Financial planning for a new baby

Information verified correct on October 1st, 2016
newborn baby and mother

How to prepare yourself financially for having a new baby

One of the most important and exciting events in your life is having a baby. An important thing to do as soon as possible is start your baby financial planning. Everything within the family unit is heading towards a major change, and one of the ways to soften the transition to having a larger family is to make changes in financial management, so that you don’t receive a shock.

Baby financial planning

Your superannuation will be affected as well as your income. You may not have set these financial matters as a priority, but once the baby arrives you will have less time to focus on your finances and will be otherwise preoccupied. Setting up a good baby financial plan right at the beginning is your wisest course of action. The strategy for baby financial planning is to get your current finances under control first. Babies are very cute and purchases you make for them can rack up quickly. There are a lot of products available that you are going to be tempted to buy. One thing to remember when you go out shopping for your baby is that they don’t need a lot of expensive clothing and equipment, and they’re going to outgrow everything before you know it. Here are some helpful tips to keep your finances in control and help avoid the temptation to spend too much money on the baby.

baby with calculatorMake a budget

Take a look at your financial situation as it is now and prepare a budget. Write down all of your expenses and income and keep a diary of all your spending. You may be surprised to see how much money you are actually spending on small items that add up. Many people are actually spending more than they earn and use credit as a way to get by from month to month. It is difficult to make any decisions regarding future expenses and income if you do not know where you are currently sitting financially. You need a solid foundation to plan for the baby expenses. A budget will provide just that.

Baby-proofing your finances

Once you have made up a current budget start on a second one. This will be based on what you anticipate your income to be once the baby arrives. Find out about parental leave entitlements for your partner and yourself, and the government payments you will be receiving. Here are some guidelines to follow to help prepare the future budget:

  • Anticipate any expenses you’ll have once the baby arrives. This will include childcare costs, medical expenses, food and equipment such as a change table, nappies, pram, bottles and steriliser and so on. You can read baby books to give you some ideas about what will be needed.
  • Start talking to your family and friends and find out what you really need for a baby and what items are just luxuries.
  • Find out if any of your family or friends, especially those that have had children, know where you can get good second-hand products for a baby. Perhaps they will offer to give you some or lend them to you. They may know where a good consignment shop is to get baby clothes and furniture.
  • Set up long-term and short-term goals for your financial future so that you can make a budget according to these plans.

One thing to keep in mind is that children grow up very quickly, and as they get older your expenses will grow along with them.

couple computing their financesStart saving

It is never too early to start saving, even if it is a small amount. It is very stressful when you have to live from one paycheque to another so it is wise to have some money put aside. Emergencies can come up out of the blue, and you should always be financially prepared for them. You should think about the future for your baby and what kind of savings fund you would like to start. You will be receiving a baby bonus to help with some of the additional costs of the new baby and you may want to consider saving a portion of the payment for your child’s future.

New motherhood and superannuation. This is one step of your baby financial planning that you will need to do early. A lot of parents avoid looking at their super because it is too complicated and difficult to understand. This should not be taken lightly, however, because your retirement years depend on it. You may not be able to build up your super as quickly as you did in the past if you’re taking time off to take care of a newborn baby. You should take a look at your super now to make sure that you understand how to manage it properly to get the most out of it, or consult a financial planner for further advice.

Organise your super. The first thing you need to do is get all of your papers regarding superannuation gathered up and put them in a separate file or folder so that they are handy.

Find your superannuation. If you don’t know what your superannuation fund is or if you have more than one account, you can contact the SuperSeeker with the Australian Taxation Office at www.ato.gov.au/superseeker.

Check your contact details. Make sure that all of your contact details are completely up-to-date with your superannuation. You don’t want to lose track of your super in the future.

Tax file number and contributions. Your contributions may not be accepted if your TFN has not been given to your fund. You may also have to pay tax that you don’t really need to pay and may not receive any eligible contributions for the super. Make sure your fund has your TFN.

Super consolidation. You may want to combine more than one superannuated fund together to make just one fund. This makes your super much easier to manage and you may end up paying less charges and fees. Before rolling different superannuation funds into one make sure that you are not going to be losing any benefits by doing so.

Monitor your funds. Check out the superannuation website and look at the calculators and tools that are available there. You’ll also be able to read an annual report about your fund and monitor its performance every year.

