Wealth

Having a baby? Here's how to manage your changing income

Discover how to adjust your financial situation when that little bundle of joy arrives.

Falling pregnant is a truly exciting – and daunting – time. One way to feel more in control when you are having a baby is to get on top of your finances early on, even before you fall pregnant. How? By having a financial plan.

“Begin to make financial plans when you start planning to have a baby,” recommends Russell Kapeechkin, Senior Financial Adviser at Australian Unity. “The sooner you can prepare for and adjust to your new circumstances the better. It’s a huge change, so try to avoid leaving everything to the last minute. That said, everyone’s circumstances are unique. So, the right course of action will depend on your personal situation.”

Surprises can happen, of course, but if you’re planning on becoming a parent, or are already pregnant, here are some things to consider.

The baby budget

Every parent will admit that babies change everything. One of the biggest changes is financial, particularly if you or your partner are taking time off work when the baby arrives.

Baby-proofing your budget is a sensible step towards planning for and saving towards the arrival of your baby.

“Put together a baby budget to understand where your money goes, how much you have coming in and what you've got left over. Talk to your family and friends who have been through this process to get an indication of costs,” says Russell.

If you have a partner who is also working, another option is to get used to living on one income before baby arrives, and funnel the remaining income into savings or getting ahead on debt. This can be great practise as it highlights any discretionary cuts you can make.

Some of the variables you will need to consider when planning your budget include:

  • Whether you want to have a baby in a private or public hospital.
  • The length of your parental leave and any compensation your employer might give you during this period.
  • Any government benefits to which you’re entitled. 

Moneysmart, which includes calculators and tools, is a good resource when you’re working out your baby budget. 

Get money-saving savvy

It’s likely you’ll need to live on one income for a period of time. This may mean reducing your expenses for a while to ensure you’re still living within your means.

It's not about doing without all your favourite things – rather, prioritise the luxuries you have to have. “Just consider whether you really need to buy an $8 loaf of bread or have takeaway for the third time that week.” says Russell.  “The idea is to have savings and spending goals and to stick to them,”

If you’re new to budgeting, and planning for a family has been the impetus for you to make changes financially, here are a handful really easy ways to save money:

  • Buy in food in bulk to get discounts, or meal plan.
  • Shop around for deals from your energy and telco providers.
  • Identify unnecessary expenses you don’t use, such as subscriptions, and cancel them or revert to the free option if there is one.
  • Borrow books from the library rather than buy them.
  • Shop at thrift shops or second-hand sites for clothes. You’ll find lots of pregnancy and baby clothes if you look around, many unworn.

Russell says there can be a tendency to splurge when you find out you’re having a baby. But there is actually very little you need when your baby is small. A crib or cot, nappies and wipes, car seat, pram, and baby clothes and wraps covers most of the basics.

One of the simplest money-saving tips? “Try not to spend beyond your means. If you don't have the cash to buy something, don't buy it,” recommends Russell.

A financial health check

Planning for a family is a good time to take stock financially, and you might find a financial health check is in order too.

If you don’t already have one, now is the time to build an emergency fund so you have a financial buffer to cover expenses if the unexpected were to occur. Three to six months of expenses is usually enough for most people.

Having adequate insurance is a key consideration, since you’ll be adding another person to the family. Review your health insurance cover and, if you plan on going private, make sure it covers having a baby and that you’ve met the waiting times before you fall pregnant.

It’s also essential to review your risk insurance policies – like life, total and permanent disablement and income protection – so your family is covered in the event that you can’t work due to accident or illness.

“Also consider your childcare options. Many people go back to work after six or 12 months, at least part-time, and you may need to budget for the cost of childcare from this point, taking into consideration any government incentives for which you qualify,” says Russell.

“It’s also timely to review how you have structured your mortgage and your repayments. Some people will choose to reduce their repayments when they go down to one salary to help them manage through that period.”

Lastly, don’t forget your super. If you can afford it, you may want to top up the stay-at-home parent’s contributions to cover any time they spend out of the workforce.

Having a baby is the start of an exciting journey. But if you’re facing a drop in income, it’s also an important time to be sensible about how you spend money – both before and after the birth. A bit of strategic planning when you fall pregnant can mean you can be confident about managing your money and spend more time focusing on your little one.

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