Reader Case Study: make room for child care

[kimmarg]

Hello,
I'm hoping you can help us to find room in the budget for childcare. Here's our situation: two adults, one infant. One adult full time employed, one full time student. We will need to pay for childcare beginning in September and need to find room in our budget for $860/month  ($215/week). While obviously any long term improvements to our budget would be great, an important note is that this is expected to be a 1 year budget crunch. In 12 months, infant will be a toddler and get less expensive care and student will have graduated and (hopefully) have an income. The goal is thus to cut $860/month from the budget for the next 12 months.  Below is our actual expenses, mostly taken from mint. We have no debt other than mortgage and the section listed as "loans" is actually payments we make to ourselves monthly for future car purchases or major home repairs.

Note that the "monthly" income listed below is actually the amount of 2 paychecks. I get paid bi-weekly so I actually get 13 "months" a year but I budget as if I get 2 checks per month. The automated savings and mortgage thus get paid 13 times a year. The rest of the extra 'month' gets eaten up by misc stuff I can't account for. :(

I've already identified a few places to cut:
Emergency - our efund is at $10k, we can forgo this for 1 year:  $100/month
Heating - due to overpayment last year, our heating is pre-paid for 2016-2017 : $150/month
Cell phone - includes device payment. If we pay off devices from savings:  $50/month
 Total: $300
So we still need $560/month
Easy ways to get it would be to cut the car savings, home repair savings, or TSP contribution but I'm not sure any of those is really a great idea.

Also I can sign up for a childcare FSA for up to $5000/year, but that would not start until Jan 1. (it's use it or loose it so I did not sign up this year having no idea what our expenses would be.)

Thoughts?

Category	Monthly	Comments	Annual
Salary/Wages for earner #1	$6,256		$75,072
Pretax Health Ins.	$328		$3,936
Pretax Vision/Dental Ins.	$33		$396
Healthcare Flex Savings Acct. (FSA)	$115		$1,380
FICA base salary/wages	$5,780		$69,360
401(k) / 403(b) / TSP / etc.	$1,014		$12,168
Income subject to IRS tax	$4,766		$57,192
Pension contribution	$47		$564
Life/LTD Insurance	$30		$360
Paycheck income before tax	$4,689		$56,268
Federal Total Income	$4,766		$57,192
Federal tax	$446	2016 rates, MFJ, stand. ded., 2 exempt.	$5,352
State/City tax	$184	Guess, from last check	$2,208
Soc. Sec.	$358	Assumes 1 earner paying	$4,300
Medicare	$84		$1,006
Total income taxes	$1,072		$12,866
Add Health + Daycare reimb.	$115		$1,380
Income before other expenses	$3,732		$44,782
Monthly Average Expenses:
Mortgage	$1,010		$12,120
Car Insurance	$72		$864
Car Maintenance, Registration, etc.	$35		$420
Child activities	$10		$120
Childcare	$860		$10,320
Christmas/Holidays	$50		$600
Clothing/Shoes	$50		$600
Computer (paper/software/etc.)	$5		$60
Dentist	$10		$120
Dining (Lunch/Dinner/Etc.)	$50		$600
Electricity	$124	equalized rate	$1,488
Entertainment	$20		$240
Fuel/Public Transport	$125		$1,500
Gas/Oil for heating	$150	prepaid for winter '16-'17	$1,800
Groceries	$472	blarg	$5,664
Hair Care	$4		$48
Household; Maintenance	$180	Home supplies and maintenance	$2,160
Internet	$67		$804
Landscaping/Yard work	$10		$120
Medical (Doctor, Hospital, etc.)	$92	includes glasses	$1,104
Medicine (OTC + Prescription)	$25		$300
Parking/Tolls	$8		$100
Phone (cell)	$133		$1,596
School Tutition/Books/Etc.	$100		$1,200
Sports/Recreation	$25		$300
Subscriptions (paper/magazines/etc.)	$15	netflix + nytimes	$180
Travel/Vacation	$125		$1,500
Water/Sewer	$17		$204
Work/Professional fees	$44	union dues	$528
Non-mortgage total	$2,978		$35,740
Loans:
car "payment"	$300		$3,600
home repairs	$300		$3,600
Total Expense	$4,588		$55,060
Total to invest	-$857		-$10,278

[MDM]

You could use the emergency fund for part or all.

