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Understanding the Costs of a New Baby


Father and Baby
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My wife is fond of telling our children about how apprehensive their dad always was when she told him that they were having another baby. By the fifth one, she broke the news to me by tying pink and blue ribbons on my car's radio antenna at work so she didn't have to see my reaction. I didn't get upset ever, but the concern about the financial side of having a baby always made me turn a light shade of green and start to sweat!

The kids always laughed about that. At least they laughed until they became parents themselves. Then they knew the feeling of being excited about the prospect but nervous about the cost.

New or expecting parents need to be prepared not just for the experience of pregnancy and birth and not just about the change in the routine. The impact on the family budget of having a baby is a big one and it is one that a couple needs to prepare for.

The USDA estimates that most middle-income new parents spend about $12,000 in the first year of a child's life. The cost does tend to vary based on income. Less wealthy parents spend a little less and better off parents can clearly spend a lot more. Families with incomes over $102,000 tend to spend about $20,000 in the first year of a baby's life.

So, let's consider various components of the new baby's budget and how best to estimate and control costs.

Housing. The biggest single expense for a baby is related to housing. Every time a family increases in size by one, there are additional housing costs. You might find the need to keep the home warmer in the winter, which raises utility costs. You might need to add a room, convert space in the existing dwelling for a baby or rent a storage unit to make room for a baby and all that entails. Baby will also need specialized furniture like cribs, bassinets, changing tables and the like. Babies also bring a lot of gear that takes up space, so you might want to consider how best to simplify or consolidate your own stuff so there is room for what a baby needs.

Food. Feeding the child represents the second largest expense in baby's first year. Even if mom is breastfeeding for the better part of the year, she will require more nourishment to supply the baby's growing needs. Then there might be formula, baby food, teething crackers and the like. Even though the baby seems pretty little, you will be surprised at how much they can consume. Those little bodies do a lot of growing in the first year and it takes a lot of energy to do that.

Medical expenses. There are certainly out of pocket expenses involved in pregnancy and delivery. You should check with your health insurance provider to make sure that you know all of the out of pocket costs associated with the pregnancy and delivery. Many parents are surprised when they get the hospital, doctor and anesthesiologist bills and see what their insurance didn't cover. Also, even the healthiest baby will need well baby checks and immunizations a few times during that first year.

Medical expenses can also become kind of overwhelming if the baby has some complications and ends up in the hospital neonatal intensive care unit, as seems to be happening more often. Again, it is good to know in advance what you might have to prepare for, so talk with your insurance provider.

Child care. Whether or not one of you will stay home full time with the baby, there are often child care related expenses. You may have to deal with the lost income if both of you were employed before the baby came and now one is staying home. Child care for a young child can also be expensive and it often won't be available if the baby is sick. Before having the baby, you should identify a qualified child care professional and understand the costs involved. Currently, there are ways to pay for child care with pretax dollars or take a tax credit later for child care. If your employer has a cafeteria plan where you can withhold dollars pretax from your income and use them to pay for child care, you can cut your out of pocket costs. You might also consider using family members if they are available and the costs might be a little lower.

Baby stuff. I mentioned earlier about all the stuff a baby needs. This stuff, like car seats, strollers, clothing, diapers and other supplies, can really add up quickly. I was always amazed with the laundry loads associated with a new baby; it was not uncommon to have a baby wear four or five outfits every day and be doing laundry several times a week. Babies' wardrobes often change entirely with the seasons because they can be really sensitive to temperature changes. Too hot or too cold, the baby will let you know. So, talk to other new parents about clothing and other "stuff" the baby will need and how much you should plan on.

Transportation. Babies also have special transportation needs. Odds are that the car you had as a young couple may not accommodate a baby and all of their gear. Consider replacing a car with a more family friendly version rather than buying another car for family outings. Also, you will need a good car seat for the baby, and as the baby ages, you will need to consider different car seat strategies to keep her safe. Or, if you are primarily using public transit, the baby will usually travel free for a while but then you will have to add a ticket or pass for the young child. Check with your transit provider to be sure you understand their policies.

All this being said, I would not want to discourage any man from becoming a father and taking responsibility to raise a child. The rewards far exceed any financial investment needed. But it helps to be prepared, to think through the issues and to have a game plan and a realistic family budget as you invite a new baby into your home and your life.

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