Family finances overview

A new baby can drastically alter your family's financial status. Suddenly, you may be living on a lower income — if one spouse works less or not at all — and have more expenses, including costly baby gear and possibly childcare. Here are a few things to consider:

Do we need life insurance?
Yes, but it's not as hard or as complicated as you might fear. Life insurance isn't cheap, but the right policy does buy you priceless peace of mind and a guarantee that your family will be cared for financially — up to and including college costs. Your two main choices are whole life and term insurance. Term may make the most sense for a growing family, but both have their advantages. Here's what you need to know.

Do we need disability insurance?
Consider this: Between the ages of 35 and 65 — your prime earning years — you're more likely to experience a disabling incident that leaves you unable to work than you are to die. Having disability insurance means that you'll receive a portion of your accustomed salary even if you can't work — and long after worker's compensation or an employer's plan benefits expire. Here's what to consider when choosing a plan.

Do we really need a will?
Absolutely. If you don't have one, you'll leave the fate of your child's guardianship and your assets in the court's hands. Steel yourself to plot out what you would want to happen if you and your spouse should die. Our guide will help with this emotionally difficult task.

How will baby's arrival affect our tax status?
You can claim a new dependent on your income tax form. (It's best to get your baby a Social Security as soon as possible after birth.) What's more, you'll be eligible for a child credit ($600 in 2003), and possibly a childcare credit.

For more help, see the BabyCenter Family Tax Guide

Will my health insurance needs change?
You'll need to add your baby to your employer's health insurance, if you're insured through work. Most health insurance companies have special rules and policies for babies. Ask your carrier to send you specific details on which of your baby's medical expenses they'll cover and which ones they won't.

Can we afford childcare?
Childcare can be very expensive. Shop around and consider the costs of different types of care — centers, home providers, and nannies are the big three. But money isn't the only issue. You'll need to weigh financial costs against your daycare needs and philosophy before deciding whether you can afford it.

Many families find the expense of childcare and the time away from their children isn't worth it. The only way to know for sure is to look long and hard at your family's income and expenses and weigh them against the average cost of childcare in your area. As you consider your expenses, think about savings you might enjoy by not going to work — such as lunches, commuting costs, dry cleaning, etc.

Get more help deciding whether you can afford to stay home.

How will we afford a child?
Children are expensive, but most families find a way to make their finances work. One plus: as a new parent you'll be spending more time at home and that can cut your expenses considerably. For more information, see:

• Nine easy ways to start saving

• Painless ways to reduce your credit card bills

• Ten ways to trim the fat from your food bills

• The BabyCenter Cost of Raising a Child Calculator to find exactly how much children cost (warning: the numbers can be frightening)