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Can You Save 50% While Paying for Childcare?


Can you save 50% while paying for childcare?I hated paying for childcare. Childcare is ridiculously expensive and we didn’t like the idea of other people raising our kid. When I was working full-time, we paid $1,250 per month for a fulltime  daycare, that’s from 7 am to 6 pm. We didn’t get to spend any time with our kid and missed quite a few milestones, even though we both tried to get off work as early as we could. This was a big reason why I wanted to quit my full-time job to become a stay at home dad. Earlier this week, Amanda from Frugal Confessions was asking for examples of people who save 50% or more of their income while paying for childcare and I volunteered to go through my record. Amada’s adorable baby is 9 months old and she is looking for childcare options so she can work a bit more.

Here is my data from the last 5 years. There were a lot of changes over these past 5 years so we should go through it one year at a time.

Year Total Income Total Expense Tax Kid expense Saved Saving %
2011 $200,000 $100,000 $50,000 $7,000 $100,000 50%
2012 $240,000 $113,000 $60,000 $8,000 $127,000 53%
2013 $90,000 $58,000 $10,000 $2,300 $32,000 36%
2014 $170,000 $78,000 $25,000 $4,700 $92,000 54%
2015 $115,000 $65,000 $11,000 $5,000 $50,000 43%
2016 $115,000 $64,000 $10,000 $4,000 $51,000 44%
2020 $60,000 $60,000 $1,000 $1,000 $0 0%

*The kid expense column includes childcare, clothing, high chair, diapers, and all the typical kid expenses.

2011 – Our kid was born and went to a daycare

RB40Jr was born early in the year and we waited until he was 6 months old before putting him in a daycare. We took care of him in the first 6 months with a combination of Mrs. RB40’s maternity leave, my sabbatical, and help from grandparents. So he was in daycare for about 5 months in 2011. This was a good year financially. We made about $200,000 in income and saved about 50% of that. I didn’t keep complete record of our cash flow in 2011, so this is my best estimate.

2012 – Daycare until SAHD

I retired from my engineering career to become a stay at home dad in July 2012. RB40Jr was in daycare for the first half of the year. Our income was higher than normal that year because I sold a bunch of stock grants and stock options. We also paid a lot of taxes that year. 2012 was another nice year financially. We saved over 50% of our income.

2013 – SAHD and then preschool

In 2013, RB40Jr spent most of the year with me. We looked into preschool in September and sent him to an in-home preschool. That first preschool didn’t work well and he basically got kicked out. In November, we found another preschool nearby and that one was a much better fit. He went to preschool twice per week and it cost around $450 per month. Our kid expense was very low in 2013 because I took care of him for most of that year. Financially, 2013 was worse than usual. Our income took a big dive and our saving rate followed. We still managed to save 36% or our income. It seems you really need to make more money to have a high saving rate.

2014 – Preschool

In 2014, RB40Jr increased from 2 to 3 days of preschool. We were also trying out a different preschool even closer to home. This transition occurred at the start of the school year in the fall. After three months, we switched back to his former preschool. The monthly cost increased to about $500 because he took some extension classes. Our income swung upward in 2014 due to our 4-plex sale. The saving rate looks good in 2014 at about 54%.

2015 – Preschool

RB40Jr increased from 3 to 4 days of preschool in September, 2015. This increased our cost to about $600 per month. Our finances have started to stabilize and I think we will stay at this level of income and expense for a few years. Our saving rate is at 43%. I’m happy with that level of saving considering I’m not working full-time anymore.

2016 – Preschool to kindergarten

Woohoo! We are almost at the first milestone. RB40Jr will start kindergarten this fall and our kid expense should decrease quite a bit in the following year. 2016 isn’t quite done yet so I had to estimate the 2nd half. I don’t think we’ll have any big surprises, so the numbers should look similar to 2015.

2020 – Public school

Mrs. RB40 plans to retire in a few years, so our income will drop again. I estimate our income to be around $60,000 and I plan to spend all of it. Our kid expense should be minimal at that point because he’ll be going to a public school. Our saving rate will be 0%, but that’s okay. We should have enough investment by then to keep growing.

Can You Save 50% While Paying for Childcare?

