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| PARENT ARTICLES |
New Baby, New Costs
There's no question that a new baby directly affects the family finances. Suddenly, you may be living on a lower income -- if one spouse works less or not at all -- and have more expenses, including costly daycare. Financial planning and saving are in order, but it's not as daunting as it sounds. Here are a few things to consider:
Do we need life insurance?
Yes, but it's not as hard or as complicated as you might fear. Life insurance isn't cheap, but the right policy does buy you priceless peace of mind and a guarantee that your family will be cared for financially -- up to and including college costs. Your two main choices are whole life and term insurance. Term may make the most sense for a growing family, but both have their advantages. Here's what you need to know.
Do we need disability insurance?
Consider this: Between the ages of 35 and 65 -- your prime earning years -- you're more likely to experience a disabling incident that leaves you unable to work than you are to die. Having disability insurance means that you'll receive a portion of your accustomed salary even if you can't work -- and long after worker's compensation or an employer's plan benefits expire. Here's what to consider when choosing a plan.
Do we really need a will?
Absolutely. If you don't have one, you'll leave the fate of your child's guardianship and your assets in the court's hands. Steel yourself to plot out what you would want to happen if you and your spouse should die. Our guide will help with this emotionally difficult task.
Does it make sense to set up a trust for my child's future now?
Yes. Setting up a trust is a way to sock money away in a tax-exempt fund so it'll be there when your child needs cash later in life -- perhaps to pay for college. Check out the BabyCenter College Savings Calculator to see how much you have to save.
How will baby's arrival affect our tax status?
The good news: You can claim a dependent on your income tax form. Other news: You must get your baby a Social Security number by the time he's a year old; you can give her up to $10,000 a year to lower your taxes (and start her college fund); and you may be eligible for a childcare credit on your taxes.
Will my health insurance needs change?
You'll need to add your baby to your employer's health insurance, if you're insured through work. Most health insurance plans have special coverage for babies, including items like covering well-baby care.
Can we afford daycare?
If one of you makes under $25,000, you probably don't need both paychecks -- and, hence, it may not make economic sense to enroll your child in daycare. But we work for rewards beyond the monetary.
If you decide to go the daycare route, recognize that there are many options, from the reasonably inexpensive on up into the stratosphere. Consider your daycare needs and philosophy before evaluating how much it'll cost you.
How will we afford a child?
According to Smart Money, the US Department of Agriculture estimated that in 1995, a child costs approximately $145,320 in a middle-income family over 18 years; a more realistic estimate, based on expenses from birth to college, might be closer to $400,000. The first year of a baby's life is just the beginning: The average family spends about $10,000 (we're counting delivery, hospital stay, baby furniture, clothes, food, diapers, daycare, toys, books, and well-baby visits and immunizations) with some smart shopping, borrowing, and budgeting.
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