Planning To Have A Baby: Prepare Your Finances And Save Money

Learn how to plan ahead so that your finances are in good shape for when baby arrives. Understand the areas you should be reviewing to make sure you needs are covered, and learn how to save money and avoid problems when you are starting a family.

Many younger people do not give too much thought to how they might save money. They may want to be rich, but saving money may not be part of the masterplan. The prospect of a baby must bring changes to that attitude.

Having a baby changes your life for ever. Your whole outlook alters and some of the things you thought important before suddenly don’t seem so critical. Having your priorities reordered in this way is a liberating experience.

However, one of the aspects of your life that may suddenly seem less important is your finances, and this could cause problems. Although it is okay that becoming a parent has dampened your desire to own an American Express Black Centurion credit card, you should not allow your finances to slip. In fact, now is the time to pay special attention to them, because they will need to be in the best order for when your little bundle of joy arrives.

These are the areas you should be looking at so you are financially and generally prepared:

Draw up a budget to save money

If you have not done so before, now is the time to take stock. You need to know where your money is coming and going so that you can spot the areas where you can save money. This means drawing up a budget each month. The earlier you start the better, so that you can identify any patterns and fluctuations that always occur from one month to the next.

Keep a log of your monthly income and expenditure, in a spreadsheet if you’re happy with how these work, or on paper in an easy-to-decipher form. You should list your income and then your expenditure, which you can divide up as follows:

• Fixed essential expenses – These will include rent or mortgage, utility bills, and any insurances.
• Variable essential expenses – These will include food, fuel and perhaps mobile phone bills that are not at fixed monthly rates.
• Variable luxuries – These will include your entertainment for the month, such as dining out and cinema visits, and also those unnecessary gifts you purchase on impulse.

This third category requires the most scrutiny. These are the costs that could, if necessary, be completely cut. Although that might lead to a fairly boring life so may not be practical, it is important you recognise that these costs can be reduced, and that they are most certainly not essential. Key to your ability to save money is your willingness to differentiate between what is essential and what is a luxury. If you do not want to completely cut these out, then you can reduce their frequency, or how much you spend at each outing.

Remember the reason you are cutting back, and set up a baby fund savings account so you can see exactly how your savings are mounting up. Do not make any assumptions about how much you may need for your new arrival. Having a baby is expensive and it is always best to have more rather than less. Save all you can. Perhaps set up a direct debit from your transaction account to the baby fund savings account so that you do not have to think about the mechanics of how to save money. If you are in the DINKY category – Double Income No Kids (Yet!) – would your situation allow that the second set of wages be largely saved?

Save money with the right credit card

You should be making every effort to keep a clear balance on your credit card, but if an outstanding amount exists, now is the time to concentrate on getting rid of it. You do not want debts spoiling things when baby arrives.

Bear in mind that you can save money by reducing the interest on your credit card bill. This may mean speaking to your current card provider, but more usually involves choosing a different credit card that better suits your needs, and making a balance transfer of your outstanding debt to that new card. Regular interest rates vary from around 10% up to 20%, but the real clincher should be some of the balance transfer deals available, which vary from 0% to 9% depending on how long the offer period is for. Even swapping a rate of 16% for 10% will mean you save $300 if you are paying $50 a month to pay off a debt of $2,500.

You should also realise that paying as much as you can each month will help save money, rather than just paying the minimum amount.

Save money on your home loan

Now could be a good time to look at taking a repayment holiday. This could be a huge boost to your efforts to save money. Depending on how long you have held your mortgage and how well you have managed it, you could be eligible for a repayment holiday of six or twelve months. Your lender will tell you if this is possible. This will allow you to make lower or no repayments for that period. It is quite usual that conditions will apply. You may be required to make repayments at a rate of at least 50% of your salary, have satisfactory job security, have held your mortgage for a minimum period, or have already repaid a certain percentage of it – it may be that you need to owe less than 90% of the value of your home.

Remember, though, that interest is still added to your mortgage during a repayment holiday, so you will not actually save money in the long-term; it will just allow you to gather extra finances together in the short-term to help when the baby arrives.

You might also consider checking if you are able to fix your mortgage interest rate to allow for better budgeting, although this decision will need to be based on your current rate and your assessment of where rates may be heading. You may actually end up paying a higher rate than variable rate borrowers. This danger can clearly be seen in what has happened to interest rates because of the global economic crisis.

Claim your Baby Bonus

You must lodge your claim for the baby bonus in the year following a birth or adoption. It is means tested, so your income will matter, but the ceiling is high. You can earn up to $75,000 (adjusted taxable income) in the six months following the birth or adoption. The baby bonus provides $5,185 per child in 13 fortnightly instalments, and it is not considered to be taxable income so does not affect Family Assistance or Social Security payments. If you have twins, you get twice this amount. You must clearly not let this opportunity slip by, or your other efforts to save money will be largely negated by the loss.

