Is it possible to be a high-saver while paying childcare costs? I highlight 4 high-savers who are doing just that.
Paying childcare costs while simultaneously saving money – not on the end of your store receipts, but in your actual savings account – can feel a bit like trying to nail a sequence in a Cirque du Soleil event.
We’re not talking saving 5-7% of someone’s income (though if that’s you, hey, you’re headed in the right direction!).
We’re talking about saving lifestyle-design amounts, like 30%, 40%, even 50% of someone’s income.
Over the years I’ve gotten emails from several Mama Bears, wondering how the heck they’re supposed to save money while paying for childcare.
Now that I’m a mother myself, I can attest to this feeling. Even though we managed to sneak in an 18% personal savings rate (PSR) last year, it’s not nearly what our savings rate used to be pre-baby (think 29.8%-42%!).
So, I asked a group of Mama Bears what their burning questions are about this topic. They came back with questions like:
:: Do you tend to put greater focus on increasing income, or decreasing expenses?
:: How often does your child use childcare/daycare (how many days per week) and what’s the cost?
:: Do you purposefully choose a lower cost of living area to live?
I posed their questions + a few of my own to a handful of high-savers I found lurking around the interwebs…who also happen to be paying childcare costs.
And then I dug deep into each of their situations, trying to gather any secret sauce for you guys to slurp down.
Psst: What happened after that? Well, I completely forgot about the whole thing for almost a year…because that kind of thing happens when you have a baby (just sayin’).
Let’s take a look at four different respondents who are all high-savers (or low-spenders with a high percentage of income going towards debt payoff…see below).
High Saver #1: Udo, 1 Son (5 years old), Married
Location: Portland, Oregon
Income Situation: Dual income of between $115,000 and $200,000 (2011-2016)
Joe Udo religiously tracts his income and expenses on his blog, Retire by 40. So, he was able to quickly give me the stats on his situation, which show that he saves between 35% and 55% of their pre-tax income for the last six years.
Work-at-Home-Dad Joe says, “We save about 50% of our income while paying for preschool. It's around $600 per month, so much better than daycare. When he was in daycare, I was working full time so we saved more than 50%. Income was much better with a full-time job.”
His wife’s workplace does not help with childcare costs, and so the only “discount” they get is the Childcare Tax Credit.
A quick rundown of his stats shows that his childcare costs were between just 2.5% and 6.5% of his pre-tax income:
- 2011 (46% Savings): $200,000 income, with $13,000 in childcare costs
- 2012 (53% Savings): $240,000 income, with $7,000 in childcare costs
- 2013 (36% Savings): $90,000 income, with $2,300 in childcare costs
- 2014 (54% Savings): $170,000 income, with $4,700 in childcare costs
- 2015 (43% Savings): $115,000 income, with $5,000 in childcare costs
- 2016 (44% Savings): $115,000 income, with $4,000 in childcare costs
Joe says, “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 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 could splurge on travel again.”
In order to achieve this, Joe tends “to focus on keeping expenses down. Our income is dropping because we are in transition to early retirement. I try to keep expenses down where ever I can. Our housing is the biggest cost. We like where we live and we aren’t ready to relocate to a cheaper location yet.”
But, he admits that their income has a lot to do with it. “We live in Portland. The cost of living is moderate compare 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.”
One final thought – a specific question from a reader – is whether or not Joe and his wife needs to explain some of their lifestyle and budgeting choices with their kids (for example if his child wants 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).
For this one, I think we should check back in with Joe in several years. Joe says, “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. 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 purchased an expensive Star Wars Lego and we also told him, no more Lego until Christmas. He needs to learn to pace his purchases.”
Joe says that his child isn’t aware of brand names yet, but that he’s sure it’ll get harder as he ages.
High-Saver #2: Doug Nordman, Married, 1 Daughter
Location: Worldwide, military bases
Income Info: Dual Income, Compensation Package of between $125,000-$150,000
Doug and his wife were high savers while paying childcare costs, in the time period between 1992 and 1997 when they were both working in the military.
Back in 1992-1997, Doug and his wife were spending roughly $500/month at childcare centers on military bases. That was while they were both on active military duty and before their daughter started school, so it was full-time daycare. Which means they were getting quite the deal on childcare, as it represented a mere 4% – 4.8% of their pre-tax compensation package (though remember, they were both serving in our military, so I’m thankful for this help for them!).
Doug says, “One ‘interesting’ lifestyle aspect was that we were either working or parenting, so we had very little free time to find ways to spend money. With our always-on daughter, an hour at the library or the local park for playtime was a major accomplishment. Another essential factor, not easily appreciated at the time, was that the cost of childcare allowed both of us parents to leverage our career skills to higher salaries.
Dual-career parenting is just plain hard. If we were starting a family all over again, one of us would've left active duty for the Reserves or National Guard ‘one weekend a month, two weeks a year’ part-time employment.”
To get a better idea of how this translates to current-day dollars, I spoke with my friend, Amanda, who is currently living the military life while her husband serves. She says the cost of childcare on base depends on a family’s total income. She made a phone call, and as an example, found that for infant care:
“if you make less than $30,000, two weeks is $126 and if you make over $130,868, it’s $314 for 2 weeks.” This is for care from 6:00am – 5:30pm, Mon-Fri.
