Prepping your bank for parenthood
Having children is wonderful, but it can be challenging financially. Here are some ways to prepare.
By Tilly Money
If you’re contemplating having a baby, it makes sense to also think about how much these little bundles cost. If you already have children and maybe planning another, you’ll have a few clues but there’s nothing like picking up more money management or money saving tips. Now’s the perfect time to work out your current financial situation and what it will be when your baby arrives.
Having your first child is a wonderful experience, made even better if you look at the costs of having a baby and prepare for these.
The latest estimates of the costs of raising children undertaken by the Australian Institute of Family Studies’ (AIFS) shows that costs have risen substantially over the last two decades due to changing community expectations of what children need to live a healthy life. This ‘study’ was done in 2018 but it takes time to undertake work like this so none of the information that the AIFS looked at would have taken into account the challenges that most people have faced since March 2020 and COVID-19.
The study naturally revealed that the most expensive items were childcare, housing costs, food, household goods and services. Other shared costs include additional energy bills required to keep a home warm and costs associated with getting kids to school and after-school activities.
The AIFS data showed that parents are outlaying $7,280 per child per year, as a minimum. That’s quite a chunk of ‘after tax’ dollars to have on hand to meet the needs of your precious family addition! That’s why it’s important to start financially preparing yourself now.
Being a new parent is such an amazing experience that you can often go a little berserk buying everything you ‘think’ you’re going to need. You often come to learn later that you didn’t use a lot of things. Costs add up when you consider how many initial, upfront costs there are to having a child – the extra furniture like a bassinet, car seat and the clothes for your first child in particular. Quite often family and friends give you gifts that cover things like baby clothes, prams, high chairs etc. If you have friends or family who had babies before you, they’re often so happy to give you a loan of items like these. You can buy lots of things your baby needs second-hand from op shops, on eBay or Gumtree. If you go on to have more than one child, the cost of a second baby decreases because you’ve already bought things like this — that’s a good thing!
- Do you have private health insurance?
It’s a good idea to decide whether you’re going to have your baby in a public or private hospital. If you’re thinking private, check if your health insurance covers your pregnancy and birth-related costs in a private hospital because there can be a waiting period of 12 months before you can claim on pregnancy and birth-related costs.
It’s also worth looking into family health insurance policies because as soon as the baby arrives, she/he will need to be covered as well. Many single and couple policies that include pregnancy may automatically cover your baby for up to two months after birth, but then the baby will need to be covered under a family policy.
- Before your baby arrives, do these 11 things:
It’s time to check where you can cut back your expenses:
- Call your phone and internet supplier and go for the best deal.
- Take a look at your car insurance/home insurance/life insurance. Could you get cheaper? When you start having people who depend on you, life insurance could be something worth considering.
- If you own a home, are you paying the lowest interest rate possible? Have you had advice about whether you should lock in a fixed rate of interest? With interest rates so low, it could be the time to do this.
- Rid yourself of as much debt as possible.
- As mentioned above, understand your health insurance. Are you getting the best deal? Have you adjusted for family rates? And do you want private cover during your pregnancy?
- Plan for maternity/paternity leave. While you might be paid, how long will that be?
- Draft a pre and post baby budget. We’ll give you templates and tips on how to do this in our next article
- Open a baby bank account. You could go trustee. And deposit regular amounts that you can either use for your child’s future or as an emergency fund.
- What about schools? Will you choose public or private? It’s early days but most private schools have a waiting list so your child needs to be booked in early.
- Check any government entitlements you’re eligible to receive from Centrelink e.g. Parental Leave Pay and Partner Pay. Down the track, you may also want to investigate any child care subsidies.
- Look at education plans for your ‘future’ kids or even insurance bonds. This means you put money away for say 10 years that you can’t touch until your child gets to high school.
- Talk to your partner about money!
It can be really hard to talk to anyone about money, but if you’re about to raise a child with someone, you need to take the bull by the horns and raise this topic.
Here are 7 questions to think about and then ask your partner:
1. Who’ll take time off work during the first years of our baby’s life? And how much time?
2. If I’m going to take time off, will you contribute to my super so I don’t lose those valuable years of accumulating money into super? (Many women retire on half as much super as men because of time off work to have and care for their kids, often followed by part-time working for many years. ASIC’s MoneySmart website 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 superannuation fund. To learn more about this, take a look at the Australian Taxation Office (ATO)’s website for the rules on the superannuation Spouse Contribution Tax Offset. It’s worth reading what this is all about.
3. Will you do a budget with me so we can work out the expenses we’re up for over the next few years. Even if we only cover the first 12 months, I feel it would be great to have this potential financial ‘stress’ covered.
4. What schools do you prefer, public or private? Can we look at the pros and cons of each?
5. Should we buy a house before having a baby?
6. We have a home with a mortgage, should we lock in our interest rate for 1, 3 or 5 years?
7. Will you work out a savings plan with me, that also looks at things like insurance bonds that may help us pay expenses like education for our child down the track?
Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regard to your circumstances.