The baby bonus is also paid to people who adopt a child under 16 years of age. This recognises the costs involved in adoption, and the need for adoptive parents to perhaps take time off work to create more of a stable family atmosphere in the early months. Non-parent carers whose care began within the first 26 weeks after the birth can also claim the baby bonus, provided that this care is likely to continue for no less than a further 26 weeks.

Information on all this is available on the Family Assistance Office website.

Things change slightly for babies born after 1st January 2011. For mums who worked in the ten months prior to their child’s birth, the baby bonus will be replaced with paid maternity leave. This means they will receive a taxable payment for a maximum period of 18 weeks that equates to the Federal Minimum Wage, which currently stands at $543.78 a week. Non-working mothers will still receive the baby bonus.

More information on this is available at the Department for Families website.

Save money for future educational needs

It may seem like a long way off, but kids grow up very quickly, so it is wise to think about how to save money for your baby’s future education. This may mean setting up a separate, more long-term, savings account, or looking to make a few investments. This will depend on how much money you can afford to set aside, and how risk-adverse you are.

What expenses might there be?

It’s a long list and you might be surprised how expensive it can get, so you should start to save money right now. You must take into account school fees, uniforms, school trips, books, extra tuition, transport, lunches, musical instruments/tuition, internet and computers, and, later on, university or TAFE fees. Currently, it is estimated that educational expenses can be around the $15,000 per year mark for a child aged 13 to 18, although this will obviously depend on what type of school they attend.

Ways to save money for your child’s education

• You can invest in a high-interest savings account, or look at shares or managed funds if you feel a bit more plucky. This is not the best tax-efficient way to go, but it does provide a degree of choice and flexibility.
• There is also the option of managed investments specifically designed for educational purposes, which are more tax efficient. Make sure you know what you are getting into with these, that they suit your needs, and that there is some flexibility allowed. This may be important if you have saved for university costs and your child decides this is not what they want. You need to know that you can easily get your money out.
• You may also want to consider paying down your mortgage quicker than intended. This does not actively put money in the bank as a way to save money – in fact it reduces your cash – but in the long-term you will save thousands in the interest you have avoided paying. This is also a tax-efficient option, but you will need to be able to budget well and make some tough decisions on what you do and do not need in life.

Health insurance

Reviewing your health insurance situation should not be left to the last minute, because you may be restricted on coverage within the first nine to twelve months, which will clearly impact your options around birth-time.

Check with your provider about cover for obstetrics, and whether you can attend a private hospital or enter a public hospital as a private patient. See if it is worth paying a little extra to ultimately save money by avoiding an excess, always bearing in mind restrictions on pre-existing conditions for policy amendments. Make sure you upgrade to family cover once the baby is born.

Bear in mind that your treatment may not be fully covered by your private hospital insurance. You may be charged the difference between any medical bills and the amount covered by your Medicare and health insurance benefits. Check with the doctor how these will be handled, and whether other healthcare professionals may present separate bills. Make sure you know all this, get it in writing, and verify everything with your health insurance provider.

Other insurance policies

Getting the correct insurance is not so much about how to save money, but rather about peace of mind. You need to know that the people you love will be covered in the event that something unfortunate happens. Although spending on these insurances may appear to be the opposite of trying to save money, you stand to lose an awful lot more if they are not in place.

• Life insurance covers your dependants if you die, and a basic calculation is that the amount should be ten times your salary. However, individual circumstances will differ greatly so you need to assess your needs very carefully. You should look at the debts you have – mortgage and loans, for example – how many children, and how long they would need to be supported before they became financially independent. Your premium will be based on your age and the state of your health.
• Income protection insurance will pays up to 75% of your salary if you are unable to work due to illness. How much you pay for this depends on your risk factors, how long you must wait following the illness before the benefits start, and how long those benefits will last for. Premiums for income protection insurance are tax deductible.
• Trauma insurance is for those people who are not employed because of child-care responsibilities, and who therefore cannot have income protection insurance. Trauma insurance will pays a lump sum in the event that you are stricken with various conditions, including cancer, stroke, and heart disease.
• Total and permanent disability insurance will pay a lump sum if you are permanently disabled in an accident or due to a stroke, for example. This can cover you against being unable to carry on your regular job, or being unable to carry out any work whatsoever.

Shopping for baby

It is estimated that people spend an average of $20,000 on a child in its first four years of life, and that most of this disappears in the first year. If you are still wondering whether you really need to save money for the birth of your child, this should be your wake-up call.