While there are different levels of "emergency", this fits the "have need for significant amount of cash for a relatively short term" category.

Also, using 3 exemptions and 1 child under 17 gives $2,539/yr in federal tax instead of $5,352.  Are you having too much withheld?

[kimmarg]

You could use the emergency fund for part or all.

While there are different levels of "emergency", this fits the "have need for significant amount of cash for a relatively short term" category.

Also, using 3 exemptions and 1 child under 17 gives $2,539/yr in federal tax instead of $5,352.  Are you having too much withheld?

Hmm I guess I don't consider this an emergency since we know it is coming. Emergency was when the furnace died and we had to drop $6k on a new one in mid-January while getting up in the middle of the night to run space heaters to keep pipes from freezing.

Taxes I can check on. The table above shows my actual taxes which know about my 13th "month' of work so are slightly higher. That said we've gotten a refund the last few years (student also gets an education tax credit of $2k) I'll review and see if we can free up some of that money from Uncle Sam now.

EDIT: it seems we are significantly overpaying taxes. Last year AGI was $61k and we owed $1334 in federal taxes. This spreadsheet would have an AGI of $57k (extra $3k from shift differential and extra 'month') so even assuming we want a refund and we pay $200/month in taxes that still means we free up $246/month on top of what I had identified before this leaves us at $214 short of childcare - and there's plenty of fat left to cut. Getting closer!

[kimmarg]

This is only a small help but we switched to Ting and for two adults, with 1000 minutes and 1000 texts to share and no data (we use free WiFi only) we pay $35/month (+ taxes) - that would save you about $100 a month. Here's my referral code for $25 credit if you decide to go that route: https://znf21s30lna.ting.com/

We've been very happy with the coverage and customer service. Of course, it depends on whether you can get out of your contract for no penalty, and whether you can bring your own devices.

Ting is GSM and we need CDMA (Verizon) but yea switching to an MNVO is definitely on the to do list. Unfortunately I just got an iPhone 6s - essentially as a camera/video for the baby. I knew it would add $$ when I did it but I guess I wasn't thinking very well. Can't port it to Straight Talk but will look for other carriers.

[SKL-HOU]

When did you have the baby? You can adjust your FSA if it is still 1 month of the life event. I would calculate what it will cost for the remainder of the year then put in for FSA. Also, even if it is not within 1 month after birth, I would still call them up and tell them starting September daycare situation will change and you want to make a change to FSA. This may work depending on your benefits provider. I had 2 different providers in the last 2 years but in both years I was able to make an adjustment to my FSA mid year, no life event (one time daycare changed, the other time work moved 20 miles so neither really technically qualify as life change event).

[Choices]

Agree with switching cell phone plans. Maybe also cut vacation.

What about other childcare options? Do you have friends who already have a baby at home? Could you trade during-the week daycare for weekend babysitting?

What about earning other income? Tutoring? Delivering pizza one night a week? Not sure what your skills are but there might be something.

[Catbert]

Shop you auto and other insurance to see if you can get a better rate.

How "good" is your vision/dental insurance?  Could you forgo it for a year?  New glasses can put off (usually) for a year.  I found that dental insurance didn't really make much difference.  The premiums were roughly equal to the two free cleanings a year.  My dentist gave me a (small) break on other costs when I didn't have insurance and a larger discount (10%) for paying cash.

If all else fails you could cut back on your 401k/TSP/457 contributions for the year.

[KCM5]

I'd reduce car payment savings. That will get you through your year of high expenses. Are you really going to need a car that soon? You also have money set aside for home repair. While I'm not saying you don't need this money set aside, there's probably no reason for it to be segregated like that aside from your own mental accounting. So looking at the two funds, do you feel like to you a fair amount right now? And if you needed a car some time in the next year, do you have enough to buy one? Maybe not the one you want, but one that will get you around?

