How I Decided on the Right Childcare Expense

August will be here this week. You ready to embrace all that it has to offer and the change you want to see?

For me, it’s the first full week of taking my daughter to daycare. I told you that I would share my own financial journey, and the learnings relevant for you, with the addition of a new child to my family. So, here we go…

Before having kids, I was familiar with childcare expenses through the filter of my family and friends. I would sympathize with the realities of their additional childcare expenses, but I could not truly empathize with them. That’s different now. There’s nothing like going through a cost/benefit analysis with your child’s well-being on the other end of a decision. If you are a parent, let me first say – I now know the added emotional deliberation that seeps into the calculation! If you are not a parent, then picture someone else on the other end of those decisions – your own health or that of a loved one.

In short, we decided to evaluate several options for childcare – a nanny, a home-based daycare, and a facility-based daycare – in parallel. We ruled out an au pair because we did not want anyone living in our home (yup, that’s the honest truth).  For those of you who have family close by who can take on some of the childcare responsibilities at minimal (or no) cost, you should count your blessings.

Here’s the steps we followed, which can provide a framework not just for childcare but other very important financial decisions:

1)      Determine what is important to you. In choosing a childcare provider, we settled on three main factors: (1) a loving environment that would nurture her, (2) a place where our daughter could develop and grow emotionally, socially, and intellectually, and (3) a clean and safe environment. Now, these are the factors important to us. In your own considerations, you might have different factors, or some may rank higher than others. The key is that you prioritize your desires, not those of others, and stand confidently in your own desires.   

2)      Figure out what you are willing to spend. We decided that we wanted to spend an amount that provided quality care and hit on all three factors mentioned above while not breaking our bank. Quickly in the process, we eliminated the nanny route. In Chicago, nannies charge by the hour, ranging from $16 to $20/hour. We needed a nanny for 10 hours per day, and thus for a 50-hour week, we could expect to pay $3,200 to $4,000 per month, or $38,400 to $48,000 annually. That price was just not going to work for us, particularly since we have a desire to also put dollars up for her college education and invest. As a result, I encourage you to eliminate options that prevent you from having financial flexibility or considerably change your other savings and investing goals.

3)      Ensure that pragmatic considerations are met. We needed a childcare option that eased the logistical burden of taking her to and from daycare, and still allowed us to get to have a productive workday. Sometimes, some of the pragmatic considerations seem less important, but over time, it’s these considerations that end up costing more money over time. For instance, if I had to drive 20 minutes to daycare in the opposite direction of my route to work, I would pay a high opportunity cost for my time.  

In the end, we settled on a home-based daycare that met our main factors, costs us $395 per week (or just under $19,000 per year), and is located only 3 minutes from our home.  While we feel blessed to have found a place that works for our family, I do acknowledge that our U.S. system is not set-up to allow all families to have equal access to quality childcare. Families should not be forced to make such hard trade-offs in order to provide their child with quality care. Complicated, right? That said, the above framework gives you one way to think about how to make a good decision.

Well, want to share your story on how you’ve made it work or what you’re doing to ensure that your child has quality care? Please feel free to share your comments below.

Before I go, I want to share a few articles that you will enjoy from the last wo weeks:

D.I.Y. Private Equity Is Luring Small Investors – Take a look at hour some family and friends are pooling their money to create wealth. Sound familiar? I’ve talked about the power of investing with those you know here on my blog before.

Upgraded Stores Boost McDonald’s Sales – Maybe McDonald’s offers you a quality investment opportunity. Check out how MCD’s investments have paid off.

Passive Investing Resumes Its March – Investors are flocking to vehicles that track the returns of the market. Are you missing out?