Here are some tips to help you save money on baby expenses:

• Don’t get all excited and embark on a spending spree – This is the temptation, but it is best to just buy some of the essentials at first, and then purchase as and when items are required.
• Try not to buy new – Make the most of the years when your child is not squealing that they need the latest designer gear. Buy cheap and functional or …
• Tap your friends and relatives – Most friends and relatives are only to happy to offer you old baby clothes and items they no longer need, but don’t be shy about asking. Some people may think you are too proud to accept charity, but remember that your baby will be in and out of clothes very quickly and is unlikely to wear anything out. That means the clothes other people give you may be like new. Also let them know exactly what you require if presents are offered
• Buy clothes that will last and that are easy to wash and dry, such as easy-care items.
• See if you can borrow or even rent some of the more expensive items that you require.
• Compare prices – There is no excuse these days for buying expensive items when you don’t want to. Check the internet to make sure you are paying the best prices, and shop when sales are on.

Second-hand goods

Although buying second-hand can save money, you must be careful. Make sure that the items are still safe and functional. Any safety-related equipment should be bought new, such as car seats and restraints. You need to know that there are no weakened or loose fittings, and these may not always be apparent. Even items such as prams and pushchairs must be checked for safety standards.

Buying on eBay

Shopping for your baby goods on eBay can really help you save money, but you must remember some salient points to get the best out of this site:

• eBay is not always cheap. There are some professional sellers operating on eBay with fully-fledged internet shops, and also some unscrupulous personal sellers. Make sure you know the retail prices of the items you want, and do not bid above a sensible price.
• Check seller ratings to verify that you are dealing with a reputable seller, and make sure they operate a fair returns policy.
• Make sure that the postage costs do not turn a bargain into a rip-off.
• Make sure you are happy with the payment method. Paypal is the preferred system for most sellers.
• Check any currency conversions that may be applicable. These can cost you extra.
• Buy items that are clearly described and photographed so that you have as much information as possible. Ask the seller questions if all is not clear to you.

Mail-order purchases

Mail-order is a popular way to purchase products and services and save money, but problems can occur when buying remotely so you should be aware of the rules that the Australian Direct Marketing Association (ADMA) has in place to protect consumers. Bear in mind that these will not apply if the merchant is not an ADMA member.

• Goods that fail to arrive within the specified time can be cancelled, refunded, or the customer may continue to wait.
• Goods that never arrive must be traced by the merchant, and where they cannot be found, a replacement must be sent out or a refund offered.
• Any goods damaged in transit must be replaced at the merchant’s expense, and that includes your postal charges for returning them.
• Australia Post will provide compensation if they agree the damage was down to them.
• Orders must be cancelled before they reach the merchant.
• Sending cash through the mail is never a good idea. You should verify that cheque or credit card payments have been received by the merchant, and remember that credit card payments are covered by the credit card provider if the merchant fails to provide the goods or services advertised.
• If a merchant goes into liquidation before fulfilling your order then you become an unsecured creditor and your money is likely to be lost, unless you used a credit card which may provide you with a refund.
• Australian safety standards do not apply to other countries, so think before ordering from abroad.
• Make sure the goods are as described when they arrive, and do not use anything unless you are happy it is acceptable.

Internet purchases

As with mail-order, buying over the internet can save money but can have its problems. These are some points to think about:

• Again, Australian safety standards do not apply to other countries, so think before ordering from abroad.
• Establish with the merchant which country’s consumer protection laws apply to your purchase.
• Take shipping costs into the equation.
• Take exchange rates and any conversion fees into the equation.
• Check the merchant’s returns policy and verify that they have the stock before placing your order.
• Order from secure sites only. You can check this by looking for the locked padlock symbol and “https” rather than “http” in the address bar when you are on the ordering pages of the site.
• Print out and keep a copy of your order and receipt.

Buying for your baby checklist

This will give you an idea which items are more important than others, so that you save money by not spending unnecessarily.

Essential items

• Cot
• Pram or stroller
• Child car restraint
• Nappies
• Bucket for nappies
• 6-8 Singlets
• 6-8 Jumpsuits
• 2 long-sleeved tops or jackets
• Sunhat and warm hat
• 2 pairs socks
• Bibs
• Bottles and teats, bottle brush, sterilising equipment – still required if breastfeeding for water or expressed milk.
• Bedding
• Bunny rugs or muslin wraps
• Towel, baby soap, cotton wool balls, sorbolene and glycerin cream; soft hairbrush; baby nail scissors
• Thermometer

Useful items

• Baby carrier
• Baby bath
• Changing table
• Highchair
• Bouncer or rocker
• Breast pump
• Breast pads
• Baby bag
• Safety gates, child-resistant locks and catches, etc
• Baby wipes; zinc-based cream; petroleum jelly

Optional items

• Baby monitor
• Portable cot
• Portable highchair
• Playpen
• Toys
• Dummy

Related posts:

1. Become Financially Firm for your New Baby
2. Baby On The Way? Money and Credit Tips for Soon-To-Be Parents
3. How To Save Money For Your Kids
4. Guide: How Much Money Should You Save to Avoid Financial Disaster?
5. How To Budget And Save Money

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