Also, regarding taxes, if this is your first year dealing with it, don't forget the Child and Dependent Care Credit. This is, I believe, 20% of expenses up to $3,000 for one dependent? Anyway, something else to factor in if you haven't already.

We were on Verizon and switched to Page Plus, which worked pretty well. There was a $12 plan for 250 minutes, 250 texts and a tiny amount of data. That's per phone, but would save you a bundle. We've switched to Sprint phones and use Ting now because for some reason Verizon has terrible coverage at our house in the middle of the city. But Page Plus itself was fine.

Edited to add: your internet looks high. Is that the best price you can get? If you're paying extra to have faster speeds, experiment with lowering to the base. I find our base internet speed is just fine for streaming. YMMV

[kimmarg]

Agree with switching cell phone plans. Maybe also cut vacation.

Cell phone is on the list. I'm willing to consider anything but I'd rather try other things before vacation. "Vacation" is plane tickets to see the large chunk of family on the other side of the country.

What about other childcare options? Do you have friends who already have a baby at home? Could you trade during-the week daycare for weekend babysitting?

What about earning other income? Tutoring? Delivering pizza one night a week? Not sure what your skills are but there might be something.

I will definitely look into other childcare options. I work rotating shift which makes just about any schedule a pain. I have not found any center type providers who would accept a child on a rotating basis (e.g. different days each week). Thus I will need to pay for full time care. I could try a nanny/sitter but then at $10/hour it rapidly becomes more than the center for less hours.

Earning extra income. Hmmm ok on the list it goes. Best potential for that is actually for the student half of the relationship to try for a side gig as again rotating shift work makes other plans hard. On the list!

[kimmarg]

When did you have the baby? You can adjust your FSA if it is still 1 month of the life event. I would calculate what it will cost for the remainder of the year then put in for FSA. Also, even if it is not within 1 month after birth, I would still call them up and tell them starting September daycare situation will change and you want to make a change to FSA. This may work depending on your benefits provider. I had 2 different providers in the last 2 years but in both years I was able to make an adjustment to my FSA mid year, no life event (one time daycare changed, the other time work moved 20 miles so neither really technically qualify as life change event).

It's been several months so I had assumed that FSA was out but I will ask at work.

[kimmarg]

I'd reduce car payment savings. That will get you through your year of high expenses. Are you really going to need a car that soon? You also have money set aside for home repair. While I'm not saying you don't need this money set aside, there's probably no reason for it to be segregated like that aside from your own mental accounting. So looking at the two funds, do you feel like to you a fair amount right now? And if you needed a car some time in the next year, do you have enough to buy one? Maybe not the one you want, but one that will get you around?

Also, regarding taxes, if this is your first year dealing with it, don't forget the Child and Dependent Care Credit. This is, I believe, 20% of expenses up to $3,000 for one dependent? Anyway, something else to factor in if you haven't already.

We were on Verizon and switched to Page Plus, which worked pretty well. There was a $12 plan for 250 minutes, 250 texts and a tiny amount of data. That's per phone, but would save you a bundle. We've switched to Sprint phones and use Ting now because for some reason Verizon has terrible coverage at our house in the middle of the city. But Page Plus itself was fine.

Edited to add: your internet looks high. Is that the best price you can get? If you're paying extra to have faster speeds, experiment with lowering to the base. I find our base internet speed is just fine for streaming. YMMV

Cars are both (knock on wood) ok and we could probably managed something used with what we have so that's fair game. Internet is high. Probably about time for me to call them up and threten to switch providers or drop the service unless they lower my rate.

[kimmarg]

Ok I expected to just get facepunched for our spending but actually I feel like this is do-able, while before I felt overwhelmed - Thanks guys!!
Potential savings:
cut emergency savings:  $100/month
Heating prepaid for year : $150/month
Cell phone :  $50/month (or more!!)
Adjust tax widtholding: $246/month
re-negotiate internet: $10
Child and dependent care credit : $50 (20% of $3k per year)
re-negotiate car insurance: $10

Total : $616

Action items:
1. ask work about FSA mid-year enrollment (do I not get the child care credit then?)
2. Change tax widtholding
3. negotiation internet rate
4 negotiate insurance rates
5. find a new cell phone provider

Last $200 ideas:
Home maintenance/supplies: $25/month (stop going to Walmart and Home Depot!)
student side gig?: $100/month
Groceries:$25/month

Will post a follow up next week - gives me a deadline for the actions!

