Follow these tips to baby-proof your budget.
Having a baby isn’t a financial decision—but your finances will be affected. Fitting out a nursery can cost around $2,000. Nappies may run between $30 and $85 per month. That’s already around $3,000 in just the first year—not including the formula, clothes, toys, and big-ticket items like child care or time away from work that will also be needed.
It will cost the average middle income family an astounding $812,043 to raise two children from birth until they finish their education, according to the most recent NATSEM report from 2012. Food and transport take up a large portion of that amount, according to the report—in addition to housing, recreation, and clothing. And then there are costs that aren’t directly related to children but come into play once your family starts growing—like the increased life and disability insurance coverage you may want to consider.
Getting on top of your finances ahead of time means that you can spend quality time with your newborn without having to worry about money. Here are 6 money-smart moves to tick off before your baby arrives:
Step 1: Review your health insurance
There is a huge amount of variability in the costs of medical care associated with pregnancy and childbirth. Your out of-pocket medical costs could range from $0 to thousands of dollars—your insurance coverage will be the biggest determining factor.
You need to determine whether your health insurance provider includes pregnancy/obstetrics cover. There is generally a 12-month waiting period when adding this benefit to your cover, so it’s important to update this early on. This is particularly important if you want to choose your own obstetrician, you are planning on having your baby in a private hospital or wish to use reproductive services such as IVF.
Step 2: What are your entitlements?
By law, employees are entitled to 12 months of unpaid parental leave when a child is born or adopted provided that they have worked for their employer for at least 12 months or they will have responsibility for the care of the child. It’s important to check well in advance whether your employer offers paid parental leave as well as what other benefits may be available to you, so you know how to budget.
Parental leave is a vital benefit—whether it’s paid or unpaid—but you may have other helpful benefits to take advantage of. You or your partner may be eligible for one or more government payments. These include parental leave pay, dad and partner pay and the family tax benefit.
Under the paid parental leave scheme, the primary carer of the child may receive up to 18 weeks of pay at the national minimum wage rate. You can start being paid this benefit from the birth of the child so make sure to look into whether you are eligible before the baby arrives.
Finally, look into the life and disability insurance coverage that may be offered by your employer. Find out important deadlines for purchasing increased coverage so you can plan ahead.
Step 3: Pay down your debt and save for an emergency
Getting out of high-interest debt (like unpaid credit card balances) is a healthy battle to fight at any point in your life, but particularly before starting a family. Once you begin adding to your family, finding the extra money to pay off debt and save may not be as easy as it was pre-baby.
Take the time before a baby arrives to pay down credit cards.
It’s also important to consider preparing for the unexpected by funnelling 5% of your take-home pay into an emergency fund. We suggest aiming to save an amount equal to 3 to 6 months’ worth of expenses in your emergency fund.
Step 4: Redo your budget
With the arrival of your new bundle of joy, life as you know it will probably never be the same again. The same goes for your budget. It’s time to review and redo your budget, as baby expenses will now take up a large portion of your spending. Do your research and understand how much baby items really cost. From food to nappies, it’s probably more expensive than you think. You should also make a shopping list of everything you need once the baby arrives. From there, once you have an estimate, figure out how you can scale back your budget. Obvious areas to cut back on are entertainment and dining out.
Step 5: Determine child care costs
The cost of child care is notoriously expensive in Australia and can eat up a sizable portion of a family’s monthly budget. According to CareforKids.com.au, the cost of child care in 2018 ranges from approximately $70 - $192 per day. This can act as a significant disincentive for the secondary income-earner of a couple to work.
If both you and your partner currently work outside the home, talk about how that might change. Will one person stay home? If not, run the numbers on child care costs in your area. For some people, given the cost of child care and commuting, it may actually be cheaper to have one parent stay at home. It all depends on the cost of child care in your area, your cost of living, and your income.
If you do choose child care, the government may offer help. There is the Child care Benefit and Child Care Rebate available. Furthermore, the Child Care Rebate is not income tested. The annual limit for 2017-18 is $7,613 per child. These packages are being replaced from 2 July 2018 by the Child Care Subsidy. To estimate your potential benefit, you can head to the Government’s Education (link to: https://www.education.gov.au/new-child-care-package-transition-families) website.
Step 6: Shop wisely for baby items
Lastly, there are so many cute baby items on the market that you’ll probably end up spending a fortune on. Try to prevent that from happening. Yes, you’ll want to spoil your baby and that’s totally fine, but keep in mind that babies grow into toddlers very quickly. That also means they’ll quickly grow out of those expensive clothes and toys you bought. There are a few items worth the cost, but learn to shop wisely for baby items and spend where it makes the most sense.
You can do it!
Don’t fret if you’re only able to begin planning once you find out that a baby is on the way. There’s always time to improve your finances from where they are today. Making smart spending and saving choices now can help put you and your new family on the path to success.
Take the next step
Your finances will change drastically with a baby on the way, but you’ll be able to worry less and spend more quality time with the little one with the right planning and prepping.