Another boon from the government is the flexible spending plan, offered by many large employers. It allows you to use pretax dollars to pay for medical and child-care expenses. The maximum annual set-aside for child care is $5,000; corporations set their own limits for medical care. The child-care costs are easy to estimate, but Paul Fronstin, senior research associate at the Employee Benefit Research Institute, suggests that parents refrain from boosting their set-aside for medical expenses when a baby arrives. Costs for a healthy baby are low, and any money you fail to spend will have to be forfeited at the end of the year.

Safety Pinnings

More important than all the equipment parents buy are the financial underpinnings the family needs to buttress baby's security: health insurance, life insurance for each parent, and savings for the child's education. You may already have such items in place, but you may have to re-juggle them so that they work for an expanded family.

Rethink your health plan. When you have the opportunity, you may want to switch to a health maintenance organization or a preferred provider organization that covers all well-baby care. You should add a new child to the plan within 30 days of birth or risk losing coverage until the next open enrollment period.

Make sure you have enough life insurance. Estimate your family's expenses should either parent suddenly die, then subtract the assets you have. The gap is the amount of life insurance you need. Renewable term-life policies offer the best values for young families.

Start saving for college. Set up a custodial account and invest all cash gifts you receive for it in a low-cost stock-index fund that mirrors the market's performance. Let relatives and friends know you'd prefer a donation to the fund rather than U.S. Savings Bonds, which generate lower returns. Or you can establish a so-called 529 plan which allows funds you contribute to earn interest tax-free. Just make sure that you buy directly from the state where you reside and avoid using brokers who will pile on extra fees and commissions.