Choose your investments. You are usually allowed to choose which investment type your super funds are put into. There is a default option for your fund and if you don’t make a choice of investment that is where your money will automatically be invested. Sometimes this is not the most suitable option so it is worth the time to look at your choices and select one of them.

Find out about insurance. Take a look at your superannuation policy and find out what type of income protection and life insurance it offers.

Name a beneficiary. If anything happens to you it will be a lot easier for the family if you have nominated a beneficiary for your fund. This is an important aspect of baby financial planning and is just as important as creating a will.

Contributing to your superannuation while you’re off work. Just because you’re taking some time off doesn’t mean that your super has to suffer. Your partner may be able to make contributions into your fund and if you have no income or low income there will be an 18% offset on your tax for these contributions. If you earn less than an amount that has been specified every year and you make after-tax personal contributions to your super, you may be able to make your savings higher with a government co-contribution. You can also make an arrangement for a salary sacrifice. This means that some of your pretax income can be put into your super or other benefits. You will be able to pay less in taxes while increasing your super, and it really isn’t that complicated to do. Even if it’s not much, small contributions to your superannuation will add up over time. Try not to get too frustrated if you have to put in small amounts right now, because they are sure to add up in the long run.

Baby financial planning resources. There are a lot of resources available to help you plan for a new baby. If you have any questions at all or just need to talk to somebody help is available.

Financial advisers. If you have certain financial goals that you want to meet you can talk to a financial adviser. They will be able to help you formulate a plan for the future. If you’re interested in sitting down and working on a future budget you should make sure that the financial adviser you choose is licensed. You can go to www.fido.gov.au, which is the website for the Australian Securities and Investments Commission and look for a licensed Australian financial planner.

Information about superannuation. You can get further superannuation information at the Australian Taxation Office. You can visit their website at www.ato.gov.au/super where you will find calculators and fact sheets for your convenience.

Money management. You can get a lot of help with money management at www.understandingmoney.gov.au. There are also free tools you can use to help get your money well-managed. There are a lot of books that have been written about baby financial planning that you can check out at your local library. You can also visit a financial seminar that is run by Centrelink. To find out more about the seminars they are running you can go to www.centrelink.gov.au. You may also want to visit the Child Support Agency at www.csa.gov.au and the Family Assistance Office at www.familyassist.gov.au to find out what types of government payments are available for families, and what kind of financial support you are entitled to if you are separated.

two pregnan women shopping for future babiesTips for shopping for a new baby

Here are some great tips you can use to help reduce costs when you are doing baby financial planning:

Second-hand gear for babies. It can be really exciting looking for second-hand baby essentials and most of them you find will look just as good as the new stuff in the stores. Babies grow out of everything so fast that they really don’t have a chance to wear anything out. You can find Colourful and exciting baby clothes, furniture, strollers and other gear at second-hand shops that are just as shiny and new-looking as they appear in a department store. One thing you have to check thoroughly when you buy baby stuff second-hand is how clean it is and whether it meets up-to-date safety standards.

Shop by yourself. When you have a new baby you may be tempted to head out to the malls for an outing with your new baby. This can be disastrous to your finances since you will probably see a lot of baby stuff that you would like to purchase. If you really need an item you should head out alone to pick it up and make it a fast in and out of the store cycle. Make outings with your baby more enjoyable for the both of you by spending some time outside and getting some fresh air or by going to a baby playgroup where you won’t be tempted to spend any money. A lot of new mothers almost feel guilty if they don’t buy the latest and greatest tool and gadget for their baby. A baby’s needs are very limited and while they do need some toys and other equipment to keep them happy, most mothers seem to overindulge their babies unnecessarily. Remember that the funnest time your baby is going to have is with you and other members of your family in interactive play, and that is free. How much money you spend on your baby is not a measurement of the love you have for it. The most important thing you can do for your baby is make sure that it is safe and surrounded by love.

couple computing budgetStep-by-step baby financial planning

Financial problems are the last thing you want to have to deal with when you have a new baby. Here is a step-by-step plan you can follow that puts the above information into an easy-to-follow format so that when the baby arrives you don’t have any unexpected financial surprises.

