Having a baby is kind of like signing up to have your life changed forever. There's nothing quite like the feeling of creating a little person who, with any luck, will grow to love you for the fine parent you're bound to become. However, you will never again be that carefree, untethered person with the freedom to drift on the wind. You'll be forever bound to another human being who depends on you entirely.
This means children represent a huge commitment of your time and money, so you need to be prepared even before your little one is on the way. If 2016 is the year in which you'll be plunging into parenthood, here are a few things you should know.
Your expenses are bound to go up
The average two-parent family spends more than $12,000 per year on a single child during the first two years of the child's life, according to the USDA. So don't kid yourself: The money you'll save by spending every night at home with your baby, rather than going out like you used to, will not nearly compensate for the extra costs of having an infant. (And believe it or not, you may even find yourself paying more for conveniences like food delivery and cleaning services, because your time will be spread just as thin as your money.)
Baby supplies are expensive. Diapers, for example, cost anywhere from $0.25 to $0.50 a pop depending on the brand you choose. During those first few months, infants can go through 10 diapers or more per day. Add in the cost of wipes, diaper cream, and the like, and you're looking at well over $100 per month just to keep your little one clean and dry. Plus you'll need nursery furniture, feeding supplies, and clothing.
So here's what to do now: Start saving money like you never have before. Cut back on expenses, and if your savings account isn't where you think it should be, push yourself to earn some extra money while you still have the time in your schedule. The more cash you sock away before your baby comes, the less stressed you'll be at a time when you have other things to worry about, like exploding diapers.
You'll need a good health insurance plan
Let's not forget about healthcare, another major expense. Recent data indicates that parents face average out-of-pocket health costs of about $1,300 during a child's first year, and that's for folks with insurance. Here's another cold, hard fact: Women with health insurance pay an average of $3,400 out of pocket for childbirth alone.
If you're having a baby in 2016, make sure your current insurance plan is designed to meet your needs. You may, for example, have opted for a lower-cost, high-deductible plan up until now because it made the most sense, but once you have a baby, you can bank on using that insurance card more often.
If your current plan costs $300 per month for you, your spouse, and your baby but leaves you with a $5,000 out-of-pocket deductible to meet before it'll pay for medical services, then you may be better off doubling your premium but lowering your deductible to just $1,000. There's a good chance you'll break even or come out ahead on your newborn's hospital stay alone.
You may get a small dose of tax relief
Luckily, amid all the added expenses, your little bundle of joy might bag you some big discounts. I'm talking about tax credits, which, depending on your eligibility, could save you thousands in 2016. Here are the major tax credits available to parents:
- Earned income tax credit. The EITC is designed to help Americans with low to moderate income. For 2016, if your adjusted gross income is less than $44,846 if married and filing jointly, you may be eligible for a maximum credit of $3,373 courtesy of your first child. Even larger credits are available for parents with two or three children.
- Child Tax Credit. With the child tax credit, you may be able to reduce your 2016 federal income taxes by up to $1,000 if you have a baby that year. The only catch is that if you earn over a certain amount, you'll start to lose out on this benefit. For those married filing jointly, the credit begins to phase out at $110,000.
- Child and Dependent Care Credit. If you and your spouse will be paying for child care so you can return to work, then you may get some of that money back in the form of the Child and Dependent Care Credit. As long as you use a qualifying caretaker, such as a day care facility, you may be eligible to get back a percentage of your expenses, up to $3,000 for a single child (or $6,000 for two or more children), when you file your taxes.
Here's some more good news: These credits aren't mutually exclusive. You can claim both the Child Tax Credit and the Child and Dependent Care Credit if you qualify for both. Additionally, you can take advantage of tax-saving opportunities by allocating pre-tax dollars to a healthcare flexible spending account. For 2016, the limit is $2,550.
If you're expecting a baby come 2016, then you can bet on a number of things: runaway expenses, sleepless nights, and more loads of laundry than you ever imagined. On the plus side, you can also count on experiencing a type of love more intense than you've ever thought possible. Having a baby takes work, but the reward is so worthwhile you may find yourself wondering why you didn't do it sooner.