Five tips to financially prepare for having a baby (and becoming a parent)
Having a baby is expensive. Trust me, I’ve had two.
I wish I could say that it gets easier as they get older, but with a five year old and a one year old in my house, their needs and therefore costs do rise.
The Australian Institute of Family Studies estimates that a first child costs between $3,000 and $13,000 in the first year alone and this is often compounded by
- A loss of income from one parent (typically the mum) for a period of time when the baby is born
- Either higher costs (nannies, childcare) and/or lower income (due to one partner going back to work part time) for some years following
- If this were not enough, due to loss/lower income, super takes a hit which has led to women retiring on around half the super as men.
If you are a single mum, you are a bloody hero. Seriously.
Despite all this, I really do think that kids are the best things in the world and so must a huge number of Australians with over 300,000 babies born in Australia every year (estimated by the Australian Bureau of Statistics).
So how can you prepare for the best thing in the world without the financial burden (note below is general advice and factual information only, contact a financial advisor if you want advice specific to your circumstances):
Before having a baby:
1. Talk to your partner about money!
Have a conversation with your partner about money. Money is intrinsically linked to one’s values and its super helpful, particularly once you have kids to be on the same page when it comes to money.
Beyond these questions you can ask your partner - you may want to ask:
- Amount of time off work and who?
- Will the other spouse contribute to super?
- Private or public school?
2. Save up for the baby and parental leave
Start saving when you start your planning. The amount you need will depend on how much time you’re planning on taking off work and if you have a partner who could supplement your lost income.
Some financial advisors recommend to save up at least $10,000 in a high interest earning savings account. The longer you choose to take off work, the higher the number may be.
The key is to open and start contributing to the account early & often to allow the compound interest to really work for you. If possible, before you start your pregnancy vitamins, open a savings account!
Here is a link I use to compare interest rates on savings accounts (I look at no fees and high interest).
3. Know your post baby budget
I’m a big believer in working out your life goals first (and their costs), deduct income and what you’re left with you can work with for expenses. When it comes to spending, focus on what makes you happy!
So it’s always good to have a view on what your post-baby budget looks like, with adjusted income (normally down) and often new expenses.
From an income perspective, it is worthwhile to check what you are eligible for from Centrelink with parental leave pay at $719.35 per week before tax for up to 18 weeks (means tested) and Partner Pay for up to two weeks.
Later down the track, you will also want to investigate the new Child Care Subsidy.
For baby expenses, I really thought little things require so much stuff. In learning from my first, I found that there are only a few things you absolutely need day one - like a place for the baby to sleep and a way to transport your baby (car and pram) - and the rest you can buy as you need. There are also amazing Facebook pages where people sell their great quality stuff second hand… And remember you’ll get gifts!
Also, do not register for AND unsubscribe from any online shopping emails. When your baby is born you will be looking at your phone allot and online shopping is a money vacuum.
After the baby is born
4. If you take parental leave, get your partner to contribute to your super
Possibly the main reason women retire on half as much as men is because of the time they take off work to have kids and then often part-time working for many years. This is obviously compounded by the pay gap.
So if you have a partner, it is worthwhile to chat about them contributing to your super whilst you’re on parental leave (Tip #1). If this is possible.
ASIC MoneySmart states “If your spouse earns a low or no income, you may be able to claim a tax offset of up to $540 if you make contributions to your spouse's complying super fund. Go to the Australian Taxation Office (ATO) for the rules on the superannuation spouse contribution tax offset.”
This means that if your spouse puts money into your super fund while you’re on parental leave, they could get up to $540 tax offset. Win-win!
There are terms and conditions that apply - so go here for more information and/or talk to your financial expert.
5. Make saving a habit
When you have kids you’ll always be saving for something. A family holiday, childcare costs… emergency fund. All three.
In our family we are constantly saving towards a goal. We think about what we want to achieve with our money first and let our money help us work towards it.
For example, we have savings accounts listed in our kids names and every week we automatically transfer money from our pay into their accounts. One day they could buy a car with that money. It’s saving without the effort for something important you will need in the future. We do the same for school fees.
These are separate accounts named with the goals. We automatically transfer money every week or month so we don’t even have to think about saving and we have our money working for us.\
So there you have it five ways to financially prepare for becoming a parent… I’d love to hear from you! What else have you done??