High-Saver #3: Amber Masters, Married, 18-month old baby
Location: Salt Lake City, Utah
Income Situation: Dual income, $200,000
Amanda’s Note: Before we start with Amber’s story, I just want to point out that it’s about paying a large percentage of income towards debt, not savings. The reason why I still included her story is that her family is living off of just 30% of their income, with a baby. And the idea, of course, is that since a large percentage of her income is going towards building their net worth by digging out of debt, then after the debt is paid off, they can switch to putting that large percentage into savings instead because their lifestyle can clearly handle it.
After taxes, 65-70% of Amber’s household income goes toward paying off their $591,000 in student loan debt.
They are accomplishing this while their childcare situation looks like this: 4-5 days per week of childcare, full-time during the day, at $4/hour. This is without any sort of workplace discount or cost replacement.
When I asked how on earth Amber was able to find such cheap daycare, she said, “I almost did not accept the job I have when it was first offered. We crunched numbers a million times. Day care was way too much for us. Even though we have a solid monthly income (hubby a dentist, me a lawyer) we pay almost $8,000 a month as the minimum payment on our student loans (we have almost $600k in debt). Day care would have eaten up about half my income. If we had hired a nanny around here (off of care.com for example) the average was similar to yours — around $15/hour. What's the point of even working if you’re not earning money?? It was crazy. So, I simply started talking around — to friends, family, etc. to see if anyone knew anyone who might be able to watch our little guy. Within a couple of weeks, we had a list of several people willing to do it! We narrowed it down to the lady we trusted the most and she has been WONDERFUL. So, my biggest piece of advice is to shop around!! You can find someone at a price you can afford.”
Amber says she would have had to give up much more if she had stayed home with her baby. But since their debt load is so high, staying home wasn’t really an option for them.
In order to achieve this high percentage rate of debt payoff (that will hopefully translate to savings in the future), Amber says that they’ve done a little of both increasing income and decreasing expenses. But definitely, focusing more on the income-increasing side.
She shares, “We coupon and shop around for various goods and services but that only gets us so far. We drive cheap cars and pay low monthly rent- those are the two biggest and easiest ways to save money. But we do all that while going to school etc. to earn more income! To pay off debt or to make substantial savings (such as for retirement) you need more income.”
And choosing a low cost of living area was definitely in their plan. They’ve sacrificed both being near family as well as living near an ocean – a place they love – in order to knock out that debt. Amber adds, “we budget for small family vacations and use credit card reward points for such things.”
High-Saver #4: Jill (name changed to remain anonymous), 2 kids in daycare (3-year-old, 9.5-month-old)
Location: Suburb of Chicago
Income Situation: Married, Dual Income, $200,000
Jill and her family current save around 40% of their pre-tax income, while paying roughly $637/week for two kids in childcare. This accounts for roughly 17% of their income.
Jill cites her family’s natural savings tendency as part of the reason for this high savings rate. “We're able to maintain a high percentage of savings by setting a good foundation before the kids were born. My husband and I are savers by nature and already had the automatic deposits in place to contribute to our retirement accounts. We have a healthy emergency fund, an affordable mortgage, and no additional consumer debt. My husband started a new job with a huge raise and better benefits before our daughter was born.”
One sacrifice that her family has made for this is for her to forego quitting her day job to pursue her own business. “One thing I haven't been able to do yet is quit my day job and be self-employed. It's a little tough to leave the comfort of a regular paycheck while watching our investments grow. We love our daycare, it's just so darn expensive. And somebody would still need to watch our kids for at least part of the day.”
Two discounts she discussed with me for childcare include a multi-child discount, and saving on taxes by setting aside $5,000 pre-tax each year in her company’s FSA (Flexible Savings Account).
She also adds, “We're definitely more focused on the big things. My husband started a new job with a big raise and better benefits shortly before our daughter was born. We have no debt besides our mortgage. And we saved up to buy our Honda CR-V with cash. I'd say we're more focused on increasing income, but we still keep our expenses in check. Sure, we have cable and occasionally get Starbucks, but we'll also negotiate a lower cable bill. Yes, we still have money in our budget for fun things like fancy dinners for our birthdays or anniversaries. And we splurged to buy a $150 bounce house for our kids. We haven't gone on a vacation with two kids (if you don't count driving to Cleveland for holidays with my family), but we took a trip to Montreal with our daughter and went to New Orleans as a family of three for FinCon14.”
As far as cost of living, Jill says, “Chicago isn't the cheapest place to live, but we bought a 3-bedroom ranch well within our budget in a good school district with reasonable property taxes. We put 20% down, refinanced once, and pay extra principal each month.”
Finally, Jill adds, “I love Ramit Sethi's definition of a rich life, “spend[ing] extravagantly on the things you love…as long as you cut costs mercilessly on the things you don’t. Sure, saving is important, but if you can afford it and you want it, shouldn’t you be able to splurge to buy it — every once in a while?” Want to travel the world? Go for it! You’ll just have to prioritize your expenses and/or earn more money since consumer debt is never fun.”
You probably noticed something that I did about each of these high-savers: they have 2 or less kids, and they make an income substantially higher than most in the United States (according to the Census Bureau ACS Survey, the median household income is $53,889).
Also, in most of these cases, childcare was less than what I would have thought. So, this group of high-savers has certainly figured out how to both optimize income + lower expenses for childcare.
Over the next few weeks, I’ll be looking to interview high-savers (in the 30-50% savings range) with household incomes of less than $100,000 (are you in that boat? So are we). Wish me luck as I try to find these guys! Also, if you’re one of them, please contact me at: frugalconfessions [@] hotmail.com so that I can interview you for an upcoming article.