Becoming a Parent

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Having a child is one of the most exciting times of your life, but it can also be one of the most expensive. A U.S. Department of Agriculture study puts the average cost of raising a child for 18 years at just under $300,000, and that doesn't even include expensive college tuition.

You need to be financially prepared before becoming a parent, and that means knowing and budgeting for the major costs you're going to face.

First year medical costs

Between the last few months of prenatal care and your baby's first year of life, you could end up paying thousands of dollars in medical bills. Take a close look at your health insurance policy to understand what it covers and what you will need to pay.

If you have an HMO plan, you'll likely only need to cover the co-pay for each office visit and the larger co-pay for the hospital stay. Under an indemnity plan, you'll probably be stuck paying the full deductible or potentially even the out-of-pocket maximum for the year.

Once you know how much your medical costs will be, start saving. Putting pre-tax dollars into a flexible spending account or health savings account through your employer will shield that money from being taxed.

Loss of income

Research how much you will be paid when you take time off work after having your baby. Some companies generously offer maternity leave with full pay for a specific number of weeks. Others just put you on short term disability, which typically pays 60% to 70% of your regular wage, for six to eight weeks. You also may be eligible for up to 12 weeks of unpaid leave under the Family Medical Leave Act.

In addition to your loss of income immediately after having your baby, consider your long term income. If one parent plans to stay home with the child, this will significantly affect your income going forward.

Child care expenses

Paying for child care can be a huge strain on your budget, but it will probably be necessary if you both decide to keep working. Start looking for child care before your baby arrives because the best options may fill up quickly.

Costs vary from $500 per month for inexpensive in-home daycare to $1,000 per month in a daycare facility or upwards of $3,000 per month for a private nanny in your own home. That blow can be softened through the dependent care tax credits or a flexible spending account that allows you to shelter the money from income taxes.


Lastly, don't forget about the added expense of insurance. You will need to add your child to your health insurance plan, so compare the cost of an additional dependent with each of your employer-sponsored plans. If you don't have life insurance policies yet, now is the time to get them for both of you. Term insurance policies can cost less than $1 per day when you're young and healthy, and they provide peace of mind and financial security.