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Brace yourself for baby’s impact on your budget

Expecting a baby? Or thinking about having one? As many veteran parents can attest, that adorable little bundle of joy sure can cost you a different kind of bundle. By Laura T. Coffey.

Expecting a baby? Or thinking about having one? As many veteran parents can attest, that adorable little bundle of joy sure can cost you a different kind of bundle.

It all starts with diaper purchases. Who knew a diaper bill could pack such a wallop? Next there are all sorts of unbelievably tiny outfits, shoes, socks and hats. And then, before you know it, you’re footing the bill for iPods, ringtones, computer games, car insurance and college tuition.

Sound overwhelming? It can be. But the following tips can help you plan ahead for the arrival of your newest family member and make some wise financial moves.

1. Boost your savings as soon as you learn you are expecting. Many parents-to-be feel an overwhelming urge to start spending money on everything from a new stroller to a larger vehicle to a bigger home as soon as they learn they’re expecting. First of all: It’s OK to slow down and take your time. Your infant won’t be needing much space for a few years. Second of all: By being disciplined about saving, you could help cover a longer maternity leave from work or simply reduce your levels of money-related stress in those early months after the baby is born. Get creative and think about ways to combine paid time off with increased savings and scaled-back discretionary spending.

2. Think hard about work and child care. Of course, it goes without saying that you might not be thinking about much else at this point. But remember to consider these details when deciding whether or not mom or dad should stay home: If one partner’s job would only cover the cost of day care, is it worth it to keep working? (Note: It might be if the health benefits or retirement plan are amazing.) Have you remembered to check your employer’s leave policy carefully and/or find out whether you’re eligible for 12 weeks of leave with health coverage under the Family and Medical Leave Act? (This site could help you answer that question.) As for child care, does traditional day care make the most sense for your situation? Or could you team with a friend or relative and split the cost of a full-time nanny? Or maybe ask grandparents or other extended family members to watch your child while you’re at work? (If they’re willing to provide such a labor-intensive service, be sure to compensate them in some way.)

3. Investigate tax credits, flexible spending. The child tax credit, which gets subtracted directly from parents’ tax bills, is $1,000 per child for couples who file jointly and make no more than $110,000 a year. Not bad! Working parents also may qualify for the child and dependent care tax credit, which allows them to deduct as much as 35 percent of their annual day-care expenses depending on how much they earn. It’s also a good idea to ask your employer about flexible spending arrangements, which allow you to direct a portion of your pretax wages to a personal account from which you can draw for medical and child-care costs. You won’t be able to take advantage of both the child-care tax credit and a flexible-spending arrangement, but flexible spending is often the better deal tax-wise for many families.

4. Reassess your health coverage. Examine your health plan’s details carefully to make sure all well-baby care will be covered. If it isn’t, consider switching to a health maintenance organization or preferred provider organization that does cover such care if you possibly can. Also, don’t let extreme sleep deprivation make you forget to add your baby to the plan within 30 days of his or her birth.

5. Review your disability and life insurance. If your current disability income insurance will not replace at least 60 percent of your income, you’ll need to purchase additional coverage either through your employer or on your own. Also, parents with young children should have enough life insurance to cover five to 10 times their annual salaries. A term-life policy is the best and simplest option for most people ranging in age from about 20 to about 50.

6. Set up a college savings fund right away. Establish a 529 savings plan and/or a Coverdell education savings account now – not when your kid is starting the 10th grade. Don’t be overly shy about asking relatives and good friends to donate toward this investment. For detailed information on 529 plans and Coverdell accounts, visit SavingForCollege.com.

7. Plan ahead for big buys. Spread out major purchases, such as a crib, car seat, stroller and changing table, throughout your pregnancy. This will help you avoid a major outlay in the ninth month. If you suspect that anyone in your life might be willing and eager to make some of these bigger-ticket purchases for you, graciously accept the help.

8. Postpone smaller purchases. Your baby’s birth is bound to bring gifts of clothing, blankets, toys and all sorts of other items. To avoid having to return duplicates, register your baby for gifts or wait until after your baby’s arrival to make such purchases. And as tempting and fun as it might be to go nuts buying crate-loads of this stuff yourself, resist the urge! Your baby will outgrow everything by the time you make your next bulk diaper run at your nearest warehouse store.

9. Use caution at garage sales. Cribs, car seats and other products bought at such sales might be fine – or they might not meet basic safety standards. You can check for recalls and product safety news at this Consumer Products Safety Commission Web site or by calling (800) 638-2772.

10. Don’t have a will? Get on that! It’s especially important to have a will drawn up now that your family is growing. The document should identify a guardian for your child as well as a trustee of your child’s inheritance. Having this taken care of should only set you back about $150 to $250.

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