The high cost of raising kids

I hope you're sitting down. According to an annual study by the USDA, the average cost for a middle–income family to raise a child born in 2007 until age 18 is estimated at a staggering $204,060. And that doesn't even include college costs.

Some would argue these figures even underestimate the true costs of raising children: Because only about half the families surveyed seek outside childcare, the study allocates only $25,230 for 18 years of childcare and education (about $1,400 a year) – clearly not enough to cover the daycare or private school costs many families must absorb.

Here are a few steps you can take, from pre–birth through high school, to ensure you'll be able to afford your quarter–million–dollar bundle of joy:

Create a "health budget." Many new parents are shocked by how expensive having a baby is. Mothers need prenatal exams, babies need check–ups and immunizations and the birth itself might cost $10,000 – or much more if complications arise. Ask in advance what your insurance plan will cover and what your deductibles and copayments will be. Choose a doctor and hospital within your plan's provider network. And learn how much your insurance premium will increase for family coverage.

Know what things cost. Another shocker is how many expensive "things" babies need. You could easily spend thousands of dollars on a new car seat, crib and bedding, stroller, diapers, baby formula and food, medical and grooming supplies, clothing and so on, for things that will be outgrown in a few months.

Instead, form a network of parents to swap hand–me–downs and start haunting resale shops. More importantly, develop a budget and start saving right away. Visa Inc.'s free personal financial management site, Practical Money Skills for Life, features an extensive how–to guide called "Here Comes Baby" (www.practicalmoneyskills.com/learn/life_events/family_life/parenting) that includes an interactive baby budgeting calculator, budgeting tips, childcare and education planning pointers, tax information and much more.

Look into tax advantages. Ask if 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 your benefit coverage after having a baby, so you could probably add FSAs midyear.

Alternatively, you can take the dependent care tax credit when you file federal income taxes. Your preferred method will depend on your income, number of eligible dependents and other factors. Practical Money Skills for Life contains a guide to how FSAs work at (www.practicalmoneyskills.com/benefits). Consider consulting a financial professional regarding your personal situation.

Financing college. It's never too soon to start saving for your kids' education. With both 529 Qualified State Tuition Plans and Coverdell Education Savings Accounts, interest earned on your savings is tax–exempt when used for tuition, books and other qualified expenses. (Hint: Grandparents and others also can open these accounts.)

Go to the U.S. Securities and Exchange Commission's website for information on 529 plans (www.sec.gov/investor/pubs/intro529.htm) and the IRS's site for Coverdell accounts (www.irs.gov/taxtopics/tc310.html). Also, www.savingforcollege.com, discusses these and other education financing methods.

Raising a family is one of life's most rewarding experiences. Just be sure you plan carefully for the financial bumps in the road.