Financially preparing for a family involves more than budgeting for nappies. Ensure you’re family-ready with these tips from money expert Irit Harris of F-Empowered.
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 from my experience, 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’ latest estimates of the costs of raising children in Australia show that “costs have risen substantially over the last two decades,” and, at a minimum, parents are outlaying $7,280 per child per year1. This is often compounded by:
- Loss of income for one parent (typically the mum) for a period of time from around the birth of the baby.
- Either higher costs (nannies, childcare) and/or lower income (due to one parent returning to work part-time) for some years following.
- If this wasn’t enough, due to loss of/lower income, a parent’s superannuation may take a hit—which has led to Australian women retiring on around half the superannuation as men2.
If you are a single mum, you are a bloody hero. Seriously!
Despite all this, I really do think that having kids is ‘the best thing in the world’ and so must a huge number of Australians, with over 300,000 babies born in Australia every year3. 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 for advice specific to your circumstances.)
Before having a baby
Tip #1 — Talk to your partner about money!
Have a conversation with your partner about money. Money is intrinsically linked to one’s values. It is super helpful, particularly once you have kids, to be on the same page with your partner when it comes to money. Start by asking each other some important questions, as recommended in her article, Love and finances: Questions you should ask your partner about money by Emily Stewart for ABC’s The Pineapple Project.
Beyond the above questions, you may also want to ask the following questions specific to starting a family:
- Who will take time off work and how much time will we take?
- Is the parent who will continue to work willing to contribute to the superannuation of the other parent?
- Will we send our children to private or public school?
Tip #2 — Save up for the baby and parental leave
Start saving when you start planning a family. The amount you need will depend on how much time you’re planning to take off work, and whether you have a partner who could supplement your lost income. Some financial advisors recommend saving at least $10,000 in a high interest earning savings account. The longer you choose to take off work, the higher this figure may be. The key is to open and start contributing to the account early and often to allow the compound interest to really work for you. If possible, before you start your pregnancy vitamins open a savings account!
To help you compare interest rates on savings accounts, I recommend using this savings account comparison at finder.com.au (look for no fees and high interest).
Tip #3 — Know your post-baby budget
It is always good to have an idea of what your post-baby budget will look like, with adjusted income (normally down) and often new expenses.
From an income perspective, it is worthwhile to check what entitlements you are eligible to receive from Centrelink, with Parental Leave Pay currently at $740.60 per week before tax for up to 18 weeks (means tested) and Partner Pay claimable for up to two weeks. Down the track, you may also want to investigate the new Child Care Subsidy.
I’m a big believer in working out your life goals first (and their costs). Deduct the anticipated costs from your adjusted income, and then determine additional expenses from what you have left. When it comes to spending, focus on the essentials, and also on what makes you happy!
Taking a look at baby expenses, like many new parents I assumed babies required lots of expensive equipment and gadgets. But having learnt from my first child, there are only a few big ticket items you absolutely need on day one, such as a safe place for the baby to sleep and a way to transport your baby (car seat and pram). You can buy everything else as you need it, and you don’t have to purchase new. Try eBay or look out for amazing Facebook pages on which parents sell their often rarely used, great quality, second hand baby goods at bargain prices. And remember, you’ll also receive gifts!
What’s more, it’s a good idea not to register for AND to unsubscribe from any online shopping emails. When your baby is born, you may find yourself looking at your phone more than usual, and online shopping can be a money vacuum—do what you can to reduce the risk!
After your baby is born
Tip #4 — If you take parental leave, get your partner to contribute to your superannuation
Possibly, the main reason women retire on half as much superannuation as men is because of the time they take off work to have and care for their kids, often followed by part-time working for many years. This is obviously compounded by the gender pay gap.
So, if you have a partner, it is worthwhile to chat about contributing to your superannuation from his or her income whilst you’re on parental leave (See: Tip #1), if this is possible.
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. Go to the Australian Taxation Office (ATO) for the rules on the superannuation spouse contribution tax offset.”4 This means that if your spouse puts money into your superannuation fund while you’re on parental leave, he or she could get a tax offset up to $540. Win-win! Terms and conditions do apply, so refer to the ATO link above for more information and/or talk to your financial expert.
Tip #5 — Make saving a habit
When you have kids you’ll always be saving for something: a family holiday, childcare costs, emergency fund…or 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 potentially buy a car with that money. It’s saving without the effort, for something important we are likely to need in the future. We do the same for school fees. We have set up separate accounts named after each goal. We automatically transfer money regularly so we don’t even have to think about saving, and have our money working for us.
So, there you have it, five ways to financially prepare for becoming a parent. If you have any other tips or tricks, we’d love to hear from you! Email us at email@example.com.
Written by Irit Harris. Irit is founder of F-Empowered, a platform to empower women to make decisions about how to manage their money.
Aside from being an infinite learner (over 10 years in banking, MBA, Diploma of Finance, accreditation to give general advice on banking and insurance products), Irit is a mum to two beautiful kids, wife to the incredibly supportive Josh, and lover of travel, yoga and jogging. Check out F-Empowered and follow Irit on Facebook and Instagram.
1 AIFS (2018), P. Saunders and M. Bedford, New estimates of the costs of children
2 ASU National (2017), D Hetherington & W Smith, Not So Super, For Women
3 Australian Bureau of Statistics
4 ASIC’s MoneySmart Super Contributions