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Congratulations! You're having a baby. Proper planning can help you cope with the financial responsibilities.
The U.S. Department of Agriculture (USDA), which conducts annual Consumer Expenditure Surveys on the cost of raising children, estimates that it can cost over $200,000 to raise a child from birth to age 17. What can you do to plan for the expense?
The first thing you should consider doing is reviewing your health insurance coverage. For example:
Are you covered for prenatal, delivery, and postnatal care?
Is your baby covered for well-baby and medical care?
What is your deductible and co-payment?
Is your obstetrician or midwife listed on your plan?
Is your medical care facility listed on your plan?
Add your baby to your health insurance right after the birth.
Be sure your child's pediatrician is listed on your insurance plan.
In addition to your health insurance coverage, you should review your disability insurance coverage. This type of coverage provides an income for you if you are disabled and unable to work. It's often part of an employer's benefits package, so check with your Human Resources/Benefits department. If you're not covered at work, you can purchase it on your own.
You're about to add someone to your household who depends on your income, so it's a good time to review your life insurance needs. You'll need to decide various things, including how much coverage you need and whether it should be term or whole life. You may want to talk with a financial professional to determine the best strategy for your situation. For a detailed discussion on insurance, read the related articles in our Knowledge Center Library.
You may not want to think of the possibility of your death, but it's important to make sure your child is provided for when that happens. If you don't already have a will, now is the time to prepare one. If you do, you may want to update it with guardian and trustee information for your child. Make sure your wishes are documented, because the court will make the decisions for you if you don't have a written will.
While the information listed above is important, it can be difficult to see the benefits because they're more long-term. Are you ready to take immediate steps where you can see the results? Before you're faced with increasing expenses after the baby's born, why not use this time to organize and maximize your finances? For example, you could:
Create and implement a budget.
Pay off credit card debt and student loans.
Find websites devoted to pregnancy and childcare, and sign up for regular email updates.
Search online for discounted items, like groceries and baby clothes.
Shop for inexpensive or used nursery furniture.
Clean out your house and sell or donate anything you're not using.
These are just some things you can do right now to prepare for the financial expense of having a baby. For more information about budgeting, paying off debt, and shopping online, read the related articles in our Knowledge Center Library.
The decision to stay home with the baby or to return to work can be difficult. Under the 1993 Family and Medical Leave Act (FMLA), an employee may take 12 weeks of unpaid leave for the birth and care of the employee's child. See the FMLA factsheet. If you decide to go back to work, here are some things you should consider:
Find out if your employer offers Flexible Spending Accounts. Some benefits packages include accounts where you can deduct a specific amount of your salary on a pre-tax basis to go into special accounts that you can use for medical bills or childcare. The amount you set aside is based on your expected expenses during the calendar year.
Make plans for childcare. Knowing your child is in good hands may take away the guilt you might be feeling about going back to work. You may want to investigate childcare options near your job or a daycare center in your neighborhood. Friends and coworkers who have recently had children are a great resource.
Take a look at your employee handbook or talk with someone in your Human Resources/Benefits department about your options.
Having a child can provide a tax advantage for you, with both your federal and state taxes. Areas to investigate include:
Adding an additional deduction on your withholding and tax forms
Filing for the child tax credit
Claiming the childcare deduction
Using a tax-deductible home equity loan to finance other expenses
Claiming deductions related to working at home
Check out the website of the IRS, www.irs.gov, for more information.
While raising a new baby may be the most expensive thing you've ever done, it's also a time of great joy. Planning for this time will support you in maintaining financial health.
If you’re looking for childcare, you’re not alone: the National Association of Child Care Resource & Referral Agencies estimates that 11 million children under five spend an average of 36 hours a week in some kind of childcare. It can be good for a child’s development to experience different caretakers and to interact with other children. It can also benefit parents, not only to participate in the workforce but to spend time away from their children.
While 9 months can seem like an eternity for couples waiting for their baby to arrive, getting prepared both emotionally and financially may seem more like a race against the clock.
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Proper estate planning may be the difference between providing your heirs with a comfortable inheritance or a major financial headache.
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