[mxt0133]

Agree with switching cell phone plans. Maybe also cut vacation.

Cell phone is on the list. I'm willing to consider anything but I'd rather try other things before vacation. "Vacation" is plane tickets to see the large chunk of family on the other side of the country.

To eliminate the vacation plane tickets expense sign up for a one or two credit cards between you and your wife, meet the spending requirements and put the credit card away and cancel before the annual fee comes up.  Look up travel hacking.  Between my wife and I just in one year we were able to fly from the west coast to the east coast twice. 4 tickets each way, a trip to Hawaii and hotel for 7 days for under $1000.  If all you are doing is flying then 2-4 credit cards a year will easily pay for 4-6 round trip tickets within the US, for about $50 in taxes and fees.

[Sibley]

Well, your budget doesn't look too horrible to me.

Some thoughts for a 1 year budget crunch:
Child activities - for a less than one year old? Nope.
clothing/shoes - do you actually NEED anything? Really reconsider what you already have. Try clothing swaps, 2nd hand.
Dining/groceries - cook in bulk, take lunch to work and eat dinner at home. That'll help with both categories.
Yard work - what is this?
Phone - you already got suggestions.
Sports/rec - so, you're going to pay when you could take a walk instead? Assuming you have energy with a new baby.
Travel - have family visit you.
Car/house savings - cut down or eliminate.

[rubybeth]

Agree with switching cell phone plans. Maybe also cut vacation.

Cell phone is on the list. I'm willing to consider anything but I'd rather try other things before vacation. "Vacation" is plane tickets to see the large chunk of family on the other side of the country.

To eliminate the vacation plane tickets expense sign up for a one or two credit cards between you and your wife, meet the spending requirements and put the credit card away and cancel before the annual fee comes up.  Look up travel hacking.  Between my wife and I just in one year we were able to fly from the west coast to the east coast twice. 4 tickets each way, a trip to Hawaii and hotel for 7 days for under $1000.  If all you are doing is flying then 2-4 credit cards a year will easily pay for 4-6 round trip tickets within the US, for about $50 in taxes and fees.

This is a good point. In the first year we got our BarclayCard Arrival Plus MasterCard, we got $400 in bonus points, and then racked up a bunch of points by paying tuition and other big bills (medical stuff anyone?) with it, along with our regular bills (groceries, gas, etc.). It saved us nearly $1,000 the first year we had it (one trip to Europe) and then close to $600 the next year. It's not to be confused with an airline rewards card--you just get miles (points) on everything you buy, and then can "reimburse" yourself for any travel expenses (it let us reimburse our AirBnB, airline tickets, and a few entrance fees to museums).

http://www.findmybarclaycard.com/barclaycard-credit-cards/arrival-plus/

Chase also has a similar card. It's not difficult and involves minimal time/effort (I don't do the travel "hacking" stuff).

[kimmarg]

Well, your budget doesn't look too horrible to me.

Some thoughts for a 1 year budget crunch:
Child activities - for a less than one year old? Nope.
clothing/shoes - do you actually NEED anything? Really reconsider what you already have. Try clothing swaps, 2nd hand.
Dining/groceries - cook in bulk, take lunch to work and eat dinner at home. That'll help with both categories.
Yard work - what is this?
Phone - you already got suggestions.
Sports/rec - so, you're going to pay when you could take a walk instead? Assuming you have energy with a new baby.
Travel - have family visit you.
Car/house savings - cut down or eliminate.

Child activities - yea I'm not quite sure what mint catagorized as this. All the yogurt tubs that she plays with when empty?
Clothing will be worked on. $50 is the actual expenses for last year. Since that included +40lbs and -30lbs for pregnancy it was quite a bit more clothing than normal
Dining/groceries - do the bulk cooking somewhat, take lunch about 90-95% of the time. Have had one dinner out since baby. Was doing better on the food budget when I had two hands to do the cooking - have had some convience stuff creep in with the lack of sleep.
Yard work/landscaping is pretty much seeds and garden supplies
Sports/rec  is 1 pair good running shoes and 1 entry fee for a motivating race for each adult

[Sibley]

Well, your budget doesn't look too horrible to me.

