Parenting
How can something so small cause such a major upheaval in your life? Not the least of this upheaval is financial. The U.S. Department of Agriculture estimates that the average middle-income family will spend over $190,000 raising a child until the age 17 -- and that doesn't include any college costs.
But just as you find the extra time and energy you will need to take care of the little bundle of consuming joy, you will find ways to work it out financially.
Brace yourself. You will be spending much more than expected to buy things you never even thought of. Start planning financially for having a baby as soon as you can - before conception if possible.
Set aside as much as you can every month in a savings account. The actual event of birth can be expensive as well as all the first time purchases you'll make. Don't forget to save some money for your maternity or paternity leave. This is usually unpaid time off work.
How much do you need? As much as you can save. Any funds left over make a great starter for a college fund. If you've amassed a considerable amount well before the due date, you can invest in a short-term CD or other insured investment. But don't tie up your entire fund in investments. Babies will not sign contracts and they have not agreed to your schedule.
Have a brainstorming session with an experienced parent to figure out all the things you need to purchase before the delivery. It will be extremely helpful to have most of what you need before the baby is born. Your spare shopping time after birth is reduced drastically. If you need to shop after the baby is born, try the Internet. Nobody on the Internet cares how loud your baby is crying, what you are wearing or what time it is when your baby gives you a free moment to shop.
Here's a starter list for your brainstorming session. This is far from a complete list, but it will help get you thinking.
- Car Seat By law, you can't even take the baby home from the hospital without one.
- Crib You want one that meets the highest safety standards.
- Bassinet One with wheels will add to your mobility around the house.
- Stroller Consider getting one that's part of a stroller/car seat combo. It makes transitions easier.
- Baby Monitor "Baby calling Parents, come in, Parents."
- Safety Gate Keep your newly mobile child away from staircases and other hazards.
When your baby is born, your financial picture changes drastically. Now it's more important than ever to create, maintain and stick to a budget. You now have someone depending on you to keep the family financial matters in order. A well-thought-out budget will be your most valuable tool in managing the family money.
If you already have a budget, you'll need to revise it to fit your new, expanded family. If you don't have a budget, create one right now. This information will be still be here when you're done. Begin by filling out this budget worksheet.
Don't throw away your old budget. You can use it as a starting point for a new budget. Go through each of your expenses to see if they will change with your new baby. For example, your rent or mortgage will probably stay the same. But electric bills might increase if one person is planning to stay at home every day.
Add all the extra costs of raising a child into your budget. Another parent can help you identify what extra expenses might come up on a regular basis and what you can expect to spend on them.
Maternity and Paternity Leave
Most companies don't provide paid maternity leave - and don't have to. The Family and Medical Leave Act, which only applies if a company has more than 50 employees, ensures mothers should be able to return to their old job or an equivalent job up to 12 weeks after they begin their leave. The actual policy varies from company to company, especially if the company has fewer than 50 employees.
If you are a father, ask your employer about paternity leave. The Family and Medical Leave Act does not cover this time, but many employers are offering the same or similar benefits to their male employees.
Plan monetarily for maternity and paternity leave, as it is unpaid. You may be able to save up sick time and vacation time to continue receiving income for several weeks. But most likely, you will lose some income during this time.
One Income versus Two
One of the hardest decisions for new parents is whether to have one parent stay at home full-time. As much as we wish it wasn't the case, this decision is often made based on financial considerations rather than emotional and developmental considerations. Here are some questions that might help guide your decision:
- Are both jobs paying off? A job is more than just income - it also includes expenses. There's gas and/or other expenses related to transportation. You may eat out much more when working. You will need to pay for childcare while you are at work as well. Add up all of these work-related expenses to figure out how much you would really lose by staying home. It may not be as big a loss as you thought.
- Can you afford not to work? Subtract your income and work-related expenses from your budget. If that produces a deficit, see if you can cut any expenses but keep your savings as high as possible.
