How to Prepare for the Budget-Busting Cost of Day Care

A daycare worker reads a book to three toddlers.
Angela Demarco plays with the children in her care in the Kid Zone at the Jim & Heather Gills YMCA in downtown St. Petersburg, Fla. Sharon Steinmann/The Penny Hoarder.

Finding the right child care option for your family and your budget can feel like a Catch-22. You want the best for your kid — a friendly, well-qualified caregiver who will meet all your child’s needs.

But the best of anything is expensive, and you don’t want to be working so much just to afford child care that you never have time to see your kid.

This is where good budgeting comes in handy.

You need the reality of your financial situation to match up with the costs you’ll have to pay. Whether you’re early in your pregnancy or nearing the end of maternity leave, here’s what you need to have in mind when setting your child care budget.

How to Create a Child Care Budget

Child care can take up a significant chunk of parents’ budgets. The Penny Hoarder recently surveyed over 2,000 parents nationwide, and half reported spending at least 25% of their income on child care. Unless you regularly have hundreds of dollars in surplus at the end of every month, finding the funds to pay for day care will require making changes.

1. Establish What You Can Afford

Pull out your budget — or if you don’t regularly budget, pull out bank statements and receipts from the past few months and calculate the average of what you spend in each category. Now go through your expenditures and see where you can make cuts.

What nonessentials can you cut? See where you can reduce spending on dining out, entertainment, clothing and personal care.

Pro Tip

Using the cash envelope system can help you stick to your spending limits. Once the cash in your envelopes is gone, no more spending until the next pay day.

Your essential spending isn’t off the hook either. Implement these tips to save money on groceries. Opt for a cheaper cell phone plan. Are you able to move to a more affordable home or downgrade to a less expensive car?

Another place you’ll want to analyze in your budget is what you’re spending to reach your financial goals. While it’s certainly prudent to pay more than the minimum on your debt and to exceed your employer’s 401(k) match, now might be time to focus on your most immediate financial challenge.

Of course, cutting your spending isn’t the only way to find room in your budget. Increasing your income is always a plus. Could you or your partner ask for a raise or secure a better-paying job? Are you able to pick up a side gig?

If you can find a way to increase your income without increasing the need for more hours of child care, you’ll be ahead of the game.

2. Research Child Care Costs In Your Area

Next, you need to get familiar with how much child care costs where you live.

Try not to be intimidated by the scary claims that child care costs more than housing or college tuition. Yes, that can be true, but child care generally comes in a wide range of options at various price points.

Licensed caregivers who operate day cares out of their homes usually charge less than a formal child care center. Enrolling your little one in a center typically costs less than hiring a full-time nanny.

According to The Penny Hoarder survey, 44% of parents pay $1,000 or more per month for child care. However, costs vary greatly by region. What you pay can also depend on your child’s age. The younger your child is, the more expensive care generally will be.

After deciding what type of care you prefer, start researching options in your area. Get recommendations from people you know. Check sites like, and Child Care Aware of America. Search Facebook and Nextdoor for local providers and parenting groups.

Local parenting publications may have information or advertisements about child care centers. Your school system might operate a program for preschoolers or at least have some insight about which preschools their kindergartners are coming from.

When asking about the rates, make sure to ask about registration fees, if meals or snacks are included and if there are any additional costs like supplies or field trips. Ask about the price of wrap-around care if standard hours don’t cover your typical work day. Consider the transportation costs involved in getting your child to and from child care.

And don’t forget to inquire about availability. It doesn’t matter that an option is perfect and affordable if families have to be on a waiting list for years.

3. Take Advantage of FSAs, Sinking Funds and Tax Credits

There’s no way around it — child care isn’t cheap. A whopping 84% of parents in our survey found the ongoing expense of child care overwhelming.

But there are ways to ease the burden and save on child care:

  • Check with your HR department about child care benefits your company may offer. You might be surprised. We found 17 major companies that offer child care benefits.
  • Set up a flexible spending account. With dependent care FSAs, you withhold a certain amount from your paycheck while also paying out of pocket. After you’ve paid for child care, you file a claim, with receipts, and you’re reimbursed later.
  • Start a sinking fund. Start early saving what you can, every month, and putting that money in a fund designated for future child care expenses. Even if it’s not the full monthly amount, you’ll reduce your financial burden (and related stress) with that monetary boost when the time comes.
  • Look for tax credits. In 2021, many parents saw a nice bump in income from the expanded child tax credit, which provided a total credit of $3,600  to parents with children younger than 6 and $3,000 to parents of children ages 6-17. Half of those payments are being made in monthly installments from July to December of 2021, while the remaining half will be paid as a credit on tax returns in 2022.

4. Figure Out a Plan that Works for Your Family

Finding child care isn’t always as easy as determining how much you can spend and finding a place that fits your budget. Sometimes there just isn’t enough money to stretch.

Depending on your income and family size, your family might qualify for assistance via programs like Head Start, a government subsidy or financial aid through nonprofits like the YMCA or the United Way.

Some parents in a pinch work out informal caregiving arrangements with grandparents or another family member. Plenty of parents find they have to make tough sacrifices, like quitting their jobs, working less hours or working schedules opposite of their partner so one parent is always home.

Child care costs can have a huge impact on your budget — and your life — but at least it’s only a temporary aspect of raising a child. You’ll hit some financial relief once your kid starts kindergarten. Then you can switch your focus to saving money for college!

Nicole Dow is a senior writer at The Penny Hoarder.