Whew, there were a ton of big changes over the last 5 years. Life sure is interesting. Childcare seemed expensive at the time, but it turned out to be a small part of our annual expense. We never spent more than 5% of our income on childcare. Our biggest expenses were taxes and housing. We also see that the more money you make, the easier it is to save. Our saving rate was best in the years that we had more income. In years with lower income, we weren’t able to exceed 50% saving rate.

Q&A from Amanda

Amanda – What are some things you’ve had to give up in order to still maintain high percentage of savings while paying for daycare? Were these consciously made choices?

Joe – I don’t feel like we gave up a lot of things. We go out much less than when we were childless. We just spend a lot more time at home after we had our kid. I think that’s just because it’s hard to go out when you have a kid. We also stopped international travel for the same reason.

Amanda – Do you tend to put greater focus on increasing income, or decreasing expenses? Building on that – focusing on the big ticket expenses or nit-picking the little expenses? (home/car expenses versus cheapest gas/ Starbucks stops)

Joe – I tend to focus on keeping expenses down. Our income is dropping because we are in transition to early retirement. I try to keep expense down where ever I can. Currently, our housing is the biggest expense for us. We like where we live and we aren’t ready to relocate to a cheaper location yet.

Amanda’s reader – I’m wondering about the cost of living where they live – did they purposefully choose a lower cost of living area to live? I would guess that they just haven’t grown their expenses as their incomes have grown? Do they still budget for vacations and everyday splurges & mini-luxuries.

Joe – We live in Portland. The cost of living is moderate compared to other major west coast cities, but it is increasing quickly. We have always been relatively frugal and never spent extravagantly. Our income growth outpaced our lifestyle inflation for most of the last 20 years.

We stopped taking international vacations after our son was born. It’s just more trouble than it’s worth. Last year, we started traveling again and visited Costa Rica. Our son was 4 so he could enjoy the trip as well. Now that our childcare cost is decreasing, I feel like we can splurge on travel again.

Amanda’s reader – Also, depending on the ages of their kids, do they find the need to explain some of their lifestyle and budgeting choices with their kids (for example if the kids want something that the parents aren’t willing to pay for, even though the parents could afford it, but it’s more a lifestyle choice not to purchase it), and following up on that, how do the kids handle that? If the kids are older, do they feel jealous of the “stuff” other kids have, and how do you handle that (knowing that you could afford it, if you chose to)

Joe – I haven’t had a lot of problem with this so far. Our kid is still pretty young and we tell him that we need to save some money. We taught him that money comes from working, not from the ATM.

As for toys, we only have one kid and he often receives cash for his birthday and other holidays. He has over $200 in his piggy bank and he wants to buy Lego sets. Recently, we let him purchase an expensive Star Wars Lego set and we also told him, no more new Legos until Christmas. He needs to learn to pace his purchases.

He isn’t aware of brand names yet so we can get away with inexpensive clothes and shoes. I’m sure this will be harder as he gets older.

No more childcare!

That’s it for today. I’m really looking forward to kindergarten so I will have a little more time to work and exercise. I love being a stay at home dad, but I can’t get anything done when Junior is around. I’m also really looking forward to not paying for preschool. We could save a little more or allocate that money toward more travel. Saving 50% or more of your income is really hard. You either have to make a lot of income or live a very frugal lifestyle. I think only a few households can do it.

Do you save 50% or more of your income while paying for childcare? How do you do it?

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Joe started Retire by 40 in 2010 to figure out how to retire early. He spent 16 years working in computer design and enjoyed the technical work immensely. However, he hated the corporate BS. He left his engineering career behind to become a stay-at-home dad/blogger at 38. At Retire by 40, Joe focuses on financial independence, early retirement, investing, saving, and passive income.

For 2018, Joe plans to diversify his passive income by investing in US heartland real estate through RealtyShares. He has 3 rental units in Portland and he believes the local market is getting overpriced.

Joe highly recommends Personal Capital for DIY investors. He logs on to Personal Capital almost daily to check his cash flow and net worth. They have many useful tools that will help every investor analyze their portfolio and plan for retirement.
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{ 30 comments… add one }
  • Josh July 15, 2016, 4:13 am

    Super helpful post – glad Amanda suggested you do this. As someone with childcare expenses on their horizon, I’ve been struggling to come up with a way to model these expenses. Good to know that you never spent more than 5% of your income on childcare. Dare I say these kids aren’t going to be expensive as I feared? All you read in the popular press are stories about how each kid is going to cost you $1m!

