Having a baby? Get your finances in order

I wouldn't trade the experience of raising my two kids for anything, but I must admit that when my wife and I started planning our family, we had no idea how expensive it would be. According to a Department of Agriculture report, a typical middle-income family will spend over $280,000 in inflation-adjusted dollars to raise a child born in 2009 until age 18 – and that doesn't even include prenatal care or college costs.

Take it from one who knows, you'll want to have "the money talk" well before the baby is born and you're bleary-eyed from lack of sleep. Here are a few budgeting tips:

Create a health budget. Before the baby is born, find out what benefits your insurance will cover taking into account monthly premiums, deductibles and copayments. For example, are prenatal exams, baby check-ups and immunizations covered? Ask what your share of delivery costs will be. If complications arise, such as needing a Caesarian delivery or premature baby incubation, costs could skyrocket.

Parental leave. Learn your employer's policies, since some require up to a year's employment before certain benefits like paid leave, short-term disability and unpaid leave kick in. In addition, the federal Family and Medical Leave Act allows up to 12 weeks of unpaid leave for births or adoptions, so check with your benefits department to see if you're eligible.

Know what things cost. We were amazed how many "things" our babies needed. Must-haves include a car seat (required by law), crib and bedding, stroller, diapers, baby formula, medical and grooming supplies, clothing and home baby-proofing. Add in things like a baby bathtub, baby monitor and safety gates and we're talking thousands of dollars before the kid is even crawling. Practical Money Skills for Life, a free personal financial management program run by Visa Inc., contains a handy calculator that can help estimate baby-related expenses (www.practicalmoneyskills.com).

Anticipate lost wages. When budgeting for living costs, factor in lost earnings that typically occur when a parent either temporarily leaves the workplace or chooses a job more open to flex hours or part-time work. Down the road, you'll also need to weigh the cost of child care versus returning to work.

Investigate tax advantages. Ask whether your employer offers health care and dependent care flexible spending accounts (FSAs). These accounts let you pay for eligible out-of-pocket medical and child care expenses on a pre-tax basis – that is, before federal, state and Social Security taxes have been deducted. This lowers your taxable income, and therefore, your taxes.

You could save hundreds or thousands of dollars on expenses you'd have to pay for anyway. And remember, you're typically allowed to change benefit coverage after having a baby, so you could probably add FSAs midyear.

Depending on your income, number of eligible dependents and other factors, the dependent care tax credit for federal income taxes may be preferable, although Dependent Care FSAs usually provide the greater tax advantage for most people, especially at higher incomes. IRS Form 2441 at www.irs.gov can help you calculate whether the tax credit is preferable. Or, ask your tax advisor which method is best for you.