Posted on: Thursday, August 9, 2007
Having a baby? Start planning
By Kathy Chu
USA Today
The emotional rewards of new parenthood can be joyous. The financial toll tends to be rather less blissful.
Shall we count the ways?
Figure $100 a month for diapers. Budget $125 for baby formula. Count on $175 a month for new baby clothes.
You'll also lose pay if you take time off from work beyond any paid leave your job provides. Don't forget the years of daycare costs you'll incur if both you and your spouse continue to work.
A middle-income family with a child born in 2006 will spend, on average, $197,700 to raise him or her from birth through age 17, according to government data. That figure doesn't even include the soaring cost of college.
How to plan for a little one without wrecking the family finances? Shrink debt and build up savings as early as possible — ideally, long before starting a family — so your budget can weather the baby costs.
Here are some tips to baby-proof your finances:
Review health coverage. Check to see whether routine doctor visits, medicines and serious medical conditions are covered. If you plan to have a child within a year or two, consider upgrading to a more generous health plan, recommends Natalie Michalek, a financial planner in Dallas.
Like most parents, Raj and Anita Nijjer, of Scottsdale, Ariz., had reviewed their health insurance before having their first child last year. But, "We just looked at the basic stuff, like vaccinations, medicine. We didn't look into, 'What if he had this issue, what if he had that issue?' " says Raj, 29.
Get rid of credit card debt. Paying off high-interest card debt will free up cash for baby expenses.
Build up an emergency fund. Planners generally recommend putting away three to six months worth of expenses in a cash account in case of an emergency, such as a job loss.
Revise your budget. That adorable baby can dent any budget you've established for your other household expenses. It'll take a few months to figure out exactly how much diapers, toys and clothes will cost. Once you know, factor those expenses into your budget. Then see where you can cut back.
www.Babycenter.com has a calculator that will estimate the long-term cost of raising your child, depending on your family's circumstances. Also check out Visa's baby-budgeting tool at www.practicalmoneyskills.com. It will provide the average retail cost of baby expenses.
Update your will and life insurance. If you have a will, it may include a generic provision that says your "offspring" will inherit assets. But after your baby is born, you should revise the will to name him or her as beneficiary. Also, consider naming a guardian for your child if you and your spouse die.
You'll likely need to increase your life insurance coverage.
Show fiscal restraint. Michalek says the temptation to buy your child — especially your first — every new baby contraption can be overwhelming.
Weigh the cost of staying at home vs. working. For many two-income families, daycare is an expensive option. On average, putting a 3-year-old child into daycare for five days a week, eight hours a day, costs $653.37 each month, up 7 percent from the previous year, according to Runzheimer International, a consulting firm.
Open a tax-advantaged workplace spending account. Most large employers offer either a healthcare flexible spending account or a dependent-care flexible spending account. Both let you save money on a pretax basis, reducing your tax bill.
Exploit tax breaks. See whether you qualify for child and dependent-care tax credits or an earned-income tax credit. You should also adjust your tax withholding to reflect a dependent child; this will give you a larger paycheck, which will help cover your new baby expenses.
Save for college. Considering the skyrocketing costs — tuition, fees and room and board have surged 38 percent in the past decade at public four-year colleges, to $12,796 a year, and 28 percent at four-year private universities to $30,367.
