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With a shaky economy and the cost of child care on the rise, parents may find themselves with an overstretched dollar. Whether your child attends a daycare center, or you've opted for in-home care instead, the cost can be overwhelming for many families.
So what's a parent to do? The following steps can help you streamline your finances and help ensure there's enough money for all areas of your life, including daycare:
1. Consider Financial Aid
Check to see if your employer offers a flexible spending account (FSA) program. This type of plan can help parents set some pre-taxed money aside for daycare costs. Although there is a cap to how much of this money you can contribute to an FSA, whatever money you do accumulate can be used for all sorts of child care expenses, including daycare centers, babysitters, live-at-home nannies, and even camp programs.
Certain employers will offer dependent care programs, which is essentially the same idea as an FSA. Taking advantage of programs such as these can help you effectively save for daycare costs.
2. Take Advantage of Tax Credits
There are plenty of expenses that are tax-deductible, including daycare costs. The tax credit for dependents can allow you to claim up to 35% of your daycare costs up to a maximum of $3,000 (for one qualifying person) or at $6,000 (for two or more qualifying persons). These tax credits are subject to income eligibility requirements, and are paid using after-tax income.
It's important to note that if you are already tapping into an FSA program with your employer, you cannot claim these same expenditures for both an FSA and for the child care tax credit. You can take advantage of both programs, but you'll have to subtract how much you've contributed to your FSA account from the costs you used to calculate your child care tax credit.
3. Deduct a Percentage of Your Monthly Pay-check
Consider having a portion of your pay-check automatically deducted and deposited straight into a savings account dedicated specifically to daycare expenses. Depending on the amount you make, and the cost of daycare for your child(ren), this number can vary.
For instance, if daycare costs you $600 per month, and you take home $3,000 monthly, have 20% of your monthly pay deducted and put aside for child care costs. Having this money deducted automatically will help you resist the urge to use the cash for other things that may not necessarily be as high a priority as child care expenses.
Click here to download the XLS file daycare budget template.xls.
4. Exchange Your Services for Child Care
Some daycare centers may be open to you bartering your services in order to save on the overall cost of child care. For instance, if you're a professional accountant, you may offer the daycare center a complimentary review of their tax situation or financial health. If you're a marketing manager, you may offer a free newspaper or website ad for the daycare center in exchange for discounted child care services.
Budgeting for daycare and other expenses can be a challenge if you don't have a tool to help you organize and track your expenses. Luckily, Mint.com makes daycare budget a cinch. This online service provides a number of budgeting tools and tips to help you keep your finances in order. Visit Mint.com today and take advantage of their FREE daycare budget template to help make budgeting a breeze! Click here to try Mint for free.