By Abby Schultz
Having a baby cancost a bundle. Even before setting foot in the hospital, you've shelled out for baby furniture, a car seat, and packs of diapersBut the buying spree has only just begun. Don't get discouraged. Startout right with these tips, which will help you stay on top of your spending,determine which expenditures are important, and even help you save a few bucks during this financially challenging first year.
1. TAP EVERY TAX DEDUCTION. The tax code provides relief for new parents, so be sure to take advantage of it. First, reduce your adjusted gross income by $2,750 if your household income is up to $189,950. If it's up to $110,000, you also get a federal tax credit of $500 per child. Second, take advantage of flexible spending or dependent-care accounts offered by your employer if both parents work (and file jointly). These programs let you set aside up to $5,000 a year in pretax dollars tax-free for childcare. Working couples who don't have access to a dependent-care account should instead take advantage of the child and dependent-care tax credit, good lor up to $480 off your tax bill for one child and up to $960 for two or more kids.
Action Tip: Microsoft's new TaxSaver Federal Deluxe software program ($45, http:\\taxsaver.msn.com) walks you through a questionnaire, making sure you don't miss any deductions and credits. Also, keep up-to-date onthe latest tax changes by going to the IRS.
2. CUT YOUR LONG-DISTANCE BILL. When you're at home with a newbaby, you'll be on the phone constantly with your mom or best friend askingfor tips on everything from diapering to colic. If the calls are long distance and add up to more than 30 minutes a month, find a good calling plan, says K. C. Choi of the Telecommunications Research and Action Center (TRAC), a nonprofit Washington, DC, consumer advocacy group. In your research, look beyond five-cents-a-minute rates and consider monthly fees and minimum charges. If you make mostly local calls, says Choi, consider using a dial-around long distance company (10-10 numbers) or a calling card For long-distance calls.
Action Tip: Get TRAC's TeleTips Residential Long Distance Comparison Chart. Send, a self-addressed, stamped envelope (55 cents) and $5 to TRAC,Box 27279, Washington, DC, 20005. For tips on how to research calling plans,go to www.trac.org.
3. BUY LEVEL-TERM LIFE INSURANCE. Yes, paying for life insurancemeans more money out of your pocket at a time when you're counting every penny, but its an expenditure that's extremely important now that you have a child. Even non-working spouses should take out a policy that will cover basic childcare expenses in case of death, says Jill Gianola, CFP, a financial planner in Columbus, Ohio. Go for level-term insurance, which locks in a premium payment for a pecified number of years and is far cheaper than other kinds, such as variable life. Gianola recommends a policy with alevel term of 20 to 25 years to cover your child's expenses from birth through college. To determine how much coverage you need, multiply your income by seven.
Action Tip: Go to www.quickquote.com or www.quotesmith.com, fill out a simple questionnaire, and within minutes you'll receive a list of insurance carriers and a policy estimate. Select a carrier and apply on-line. You can also call QuickQuote at 877-432-4440 or Quotesmith at 800-431-1147.
4. COMPARISON SHOP USING THE NET. Sure, you want to get the best price for a new baby back pack or a spring layette. But what new parent has the time to shop around? Enter the Internet. If you want a particular jogging stroller, for example, several sites can guide you to the lowest price at various on-line stores, sometimes with added information on product availability or shipping costs, says Seema Williams consumer e-commerce analyst at Forrester Research in Cambridge, Massachusetts. Action Tip: Compare product prices at wwwdealtime.com (go to the "Babies & Kids"section) or www.mySimon.com ("Family, Health & Beauty" section).
5. START SAVING FOR COLLEGE. Putting small amounts of money away now for college will save you bigger bucks later on. If you invest $25 a month in a stock mutual fund with a total return of 11% a year, you'll have savings of about $16,000 before taxes when your child turns 18, says Scott Kays, CFP, a financial adviser in Atlanta. Save on taxes by opening a custodial account in your baby's name under the Uniform Gifts to MinorsAct or the Uniform Transfers to Minors Act. This method of investing can save as much as $450 a year in taxes if you are in the 39.6% tax bracket and your child is under 14 and has earned less than $1,400 in annual gains. Also look at state-sponsored savings plans and prepaid tuition plans; federal taxes are deferred on gains in these accounts, then levied at your child's rate, often 15%, on withdrawal.
Action Tip: Use the college saving calculators offered a www.fidelity.com or www.troweprice.com to figure out your future costs. For more information on state-sponsored plans, go to www.collegesavings.org or call 877-277-6496.
6. GET A DEAL ON PHOTO DEVELOPING. Your new baby will inspireyou to shoot roll after roll, and film costs add up quickly. Keep themunder control by buying film in hulk and having it developed at warehousestores such us Costco. Or process film through a mail-order photo lab.Just send in a roll using a postage-paid mailer and you'll receive yourprints within a week to ten days.
Action Tip: At Costco, over night processing of 36 exposures into 4-by-6 prints on Kodak paper costs $4 (double prints are $6). A good mail-order source is York Photo, which charges $6.30 to develop 28 to 36 exposures into 4-by-6 prints (doubles, $8.40). Shipping and handling is 90 cents per roll. Click on ww.yorkphoto. com or call 304-424-9675.
Abby Schultz is a Montclair, New Jersey freelance writer and mother of two.