    • retirebyforty July 15, 2016, 11:37 am

      The first few years are more expensive because full time day care is expensive. Once they get into preschool, then it’s much cheaper. Our kid wasn’t in preschool full time because my schedule is flexible. Good luck!
      A lot of the kid cost comes from moving to a bigger home.

      • Josh July 15, 2016, 2:43 pm

        Good point on the “moving to a bigger home”. In my case, it might make me move from my tiny apartment in NYC to a real house somewhere else in the country. I bet my rent would be cheaper even with the extra space. Maybe I should start thinking about how much money having kinds is going to save me. 🙂

  • Pia @ Mama Hustle July 15, 2016, 4:22 am

    We definitely do not save half our income while paying for childcare. For a while, childcare cost more than my income, but I wanted to keep working so we ate the cost for a couple of years.

    Can’t wait for my big guy to start kindergarten this year too.

    • retirebyforty July 15, 2016, 11:38 am

      If you enjoy working, then keep working is the way to go. Taking a few years off can have a big impact on your earnings. Nice, kindergarten will be fun for the kids.

    • Fiscally Free July 20, 2016, 1:27 pm

      Paying more fore childcare than you make is brutal. How did you justify that?
      Do you work in an industry where you can expect to make a lot more in a few years?

      • retirebyforty July 21, 2016, 6:14 pm

        I read that just taking a few years off can have a huge impact on your earning potential. If you want to continue working at some point, it makes more sense to work. Of course, being a stay at home parent has some advantages too.

  • The Green Swan July 15, 2016, 4:25 am

    I’ve never focused on savings rate before. I’ve always focused on keeping costs down and increasing the gross dollars invested every year. My rationale is that dollars is what it will take to retire early, not percentages.

    With that said though, I’m pretty sure I save over 50% even in recent years (my kid is two) and I know each year I’ve continued to increase the amount saved.

    We’ve managed to do this not by cutting other costs, but just growing salaries for both my wife and I. Childcare is expensive, but we don’t really splurge on our kid otherwise.

    • retirebyforty July 15, 2016, 11:38 am

      I thought we saved over 50%, but it’s hard as you make more. Taxes take a huge bit out of our income. Growing salary is the best way to go.

      • Mr. Tako @ Mr. Tako Escapes July 15, 2016, 2:16 pm

        Taxes are a pain. Growing income is great, but after your income grows above a certain level the tax brakes start disappearing and new taxes like the ATM start happening.

        Eventually, trying to earn more just feels like spinning your wheels.

  • Apathy Ends July 15, 2016, 4:43 am

    We will be headed down the kid path sooner than later, I was blown away when we started doing our research on childcare facilities close to our house. Combine that with cost of insurance, saving 50% does seem like a stretch. Unless you have a high incomes or are a saving master.

    • retirebyforty July 15, 2016, 11:45 am

      Yes, childcare is very expensive. Some in home daycares are cheaper, but you never know how good they are. High income seems like the only way to me.

      • Mr. Tako @ Mr. Tako Escapes July 15, 2016, 2:11 pm

        Joe is completely on the mark here. Daycare is a huge expense, and you have to be really good at saving to be able to save over 50% with kids.

        Before we had kids our savings rate was probably upwards of 70%, after kids we were down in the lower 50’s.

        We’re more frugal than most people, but it can be done. Don’t believe for a second it isn’t possible. I’ve done it and have the bank account to prove it.

  • Marc @ Rusty Savings July 15, 2016, 5:01 am

    High income is the only way. We will have two kids in daycare by the end of the year, costing us about 2.1k a month. That means we’ll be spending 25k on childcare. Insane. If you can live off a frugal 25k a year outside of childcare expenses, that puts you at 50k a year to start.

    So for us we’d have to minimize our living expenses and earn over 6 figures a year.

    I’m going to call Grandma and offer her a job.

    • retirebyforty July 15, 2016, 11:46 am

      Yikes, that’s a lot of money. Don’t forget about taxes. Taxes take such a huge bite out of your income. Good luck with Grandma. In my experience, they are happy to help out for a while, but not full time…

  • Frugal Familia July 15, 2016, 8:17 am

    As my wife and I are expecting our first child at the end of the year, I can’t help but to sort of freak out over the cost of child care. I can’t believe how expensive it it! At least we should get a nice reduction in our tax liability 🙂 This serves as a nice reminder to stay the course and re-assess some of our current expenditures.