Some thoughts for a 1 year budget crunch:
Child activities - for a less than one year old? Nope.
clothing/shoes - do you actually NEED anything? Really reconsider what you already have. Try clothing swaps, 2nd hand.
Dining/groceries - cook in bulk, take lunch to work and eat dinner at home. That'll help with both categories.
Yard work - what is this?
Phone - you already got suggestions.
Sports/rec - so, you're going to pay when you could take a walk instead? Assuming you have energy with a new baby.
Travel - have family visit you.
Car/house savings - cut down or eliminate.

Child activities - yea I'm not quite sure what mint catagorized as this. All the yogurt tubs that she plays with when empty?
Clothing will be worked on. $50 is the actual expenses for last year. Since that included +40lbs and -30lbs for pregnancy it was quite a bit more clothing than normal
Dining/groceries - do the bulk cooking somewhat, take lunch about 90-95% of the time. Have had one dinner out since baby. Was doing better on the food budget when I had two hands to do the cooking - have had some convience stuff creep in with the lack of sleep.
Yard work/landscaping is pretty much seeds and garden supplies
Sports/rec  is 1 pair good running shoes and 1 entry fee for a motivating race for each adult

Yeah, your budget is pretty tight already. Tough to cut it a lot. Reallocating savings is probably your best bet, short of increasing income.

[2Cent]

Timeshifting could save paid care time. So one of you starts work at 7 and ends at 3:30 and the other(student probably) starts at 10 and works till 18:00

[SachaFiscal]

Do you have an extra bedroom in your home? You could rent it out for just that year you need the extra money if you feel comfortable doing that.

[COlady]

Ok I expected to just get facepunched for our spending but actually I feel like this is do-able, while before I felt overwhelmed - Thanks guys!!
Potential savings:
cut emergency savings:  $100/month
Heating prepaid for year : $150/month
Cell phone :  $50/month (or more!!)
Adjust tax widtholding: $246/month
re-negotiate internet: $10
Child and dependent care credit : $50 (20% of $3k per year)
re-negotiate car insurance: $10

Total : $616

Action items:
1. ask work about FSA mid-year enrollment (do I not get the child care credit then?)
2. Change tax widtholding
3. negotiation internet rate
4 negotiate insurance rates
5. find a new cell phone provider

Last $200 ideas:
Home maintenance/supplies: $25/month (stop going to Walmart and Home Depot!)
student side gig?: $100/month
Groceries:$25/month

Will post a follow up next week - gives me a deadline for the actions!

RE: Childcare credit and FSA -

If you spend enough on daycare you can still benefit from both, see following example:

$800 mo expense * 12 = $9,600
Less Max FSA ($5,000) which doesn't qualify for credit since you already received tax benefit
Amount qualified for credit $4,600
Maximum amount qualified for credit limited to lesser of above or $3,000
20% of maximum amount = $600

[KCM5]

Ok I expected to just get facepunched for our spending but actually I feel like this is do-able, while before I felt overwhelmed - Thanks guys!!
Potential savings:
cut emergency savings:  $100/month
Heating prepaid for year : $150/month
Cell phone :  $50/month (or more!!)
Adjust tax widtholding: $246/month
re-negotiate internet: $10
Child and dependent care credit : $50 (20% of $3k per year)
re-negotiate car insurance: $10

Total : $616

Action items:
1. ask work about FSA mid-year enrollment (do I not get the child care credit then?)
2. Change tax widtholding
3. negotiation internet rate
4 negotiate insurance rates
5. find a new cell phone provider

Last $200 ideas:
Home maintenance/supplies: $25/month (stop going to Walmart and Home Depot!)
student side gig?: $100/month
Groceries:$25/month

Will post a follow up next week - gives me a deadline for the actions!

