Bankrolling a baby

Any parent would agree that having a baby is one of the greatest highlights of life…and many also would agree that the arrival of a baby is enough to make your bank account scream.

However, this need not be the case if you think about family planning and financial planning as going hand in hand.

The importance of re-doing the budget before the arrival of a baby can’t be overstated – after all, there is a lot more to consider than a new little mouth to feed.

A budget is the cornerstone of good financial planning and it can relieve some of the monetary stress around this life-changing event. 

There are so many things people should consider such as the loss of an income (maternity/paternity leave) and the addition of hospital and specialists’ bills, and health, life and disability insurances to protect their loved ones.

People who have life insurance through their superannuation fund need to be clear about their entitlements as not all super funds allow people to continue with their insurance while they are on parental leave.  For people without insurance, this certainly is the time to consider protection for their new family.

Additional household expenses also need to be factored in, from general child rearing  expenses like food, furniture and babysitting.  Disposable nappies for a new baby alone will add about $30 a week to the grocery bill – or a whopping $1560 for the year – while unexpected expenses, such as formula for bottle-fed babies, will set parents back around $20 a week, or over $1,000 in the first year. 

Many couples who start a family are also likely to notice rising power bills once the baby arrives simply because they are likely to spend more days at home than before using heating and cooling more often, as well as home computers, TVs and other appliances.  While dining out less and generally a pared back social life could counteract these day to day living costs, these are something still to be considered when budgeting.

Saving for all these additional expenses, and buffering against the income drop, should happen at least a year out from even thinking about starting a family.

Online budgeting tools can help people consider their income and how far this has to stretch to cover all expenses.  Such tools will also assist people to work out what’s really important and what could realistically be put aside to cover child rearing costs.

It’s especially important for new parents to make their savings work for them.  People should investigate different bank accounts and consider those that earn a high rate of interest but still give flexible access to their money.

It may sound obvious, but people should only buy the things they need and can afford.  Careful use of credit cards is a must.  By limiting spending and paying off the balance each month, people can avoid interest charges and reduce their fees.

The Baby Bonus, currently $5,185 paid in fortnightly instalments, may provide some financial relief and help pay off the credit cards for some young families who qualify, but it’s highly unlikely this will stretch far enough.

Expectant parents also should understand what happens to their superannuation while they are away from work.  Contributions made by employers into employees superannuation funds stop while people are on parental leave.  But people can still make contributions into their own funds or their spouses can make contributions on their behalf.

Once the baby arrives it also pays to start thinking about their future education.  They might still be in nappies, but if parents are contemplating a private school education they may not only have to enrol them now, but also start a disciplined savings regime as well.

Investment bonds, or growth bonds, are a popular way for parents to save for their children’s future school fees.  People also don’t need a lot of money to start their growth bond, generally just $1,200 or around $100 a month is enough.

*Claire Esmond is an Authorised Representative of AMP Financial Planning Pty Ltd, ABN 89 051 208 327, AFS Licence No. 232706.  For more information, contact Claire on 9228 2833.

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.

Flourishnote: Once the kids are older they can help out a bit...why not start them off in the kitchen!  This article  'Cooking by the Kids' has some great recipes and pics!  

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