Question: My wife and I are expecting our first child later this year and I have been budgeting to see what we can afford for child care. It looks like the average cost of childcare is ~$1000-$1200/month. This is a huge expense for us that we did not have before. We cannot afford to have either myself or my wife take care of the child instead of working so we must use a daycare.

I have a budget and we save ~$1700/mo without spending anything on things like dinners out, movies, tools for the house, etc.

I am not willing to forgo our decent chunk of savings each month to pay for child care as only saving ~$500/mo scares me. 

We bought a house last year and we were wondering what kind of benefit we would see around Tax time for: 1) Living in our own house for (1,2,3...) year(s), 2) Having a child. I know I can increase the number of depends on my tax forms once the child is born, what should I expect in my paycheck once that happens? 

I have a car payment and I was hoping to pay that off as fast as possible to try to get rid of some debt to increase our cushion a little. 

1. Is there anything else I can be doing?
2. What kind of return will I see from renting vs owning for a year(2, 3..)
3. How will my income change once i claim another dependent?

thanks,

Answer: 
First thing, it's scary having your first but you'll work it out. Just breathe.

The good news is that you can afford daycare! You will even have money left over at the end of the month so you can buy diapers. This is not a terrible position to be in. You just need to figure out some ways to save money.

If your job and/or wife's job offer dependent-care FSA, you should really consider using it. Basically it reduces the cost of you FSA by your top tax rate. Let's say you are in a 25% top bracket. Normally you would need to earn $19,200 to pay for a year of childcare. But if you do the FSA, $5K of your income will not be taxed. That's around $100 a month in post-tax money right there if you contribute the full $5000.

Due to the new tax bill, owning a home will likely not help you unless you have a lot of itemized deductions aside from the home. So that doesn't really matter. The 'return' of renting versus owning will simply be the difference in monthly payments (don't forget maintenance.)

You will get no longer get a significant tax savings through an additional dependent under the 2018 tax bill. This has been eliminated.

What else can you do? There are lots of ways to save money like using coupons. Be careful with the trips to the Home Depot. Make sure you are buying things you really need. Cooking at home (including lunches) can save real money. One thing you mention is "pay that off as fast as possible to try to get rid of some debt to increase our cushion a little". At a high level it's good to pay off debt but don't do it at the expense of your rainy-day fund. You could end up in a situation where you own the car outright but can't afford to repair it or buy new tires. It's even possible to end up in a situation where you have one payment left and something goes wrong, you have no cash and the repo-man takes it away.

The reality you need to deal with is that you will be spending more than you are now. Just accept that for the next few years you will be saving less. If you do have extra to save, it might be a good idea to reduce your taxes using a tax-sheltered account like a IRA or 401K.
If your employer offers a FSA (flexible spending account) benefit, you can put up to $5000 per year pretax into this account and use it for child care expenses. It is worth noting that the birth or adoption of a child is one of the life events that should allow a change in your benefits. 

If your employer doesn't offer this, there is a [corresponding credit](https://www.irs.gov/pub/irs-pdf/p503.pdf) you can use on your return, but there's more calculations and paperwork for you involved in this path - if you aren't covered by an employer's FSA there is a max() function on several calculations depending on your gross level of income, you can claim the credit on 35% to 20% of the total expense, or an absolute maximum cap of $5000. I also do not know if this is changed by the 2018 tax bill (the internet suggests employer FSAs are unchanged)

Daycare cost for "infants" (6 weeks to half year) in my area tends to be a few hundred higher per month than toddlers and older; if you and your wife have enough vacation time, sick time, nearby grandparents, FMLA, etc. to plan for 6 months of coverage, you can get into the cheaper window before paying for external daycare.