Having a baby is one of the most exciting and scary times in your life. Getting on top of your finances can help alleviate some of the pressure, so that you can enjoy your time with your newborn.
On average, if you are an expectant mum, you will be aged 30.7 years. If you are an expectant dad, you will be aged 33.* You are roughly twice more likely to be married than not and you will likely end up with more than one child.**
The National Centre for Social and Economic Modelling (NATSEM) has calculated the cost of raising two children between the ages of 0 and 4, for middle income families to be $133 per week (or $6,916 per year). This cost rises as your children grow older. NATSEM estimates the cost for middle income earners of raising two children rises to $228 for children between the age of 10 and 14 and $678 per week for children between 18 and 24^.
Where does all the money go?
The table below illustrates the cost of two children, from birth until they finish their education, in 2011-12 dollars.
Of course, these figures are illustrative and your family is bound to be different. However, there are some common financial issues you will share with the other 300,000 families expecting a baby over the coming year and some ideas on how to manage these are outlined below.
1. Reduced income, increased expenses
Money will be tight for the first few years as you adjust to one of you not working and taking on extra expenses such as nappies, baby food, and childcare.
Prepare a budget, listing all your income and expenses and use this to prioritise “nice to have” items such as a bigger car or a family holiday.
Do a cost/benefit analysis including childcare costs and potential government benefits of one parent being a full-time carer vs both of you working full-time vs one of you working part-time.
Before your family income reduces, you may wish to consider re-financing your mortgage to alleviate any cash flow stresses.
2. Save early and save consistently
Set yourself realistic savings goals (for example a $5,000 baby nursery fund, a $10,000 education fund) or percentage of salary to save (e.g. 20% of after tax salary). Generally, the earlier you start to save, especially while you are still working, the better the financial outcome.
3. Make the most of government assistance
Find out as much as you can about various government benefits and entitlements such as the Newborn Supplement, Family Tax Benefit Parts A and B, Child Care Benefit, Child Care Rebate and Paid Parental leave. You may be eligible for more than one of the payments.
4. Invest smart
Parenting can have its financial advantages. Talk to your financial adviser about investing in assets in the nonworking parent’s name and spouse super contributions to attract any tax offsets that may be available to you.
5. Protect your family against the worst
Set your mind at ease by reviewing your life insurance, health insurance and estate plan before the baby arrives to make sure they incorporate your life changes.
At the very least check that life insurance cover through your super continues if/when your employer contributions cease and that you have a valid Will (including guardians) in place.
6. Seek financial advice
Having a child can be an exciting but also financially stressful time. To ensure you are financially prepared and have the right plans in place for the arrival of your baby, please speak to your financial adviser.
*Australian Bureau of Statistics “Births, Australia, 2012”.
**Australian Bureau of Statistics “Family Characteristics Survey 2009-10”.
^ National Centre for Social and Economic Modelling (NATSEM) “The cost of raising children in Australia” AMP. NATSEM Income and Wealth Report, May 2013. Please note this statistic refers to the average cost of raising