Having a baby is an exciting time in a family. It can also be a little overwhelming financially. The U.S. Department of Agriculture state that a kid will cost you $400,000 in his or her first 18 years, assuming an annual household income of $105,000 or more.
The keys to managing these new finances are information and preparation. Here is a handy checklist provided by CNN Money Magazine* on how to budget for baby during pregnancy.
Make a post-baby budget – Diapers alone can run $900 a year. Use tools like babycenter.com to estimate the expenses of a newborn during the first year. This tool will help you estimate food, clothing, medicine, toy costs and more.
Investigate childcare – Childcare is notoriously expensive and depending on location it can cost parents up to $16,000 a year. Determine what works best for your family. If one parent is planning on staying at home, account for loss of pay and perks like a 401(k) match.
Sew up a cash cushion – Once you get your credit card debt down, be sure to have at least 3 months living expenses saved in a liquid account like a savings account.
Estimate health bills – In a standard employer health care plan, prenatal care and delivery can cost a patient around $2,250. Contact your insurance company to determine what expenses the baby will add to you payments.
Protect your paycheck – Estimate your life and disability insurance needs by using tools at lifehappens.org. Term life is typically most affordable. Check to see if you get disability through work before buying.
Make a will – Get your will into place before the baby takes up most of your time. You don’t even have to know the child’s name but you do need to select a guardian. You can even do it yourself with Quicken Will Maker Plus software for $43.
Check you benefits – Most companies do not offer paid maternity leave. If planning on taking time off, be sure to have savings to cover your expenses.
Get the gear – With giant chain stores like Baby’s R Us, it can be difficult to determine which products you really need. The best advice will come from other mothers. Make a list and register for your baby shower to avoid repeat gifts.
Set up a 529 – Deposit any cash gifts you receive into this tax-free account to start saving for college.
Enroll baby – Once the baby is born, you have a 30-day window to enroll your child on your health plan and sign up for flexible spending accounts that let you save pretax for healthcare and dependent care.
Celebrate your tax break – The tax exemption for having a child in 2014 is $3,950. You can use the Withholding calculator at irs.gov to determine if you can decrease your paycheck tax withdrawal.**
*Reported in CNN Money Magazine March 2014 edition by Karen Cheney.
**This blog article is not tax or investment advice; please contact your tax or financial advisor for further information.