    • retirebyforty July 15, 2016, 11:48 am

      You have to get your name on queue too. We had a very difficult time finding a good daycare when our kid was born. All the good ones nearby are full. I’m sure you’ll spend less money on going out and travel. 🙂
      Good luck!

  • Money Beagle July 15, 2016, 8:31 am

    We’ll be preschool-payment free for the first time in four years this fall. While there are always other expenses that take over, it’s nice not to have to write those checks.

    • retirebyforty July 15, 2016, 11:48 am

      Yes! I feel like we made it over a hump. 🙂

  • Brian Smith July 15, 2016, 3:46 pm

    Just reviewed my social security statement for myself and wife. Not surprised that I’ve made 2M over the last 30 yrs and my wife 500K. With 4 kids, it made sense for my wife to stay at home with her teaching salary not high enough. That being said, we didn’t save as much outside of maxing my 401K and tended to travel around the US and Europe. With a family of 6, this was expensive. Ex. 10 day trip to Italy/Sicily was 15K. The experiences outweigh the cost of saving. We seen Pope John Paul II easter mass and then attended his funeral. With my kids close to being out of college, they are moving on with their lives. If we saved so much – the memories would not be there. Just another option.

  • Dave in Sunny FL July 15, 2016, 4:25 pm

    Taxes on the money you use to live on are higher, if you are an employee; but less burdensome, if you use portfolio income, or revenue from rental property that you spend money on to improve, etc. Also, I wanted to comment on this statement from 2020: “Our saving rate will be 0%, but that’s okay. We should have enough investment by then to keep growing.” I agree that there is a point where it gets tougher to keep putting in $450/month or whatever into the Roth IRA, when the normal swings of the market take the account up and down by more than that each day.

  • nicoleandmaggie July 16, 2016, 8:59 am

    We do it by making a lot of money.

    We have never skimped on childcare, though we also have only had a baby sitter maybe twice. We’re not big on date nights.

  • Nick @ TheMoneyMine July 16, 2016, 5:15 pm

    We’re expecting our first kid in September and we of course started to look into daycare. At the beginning, I couldn’t believe how expensive this was but it seems that 1000$/month is a good estimate. How do people with 3 kids manage that?

    • Mr Bean July 18, 2016, 12:52 am

      We pay about €280 for the full-time childcare but then again tax rates are much higher over here. That’s in northern Europe. It is also very rare to take your kids to daycare before let’s say 9 to 12 months of age.

      For the second baby childcare cost is 90% and for the third it’s only 20% (this assumes they all are in full-time childcare)

      About the financials if case anyone is interested…employee usually pays you fully for the first three months (full salary! 😉 after the baby is born. After that moms (or dads if they decide to stay home) get about 60% compensation of their salary from the state for the next 6 months. After that people may return to work OR stay at home for two more years but that compensation is really low and one really can’t financially survive.

      But the thing is that you make the decision and you have possibility to return to work basically any point you want – employer is in deep legal trouble if they think about laying you off.

    • retirebyforty July 18, 2016, 7:20 am

      I think with 3 kids, you don’t really have to pay for 3x childcare. At least one of them is usually old enough to be in school. It’s pipelined. 🙂 Or get a nanny, that’s cheaper with 3 little kids.

      • Holly August 1, 2016, 11:27 am

        We have been able to save >50% of our income with one baby in full time care and one older kid with part time custody and child support. I just found out that I’m pregnant again…. with twins! We’ll have to go the nanny route, and it will probably bring our savings rate to 40%.

        We’re in Portland as well in a 1000 sq ft house, so we may also have to move to a bigger place once the new babies are mobile, which would bring our savings rate down even further. I’m looking into getting a big enough place that we could do an au pair or an ADU rental to offset the larger mortgage payment.

        It’s frustrating but I keep telling myself that it is temporary.

        • retirebyforty August 2, 2016, 11:55 am

          Your saving rate is really good. We’ll probably move to a bigger place at some point as well. My mom lives with us part of they year and a 2 bedroom condo is a little cramp. ADU sounds good. Vacation rental is very expensive in Portland. Good luck!

  • Stockbeard July 18, 2016, 11:39 am

    We save more than 50% of income with a kid going to preschool, but he:s only going there 3 half days a week… 🙁

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