Congratulations, you’re expecting! Now brace yourself: The cost of raising your newborn to age 18 has climbed to $245,340, according to federal estimates, and that’s before college costs. So use these months before the baby’s arrival to get ready for the financial challenges of parenthood.
Taking leave from work
Check if mom or dad’s employer offers any paid maternity or paternity leave. Only 12% of private-sector workers are entitled to paid family leave through their employer. Find out if you can supplement with vacation or personal days. Workers in California, New Jersey and Rhode Island can take advantage of state paid leave programs allowing for up to six weeks off with partial pay.
Next, consider unpaid leave, and whether you can afford it. You’re entitled to 12 weeks of job-guaranteed time off without pay under the Family Leave Act, as long as your company has 50 or more employees, you’ve worked there for at least a year (and 1,250 hours), and you live within a 75-mile radius of your workplace. Start planning now for how you’ll cover those weeks without a paycheck.
Things could change soon on the paid leave front. The Obama administration has earmarked $2 billion in federal funds for more states to develop family leave programs.
Planning for child care
Child care is a major budget item, often exceeding a family’s transportation, food and even college tuition costs. In 30 states plus the District of Columbia, the average annual expense of putting a baby in a day care center costs more than tuition at a state college, according to Child Care Aware. Charges can be as much as $14,508 for an infant or $12,280 for a 4-year-old.
Costs vary, so research the going rates in your area for large day care centers, home day care providers and nannies. Consider whether a relative is available to help, possibly for free or in exchange for other favors. Weigh child care costs against potential wages lost if either parent stays home with the baby.
Paying hospital bills
Although maternity and newborn care must be covered by health insurers under the 2010 Affordable Care Act, some older policies were grandfathered in without providing that benefit. This may be the case for younger mothers insured under a parent’s policy, for instance. So it’s a good idea to find out what your insurance pays for, what your deductible is and what you can do to hold out-of-pocket costs as low as possible.
Best to ask your insurer which health-care providers and hospitals are in your network, since going out-of-network may cost you a lot more. Check what prenatal tests are covered as well as the length of any hospital stay after delivery. Once you’ve chosen a hospital or birthing center, call the billing office ahead of time for an estimated bill and ask if there are unnecessary options you can decline to save money.
Budgeting for baby
With your estimates for medical bills, child care costs, and any unpaid family leave, you can start making a budget. This calculator from the U.S. Department of Agriculture helps figure what families with incomes similar to yours spend each year on major budget items. To keep costs down, resist the temptation to buy the latest baby gear; instead, look for gently used items to buy or hand-me-downs from friends and family, especially on expensive clothing, baby dressers or nursing gliders that will soon be outgrown or unneeded.
Build an emergency fund
Work on paying down any debt you may have so that your finances are as stable as possible before the baby arrives. Then prepare for the unexpected emergencies that tend to occur with a little one around. Try to stash away at least three to six months’ worth of living expenses so that you have a cash cushion.
Life insurance and estate planning
Life insurance protects your dependents by providing funds for immediate expenses if you should die, as well as money to replace the income that you would have earned. If you have a policy in place, double-check the beneficiary designation. Most parents name a spouse, who would use the life insurance money for taking care of the child. Or consider setting up a trust to benefit your child and naming the trust and trustee as beneficiary on the life insurance policy.
If you aren’t insured, lifehappens.org offers a calculator to figure out how much coverage you may need. Term life policies are generally less expensive and can serve parents’ purposes.
If you don’t have a will, you probably should make one, at least to designate a person to care for your minor child if you die. You can also designate a trustee to handle the child’s financial matters and an executor to pay your debts and manage your estate.
Take advantage of tax credits
Babies can bring tax breaks. The Child Tax Credit is worth up to $1,000 a year per dependent under age 17, depending on income. To qualify for the full credit, your taxable income must be $75,000 or less; $110,000 if married and filing a joint return.
You may be able to write off costs of child care that lets you work. The Credit for Child and Dependent Care can give back up to 35% of the costs, up to $3,000 for one child, or $6,000 for two or more. Expenses for babysitters, nannies, day care centers and after-school programs can all qualify for the credit.
Taking care of these financial moves before baby comes home will make you feel confident and in control as you embark on the adventure of parenthood.
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