commit to looking for ways to save, you can adjust those percentages a little and kick a few extra dollars toward saving each month. If you start by trying to get that budget percentage from 16 down to 15, that could open some doors and show you even more ways to save. Good luck!

January 2018
January 2018