One of the biggest financial challenges working couples face is the cost of child care. If you have a dual-income family, the first step is to sit down and run the numbers to make sure it makes financial sense for both parents to work. Most couples assume that two incomes greatly increase their overall take-home pay, but this is not always the case. Many are surprised how little a second income contributes to the household finances, when factors such as taxes, child care, commuting, business attire and other business-related expenses are taken into account. A $40,000 annual salary sounds great, but that can easily be whittled down to less than $5,000 a year in take-home pay when all the work-related expenses are taken into consideration. You can use this
calculator to see where you stand. On the flip side, you also need to anticipate and calculate future income loss. A stay-at-home parent who plans to re-enter the work force once the kids get older will sacrifice many years of raises and promotions, and may find it much more difficult to find a job. Since everyone's circumstances are different, you need to look at the important aspects in your life and run the numbers to decide if that second income is worth it. If, after careful consideration, a second income is part of your plans, there are a number of steps that you can take to reduce the costs of child care: 1. Flexible spending accounts: If either of a couple's employers allows money to be placed into a child care flexible spending account , it's worthwhile to take advantage of and set aside the appropriate amount to cover day care expenses. The Internal Revenue Service created the accounts to allow you to set aside money for child care with pretax dollars. That creates an instant savings -- equal to the rate you are being taxed on the second income -- for child care costs. 2. Child care discounts: Many companies now set up special partnerships with local day care facilities to make services available to employees at a discount. This can often cut the cost of child care by 20% or more, depending on the arrangement your company has made with the provider. Contact your personnel office to see if they have such an arrangement -- and if they don't, encourage them to make one.
3. Hire a nanny: While this may seem like a more expensive alternative than day care, if you have friends that are also in need of child care, working together can be a win-win situation for everyone. By having all the children left with a nanny, each parent will pay less than they would on their own, but the nanny will earn more than if working for just one family. This takes a bit of time to hire and arrange, but can cut the cost of child care. 4. Flex hours: If a couple's employers allow flexible work hours, it may be possible for one or both to adjust their work schedule, so the children can spend less time in day care. More and more businesses are allowing flexible hours, so it is worthwhile discussing the issue with your boss. 5. Telecommute: Another topic that you should discuss with your boss is the possibility of telecommuting a few days a week. With technological advances, telecommuting is much easier these days, especially if most of your work is done on the computer. Being able to telecommute may cut in half the days that the child needs to be in child care -- and also the costs. 6. Community programs: More communities are stepping in and offering day care help and young-child activities. Be sure to check with your local community center to see if they offer any programs that could help reduce your child care costs. 7. School programs: Check to see if there is a public school pre-Kindergarten program in your area. Some school districts offer half-day pre-K programs for 4-year-olds. Many of these programs are free, or cost a minimal amount of money. By enrolling your child, it will reduce your child care needs to a half day. 8. Changing shifts: If both you and your spouse work, see if it's possible to arrange your work schedules so they overlap as little as possible. If your job allows you to work a shift different than your spouse, this may enable you to reduce the number of hours your child has to spend at child care. 9. Find a relative: If you have a relative who lives nearby, he or she may be able to help with child care. A growing trend is for families to invite a grandparent to come to live with them and help take care of a grandchild. This can be particularly appealing to the grandparent if he or she is widowed and lonely. 10. Change jobs: If one of you works in a field where it is relatively easy to change jobs, taking a new position for less pay but more flexibility with child care can often increase your overall take-home pay. Again, you need to run the numbers to see if this makes sense, but it's important not to assume that a lower salary means less money flowing into the home.