- What are the emotional costs? Some parents can't wait to get back to work after maternity or paternity leave. As beautiful and enjoyable as the parent-child relationship is, it can get stifling. Parents often yearn for the company and conversation of another adult, the satisfaction of working and the structure of a regular day at the office. If you decide to be a stay-at-home parent, make sure you receive the stimulation you need by getting out of the house once in a while, spending time with friends, or arranging a trusted babysitter so that you can spend some time taking care of only yourself.
Believe it or not, there is a financial advantage to having a child. You not only gained a loved one, you also gained a dependency exemption you can deduct on your tax return.
Apply for a social security number for your child within a year after his or her birth. That will make the baby "official" in the eyes of the IRS and that's the first step in getting your deduction.
Who is a Dependent?
There are five requirements that a person must meet to be your dependent.
- This person must be a relative or at least have lived in your home as a family member all year.
- If the person is married, he or she can't file a joint return. This probably isn't a consideration for a newborn.
- This person must be a United States citizen, resident alien or a resident of Canada or Mexico.
- This person must have a gross income of less than $3,000, unless the person is under the age of 19 or a full time student under the age of 24.
- You must have provided more than 50% of the person's total support for the tax year for which you are taking the deduction.
Tax Credits
Tax credits differ from deductions in that they don't just lower your taxable income, they actually directly lower the tax you owe. So a $1 tax credit will lower the tax you owe by $1.
If you pay for someone to take care of your child, for example day care or a nanny, you may receive a tax credit equal to 20% to 30% (depending on your income) of qualified childcare expense, up to $2,400 for one child or $4,800 for two or more children.
Be sure to keep all payment records, including receipts, for all childcare expenses. You will need them to substantiate your expenses. Nursery school, private kindergarten, after school programs and day care are all qualifying expenses.
Flexible Spending Accounts
Some companies offer their employees flexible spending accounts as a benefit. These accounts allow employees to have from $2,000 to $5,000 a year deducted from their paychecks pre-tax. This money can be spent on health care and childcare for the family.
All of these tax issues have complexities that are not covered here. To find out exactly how you can benefit the most from federal tax laws, as well as the state and local tax laws that apply to you, ask a professional accountant for advice.
A caregiver is more than a babysitter for your child. The caregiver will take part in some of the earliest development and education that your child will receive. For that reason, choosing childcare can be a hard decision.
Childcare can be one of the largest costs of raising a child. So the choice often comes to finding a balance between what's affordable and what's the optimal setting in which your child will spend five days a week.
Day Care centers
Day care centers are a moderately priced option for childcare, but averaging between $400 to $1,000 a month, they are still expensive. You may be lucky enough to be employed by a company that offers day care as part of its benefits package. Churches, schools and community centers often offer lower-priced day care. The center should be staffed by trained and licensed day care professionals.
Day care centers are an attractive childcare option because they provide a stimulating environment for children and typically have several caregivers working at any given time. They also welcome unannounced visits, helping parents feel comfortable with what goes on while they aren't there.
But day care centers are usually closed on holidays and if your child is sick, they won't be allowed in day care so you'll have to take the day off, too. They also have stiff monetary penalties for early drop-off or late pick-up so if something unexpected happens, you'll pay for it.
Family Day Care
Family day care differs from traditional day care in that the caregiver provides care in his or her own home. Since they are run from a residence, they are often located more conveniently than other centers and can be much less expensive, around $300-$400 a month. You should still insist on licensed caregivers. Family day care is often less structured so you'll want to make sure the caregiver's ideas on playtime, feeding, napping and other issues as well as their value system are a good fit with your own ideas and values. You'll also want to inquire about and possibly run a background check on the other people that live in the home, even if they are not caregivers.
Nannies
While usually the most expensive option, costing $1,500 a month and up, both live-in and daytime nanny and au pair childcare have definite advantages: One-to-one attention, the familiarity and convenience of your own home, a consistent companion for your child. You also don't have to worry about getting your child ready and out to day care before you leave for work. If you pay enough, light housekeeping chores may be included in the deal, too.
Keep in mind that you will be an employer, so legally you are required to withhold money for taxes and pay Social Security, unemployment insurance and any other costs according to your specific state and local laws. Nannies get sick occasionally, so you will either have to find a substitute on short notice or stay home.