RE: Childcare credit and FSA -

If you spend enough on daycare you can still benefit from both, see following example:

$800 mo expense * 12 = $9,600
Less Max FSA ($5,000) which doesn't qualify for credit since you already received tax benefit
Amount qualified for credit $4,600
Maximum amount qualified for credit limited to lesser of above or $3,000
20% of maximum amount = $600

Not how it works, unfortunately. You can use the credit only if you're not using a flex spending account if you only have one child. So up to $3,000 can be qualified, using either the tax credit or the FSA.

If you had two children, the limit for the tax credit increases because it is $3k per child - so $6k total. In that case, because only $5k is covered with the FSA, then the remaining $1k can be claimed with the credit.

[kimmarg]

Switched car insurance companies and adjusted coverage for a savings of $288/year!  That's $24/month savings (although only $15/month off what was listed above since the rate was going to go up)

Next up, internet and cell phone!

[kimmarg]

What kind of schedule does the full-time student have? Because unless they are in law or med school, I really don't understand the lack of income/the need for full-time childcare.  Yes, you have a rotating schedule but does the other partner as well?  If their schedule is more predictable/flexible, then the childcare arrangements could perhaps be built around that and some significant savings realized.

If you could find another couple that needs occasional childcare, you could probably bring in well over $100 extra a month. 

Or, in a much more radical move, what about the student taking a leave of absence for 6-12 months and going back to school when childcare is a more reasonable amount?

Student is in final year of Nursing program so will have 1-2 days a week of class, 2 days a week of clinicals. Classes and clinicals are all 9-5ish. Problem is we won't know which days until about a week before we need care. Some of the days I'm sure I"ll be off, ... but not all. Plus if I work nights I need to sleep days. We did a huge juggle the past semester post maternity leave to get my days off to align with school. Result was no childcare but we went 11 weeks never getting a day off together (one always at work/school). Also as baby is more awake and mobile student is no longer able to just read a text book while rocking baby with one foot. So basically it seems most advantageous financially (and for sanity) to bit the bullet and pay for full time child care so student can go to class/clinicals/study. Given a starting salary of $50k It's not worth pushing that back 6-12 months to save $860/month.

[kimmarg]

Update: Well things are looking better! We've realized a few savings
Car insurance - cut $200/year by switching to esurance
internet - cut $20/month by fighting with Time Warner

Biggest gain is that student got a per diem job! $22/hr with flexible hours. Figure picking up around 5 shifts a month would completely cover childcare with the other savings and get experience to boot. With per diem it can work around the crazy schedule. Feeling much less worried about the start of school now. :)

[rubybeth]

Update: Well things are looking better! We've realized a few savings
Car insurance - cut $200/year by switching to esurance
internet - cut $20/month by fighting with Time Warner

Biggest gain is that student got a per diem job! $22/hr with flexible hours. Figure picking up around 5 shifts a month would completely cover childcare with the other savings and get experience to boot. With per diem it can work around the crazy schedule. Feeling much less worried about the start of school now. :)

Yay, excellent news! Good work on some cost cutting and income. :)

[icemodeled]

This is only a small help but we switched to Ting and for two adults, with 1000 minutes and 1000 texts to share and no data (we use free WiFi only) we pay $35/month (+ taxes) - that would save you about $100 a month. Here's my referral code for $25 credit if you decide to go that route: https://znf21s30lna.ting.com/

We've been very happy with the coverage and customer service. Of course, it depends on whether you can get out of your contract for no penalty, and whether you can bring your own devices.

Ting is GSM and we need CDMA (Verizon) but yea switching to an MNVO is definitely on the to do list. Unfortunately I just got an iPhone 6s - essentially as a camera/video for the baby. I knew it would add $$ when I did it but I guess I wasn't thinking very well. Can't port it to Straight Talk but will look for other carriers.

I would check with total wireless, that is what we use now. Before that was ATT and paying a lot. We now pay just $56 a month for us both. They are able to transfer certain phones but not sure about yours. We have been using it for close to a year and love it, no issues at all.

[obstinate]

Have you looked at your electric? That seems rather high considering your heat is coming from oil.