1. Make up a budget. 
The baby is going to cost you more and you are going to have to take some time off work, at least at the beginning. This means that your income is going to drop. A good thing to do when you are setting up a budget is to divide the income into a section for household expenses and a section for baby expenses. Medical expenses may account for a lot of the money being spent especially if you use private medical instead of public. The cost of using the private system can easily run up to a couple of thousand dollars whereas the public system would cost a few hundred. It is your choice which medical route you choose to take but one of these routes needs to be put into the budget. You’ll have to get your baby needs organised and find out what is necessary and what is not. You will have to purchase some essentials such as a bath, bedding, clothes, nappies, car seat, pram and a bed. It can cost you anywhere between $1500 and $2000 to get these items at a department store with reasonable prices. If you choose to shop at a baby boutique it will cost a lot more. As long as you meet the standards that are set for safety in Australia, you can search for second-hand items, which will cost you half as much. You can find some great deals both online and off-line for baby products that have been gently used and looking for a good home.

Baby expenses that are ongoing. There are a lot of consumable products that you’re going to have to purchase on an ongoing basis for the baby including shampoo, formula, clothing, baby wipes and nappies to name a few. If you want to bottle-feed and use disposable nappies it will cost you about $35 weekly for these products. If you breast-feed and use cloth nappies this expense can be cut in half.

2. Additional income. Once you have set up a budget you may see that additional income will be required to get set up for the baby. You may want to look at taking on some extra work or asking your partner to find an extra income in anticipation for the big event. You may want to consider selling some of your items on eBay for some quick cash and to free up some extra room for the newborn. You should also find out what your rights and responsibilities are for your maternity leave so that you can make your future plans. Additional income can also be used to set up an emergency fund. This is especially important now since the income will drop once the baby is born. Find out how much money you would need to financially survive for a month or two if everything financially fell apart. You will feel much more secure and in a better situation if you have three months worth of salary tucked away for an extreme emergency. The extra income that you make can go towards the baby essentials you will need and for an emergency fund. Any additional income that you can bring in can also be put towards paying off some of your high interest debt. You should start repaying the loans you have with the highest interest rate first to save the most money. If you take the time now to get some debt paid off you will have less stress and you will be able to enjoy the time you spend with your baby much more.

3. Cutting back on expenses. Now is the time to streamline any of your living expenses that you can. Having a budget put in place and raising your income will be a major boost to your financial situation, but by cutting back on unnecessary expenditures you will see an even bigger boost. Examine all the bills you pay including electricity, TV and telephone plans and look for monthly plans that are cheaper without sacrificing too much of the quality. You can save a lot of money in a year by reducing these simple bills. You can also streamline your entertainment. Instead of going to the movies once a week go once every two weeks. You can rent a movie and have a in-home TV night with a bag of homemade popcorn. Just doing this for a few months will give you some extra money that you can put aside for baby needs. You should also take a look at any of the loans you have to see if there is any way to get one with a lower rate. If you make this part of your baby financial planning you may end up saving thousands of dollars by finding a better loan. You can talk to a mortgage specialist or a loans manager at your financial institution to find out if there is a way to reduce payments on any of your existing loans. If you have a credit card with a high interest rate that carries a high debt, you can look at getting a balance transfer card with a 0% interest rate for six months. If you can manage to get your loan paid off within this time frame you could possibly save thousands of dollars in future interest charges.

4. Get your superannuation organised. Now it is time to handle your super, a financial specialist may be able to show you a plan for your super that you can implement so that it is not simply ignored when you have the baby.

5. Time to spend some money. 
Once all of this planning has been put into place it is now time to go shopping and get your baby the stuff that you will need. By now you will have worked out where you want to shop and what you will need. It is always a good idea to get these things ahead of time just in case the baby decides to arrive early. You can leave a few things off of your list because as it gets closer to your baby’s arrival your family and friends may approach you and ask what you would like as a baby gift. If you let them know that you need some nappies and a carry bag for them, they will probably be more than delighted to get these for you to help you out. Of course, they may stick a cute little teddy bear into the carry bag since it’s hard to resist getting a cute baby gift that isn’t practical as well!

