One thing most new mums will attest to this coming Mother’s Day is that the cost of taking on motherhood was probably far more painful than the delivery if they weren’t prepared financially.
After starting our family nine years ago, I know first-hand how daunting it can be to adapt to the big financial changes which go hand in hand with welcoming a new baby into your life.
Suddenly you go from having a disposable income after all the living costs to buy new clothes, eat out and travel, to having your combined income diminished, an extra little mouth to feed, a nursery to fit out and increasing household costs. Not only does your weekly grocery bill skyrocket with nappies, food and other baby essentials, but we also felt the jolt of rising power bills simply because we were at home more. Weighing up all these new costs with a mortgage or the rent with paid annual and parental leave entitlements and other Government benefits can be a balancing act.
Starting a family is therefore one of the most common life changes which prompts people to come through our doors for help with managing their money. The best advice we were ever given from our financial adviser – and what we say to others today – is to get your finances in order well before the baby arrives while you are still working and you’re not stressed and sleep deprived.
Without alarming you, an AMP.NATSEM Cost of Kids report found that children don’t get any cheaper as they get older. By the time they are 18, two kids will set you back $812,000 if you’re a family on a middle income, and more likely over $1 million if you’re a higher income earning family and opt to go down the private school path*.
But we all know becoming a mum is a labour of love, so don’t panic about the costs. Take some deep breaths and importantly have the ‘money talk’ with your partner so you can start to develop a plan of attack. Here’s some tips to consider:
Set up a budget
Right from the start, a newborn can really rock your household budget as at least one parent usually has to have some time off work in the first year. You’ll therefore need to balance your revised household income with expenses. Factor in your household income before and after your baby is born and consider your paid parental leave entitlements, living expenses (including loan repayments or rent), upfront costs for baby equipment and furniture, medical costs if opting for a private hospital and child care.
Save, save, save
The AMP.NATSEM Cost of Kids report estimated that families spend an average of $144 a week on a child under five. But with a budget in place you’ll get a grip of the costs you’ll need to cover. Most people find their social life is curtailed both before and after the baby arrives, so the more you can save in the months leading up to the baby, the better prepared you’ll feel and the more relaxed you’ll be. Also take advantage of any annual leave you’re entitled to after having the baby – set aside some of this spare money every week and pay it straight into a savings account. If you have a mortgage you can also stash extra money in an offset account which you can access later if needed, and you’ll save on interest repayments as well.
Sign up for parental leave
The Federal Government’s parent paid parental leave (PPL) provides one parent with the national minimum wage for up to 18 weeks after your child is born, providing you’re not working at that time and meet certain eligibility criteria. The earlier you sign up for it the better, as the paperwork can take a while to process. Your employer might also offer paid parental leave, but be aware, there is legislation currently before parliament that, if passed, will stop parents from what they call ‘double dipping’ – that is, being able to access the government payment if they receive PPL from their employer.
Pay off bad debt
Before baby arrives is the time to make headway into reducing any credit card debts you might have. You don’t want to reeling from credit card bills you can’t pay off once the baby comes along, and the worst thing you can do is to throw money away on high interest repayments. Think about consolidating credit cards and perhaps switching to one with lower interest. You may need to keep one credit card for emergencies, but ditch the rest and change to a debit card instead.
Consider childcare
Start early with your research into childcare – after all it’s going to be the biggest cost your likely to face in your child’s first five years if you’re planning to return to work. There are lots of options out there, but finding one that you like, can take your baby on the days you want and is in a convenient location to home or your workplace isn’t easy. Sign up for a few childcare centres – some will even allow you do this before your baby is born. The Government’s mychild.gov.au online portal has a database of all centres in your area, as well information on vacancies and fees. You might also be eligible for the childcare rebate, which is not income tested, and other government payments such as Family Tax Benefit. To find out more, look at the Department of Human Services website.
Review your insurances
Life insurance, Total and Permanent Disability Insurance (TPD), Income Protection and Trauma Cover are more important than ever once you have a baby who is going to be dependent on your income until they reach adulthood. Hopefully you’ll never have to use them, but they will help to take money worries away if the unexpected happens. Also reassess your private health cover so that you will be covered adequately as a family.
Spend less
For most of us, having a baby also means compromising on your personal spending. Once your baby is born, try to evaluate what your spending your money on each month and aim to find ways to cut back.
Becoming a mum is a big change, so it’s important to seek professional financial help in managing your money if you need to.
Jenny Cattach of Cattach & Cattach is an Authorised Representative of AMP Financial Planning Pty Ltd, ABN 89 051 208 327, AFS Licence No. 232706. Any advice given is general only and has not taken into account your objectives, financial situation or needs. Because of this, before acting on any advice, you should consult a financial planner to consider how appropriate the advice is to your objectives, financial situation and needs.