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Budgeting for baby? Try these tips to get started

Becoming pregnant can certainly be a joyous occasion, but it's also a time to make some pretty big decisions. Some of those decisions can have a considerable impact on a family's financial picture. In the third part of "Today's Money for Women," financial editor Jean Chatzky shares some advice on managing money when little ones arrive. Here are her thoughts:

Having a baby
The U.S. Department of Agriculture estimates it costs the average middle class family $184,000 to raise a baby from birth to age 17. (Not surprisingly, the more money you make, the more money you spend raising your kids. Families that make more than $70,000 a year spend closer to $279,000. Families that make less than $42,000 spend $134,000) But no matter which one of these six figure chunks of change applies to your particular situation, there's no denying it's a bundle. And that's all money out the door before you even start to contend with college. Yikes! How can you handle the financial strain?

Prepare while you're pregnant (or before).
Your nine-month pregnancy gives you a lot of time to figure out how you'll handle having another mouth to feed. The first thing you want to do — preferably before you even get pregnant — is check your health insurance policy and your spouse's to see which offers the best benefits in terms of pre-natal care. The hope is that you'll have time to switch to the better policy, if that's in order, before your pregnancy becomes a pre-existing condition. Also, look into which of the policies offers the best care in terms of infants and the check-ups they'll need. (Generally, these sort of switches can be made during open enrollment time in October. When you get married, you also typically have the option to add a spouse to your plan.)

Road test living on a single salary.
If you're considering (or your spouse is considering) leaving the workforce to stay home with a baby, try to live on a single salary throughout the pregnancy. Not only will this give you an indication of whether or not you can actually live on what you make, but it will give you nine months of banked income that becomes a sizable emergency cushion. For a better sense of whether you can afford to stay home, there are a number of calculators on the Web. I like the one at .

Make a baby budget.
Infants can be expensive. It's a good exercise to run the numbers to see how much you'll need to spend on everything from food/formula to diapers to utilities (if someone will be home with the baby all day, you'll run the air conditioning more hours). But don't panic. You'll save in other ways. If you're home, you won't be spending money on work clothes or commuting. There's likely to be a dramatic cutback in your entertainment/eating out dollars as well as your travel budget — although you'd be smart to factor in at least one night a week of baby-sitting.

Use flexible spending dollars for day care.
If you are going back to work, day care is likely to be your biggest new expense. The cost of hiring a nanny or au pair to work in your home may or may not be more expensive than out-of-the-house day care, depending upon where you live. But one very smart move is to fund a flexible spending account with pre-tax dollars and then use those dollars to pay for day care. (You can only do this for a business with a tax ID number like a day-care center or a day camp, not a nanny you pay off the books as many people do.) It can cut your day-care bills by one-quarter to one-third.

Write a will, name guardians.
Becoming a parent forces you into a position of responsibility for a person who — unlike your spouse — can't be responsible for him or herself. That means it's time (if you haven't done it already) to make sure you have a will and that it names a guardian for that new baby. It's also time to buy life insurance. How much you need depends on what sort of income stream you're replacing and whether you want the proceeds of the policy to pay your mortgage off and to pay for college. If you and your spouse are both in the workforce, you'll need life insurance on both of you. For most people, term insurance is the best way to buy the insurance you need at a price at which you can afford it.

Finally, we can't talk about having babies without talking about investing for college.
The best time to start socking money for your child's college education into a 529 College Savings plan or Coverdell Education Account (both of which have tax advantages) is as soon as they're born. The more years that money has to grow, the better. But — and this is a big but — you can't put college savings ahead of your own retirement needs. If you can't do both, put some money into a Roth IRA where the proceeds can be used for college or retirement — your choice. And remember, there's no financial aid for retirement. There is plenty of financial aid for college.

Jean Chatzky is the financial editor for “Today,” editor-at-large at Money magazine and the author of “Talking Money: Everything You Need to Know About Your Finances and Your Future.” Her latest book, "Pay It Down: From Debt to Wealth on $10 a Day," is now in bookstores. Copyright ©2005. For more information, go to her Web site, .

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