Baby financial planning is an important step to take when you find out that a new arrival is on the way. Having a baby is an exciting time in your life, but there are added stresses that come with having a newborn. If you can eliminate financial worries before the baby comes you will be able to handle the other stresses much more easily and be able to enjoy your time spent with the baby that much more. Please use the guidelines mentioned above to help you prepare for a stress-free time with your baby – because you both deserve it.

pregnant woman computingCutting Baby Expenses – Tips and Advice

Why Buy what you can Receive Free? Baby showers, friends, family and second-hand – all instances where you can come across cheap, if not free necessities and accessories. If you’ve ever attended a baby shower for instance, you’ll know first hand that it’s not uncommon the host receives duplicate gifts – not including what she may have already bought herself.

Skip the Disposable Diapers: If your baby is a car, diapers are the petrol. You’ll need to fuel your baby regularly, and it won’t be cheap. Instead of dishing out a constant stream of money for disposable, learning how to change and use a cloth diaper could be a wise investment.

Income Insurance: With unemployment on estimated to rise well into the end of 2010, how secure are you and your partners jobs?Even if one of you were to lose your job or simply needs to take unpaid leave, is that sufficient? Find out more about income protection.

Keep it Simple: Everyone says ‘live within your means’ and ‘don’t spend more than you earn’ but it’s truly easier said than done. It’s much easier for a financially stable person to sit upon their high-horse and preach against those who live in month to month repaying debt. So what does ‘living within your means’ actually involve?Think reasonably. Don’t spend $80 on baby outfits which will last 3 months if it’s going to result in arguments with your partner over money.

Planning for the Future is Wise, Within Reason: Concerned parents have an endless range of worries when it comes to planning for the future of their child. “What about owning a ‘family car’?” Why jump into a luxury 4WD when all you need to install in the back seat of your sedan is a baby chair?Spending for your child doesn’t necessarily have to involve stressfully throwing your money at every base making sure every aspect is covered. For now, it’s a new born baby – the child, teenager and young adult is still yet to come.

Step up the Savings Account in your Bucket Budget: In essence it’s the most effective broad-scale strategy for saving income which doesn’t involve a potentially expensive financial planner.Budgeting for a baby won’t always be static – prepare for emergency expenses you both don’t expect or didn’t prepare for.

Bonus tips to get your finances in order

Fine-Tune Those Goals. When you first left school and entered the workforce, you probably had some great goals and ideals you wanted to achieve. Unfortunately, life often gets in the way and before you know it, 25 years has passed you by. Kids, family, career, mortgage and other day-to-day distractions often draw you further away from the goals you originally had. Rather than float through the next 25 years the same way, it’s time to fine-tune those goals and get them back on track.

Debt Reduction. Many Gen X-ers don’t have the time to sit down and really go over their personal finances as carefully as they should. Yet it’s vitally important to begin knuckling down on any debt reduction strategies you might have been thinking about. For many people in this generation, the mortgage will be the largest debt to think about. Yet working on strategies to get rid of any consumer debts you have first will be a priority. Reducing your level of personal debt now can help to free up more of your available income to put towards investing for your financial future.

Consolidate Debts. It’s no secret – raising a family can get expensive. Yet the cost of raising young children pales in comparison to having a couple of adult children living at home. If you’re still struggling to cover costs with multiple credit cards, store cards, hire purchase agreements, rent-to-buy payments, or other loans, it’s time to work on getting rid of them sooner rather than later. Rolling any high interest debts over into a debt consolidation loan can reduce the amount of interest you pay on your balances. You should also find that your monthly repayments are lower, which can ease any pressure on your current budget. Consolidation loans are also calculated differently to the payments you make on credit cards. Each time you make a payment, you’re actively reducing your debt.

Include the Family. Not everyone sees eye to eye when it comes to finances. In fact, many couples are complete opposites when it comes to the family budget. Sit down and discuss any financial goals you want to implement and see if there are ways you can reach a healthy compromise about spending, saving, and investing. When you work together, you’ll find it much easier to achieve your goals and you’ll be far less likely to argue about money.

Insurance. The right levels of personal insurance are more important for people in Generation X than any other generation. This is primarily because Gen X-ers have kids who are still dependent on them financially, as well as large debts, such as the mortgage. If anything happened to you or your capacity to earn an income, your entire family could be negatively affected. Speak to a financial planner about getting the right types of income protection insurance and life insurance to help protect your family in the event that something does go wrong.

Savings Goals. Gen X-ers have been lucky to have always had compulsory superannuation payments taken out of their pay by their employers. Unfortunately, this has led many of them to believe that their retirement will be taken care of. At the current 9% contribution rate, the vast majority of people who fall under the Generation X category simply won’t have enough money to retire on comfortably. It’s important to begin working on some savings goals to supplement your superannuation funds and begin some form of investment portfolio. Even if you open an interest bearing savings account and begin depositing some cash into it each week, it’s a step in the right direction. Compound interest can help to grow your savings more quickly. You have the option then of continuing to build up your savings or you could use them to buy shares or as a deposit on an investment property.

Invest for the Future. Your investment strategy should be planned with your own personal level of risk aversion in mind. Some people are quite happy to leverage their assets to the hilt, while others are far more cautious. Even if your own investments are as simple as putting a few dollars away into a high interest savings account, at least you’ve started. The object of any investment is to get your money earning more money for you. Spend the time you need to research your investment options and be honest about whether they’ll help you achieve your personal goals or not. It can be tempting to aim at really high-yield investments in the hopes that you’ll make even more money, but always remember that these often come with a much higher level of risk too. It doesn’t matter whether you choose to build up your cash investments or buy into mutual funds or shares, or buy investment properties. The key is to be sure you’re putting some of your disposable income into some form of investment that has been carefully considered to suit your own financial goals.

Live Within Your Means. Everyone’s heard the old adage about Keeping up with the Jones. It can be difficult for many people in the Generation X category to resist the temptation to upgrade the family home, the car, or various other gadgets around the home. While these things can be really nice to have, they could be jeopardising your financial future if you go about acquiring them the wrong way. Save for larger gadgets rather than buying them on credit terms. Consider renovating your existing home rather than buying a new home. You’ll be saving yourself tens of thousands of dollars in selling costs, stamp duties, and other associated buying costs. If you still prefer to buy a new home, be sure you’ve added up and saved enough to cover the associated costs of the move beforehand. If you strive to live a comfortable life using only the income at your disposal and avoid adding to your debt levels, you’ll find that it’s much easier to put your financial goals into effect.

Minimise Tax. There are some investment strategies that can allow you to minimise the amount of tax you pay. If you ask most accountants, they’ll happily advise that negative gearing can be a great way to minimise the amount of tax you pay,. Unfortunately, negative gearing can also eat into your available disposable income, so it’s not always as effective for some people as you might hope. Besides, the object of investing is to make money, not lose money so you can pay a little less tax. There are plenty of ways to minimise your tax legally using other strategies. Gearing against assets such as investment properties or shares can be extremely effective, but only if these strategies are carefully planned and well considered before you leap. You might also consider buying assets in your spouse’s name, if your spouse earns considerably less than you. Put those assets in their name so they’ll receive a tax break. Be sure you speak to an accountant or a financial adviser before taking any investment steps you’re unsure about.

Super Contributions. Planning to maximise your own superannuation is still considered one of the better ways to save for your own financial future. This is simply because any withdrawals you make from your super account after you reach the age of 60 are tax-free. Of course, that is reliant on the government not changing the rules between now and then. Voluntary superannuation contributions could earn you a government co-contribution, helping to boost the amount you put away. Salary sacrificing into your super account is also a healthy way to increase your retirement savings at the same time as potentially reducing your tax liabilities. If you’re comfortable managing your own investment portfolio, a self-managed super fund is another option you might want to discuss with your financial adviser and accountant.

The Will. It is absolutely essential that anyone who falls within the Generation X category creates a legal Will. A properly drafted Will might sound like an expensive bit of paper, but it’s vitally important that you know everything you’ve worked hard for will go to the right place should anything happen to you. Your will can protect your assets and ensure they’re passed down in the way you intended. More importantly, if you have kids who are still minors, your will can appoint the guardians you choose to care for your children. Planning for your financial future doesn’t need to be difficult. In fact, responsible financial control can sometimes be quite boring and repetitive. But the sooner you can put together a solid plan based on your own goals and your own income level, the sooner you’ll begin to see real progress. Always work on your own income levels and your own level of risk aversion. Do your homework and be realistic about the methods you choose to use. Regardless of what tactics may have worked for your friends and family in the past, always remember that their income and spending levels will never be the same as yours. This is why it’s so important to create your own plan that will suit you and your family, not anyone else. Finally, even if the steps you take feel small an insignificant right now, keep in mind that every step you take in the right direction will bring you that much closer to achieving your financial goals.

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