Preparing for a baby is an exciting time, but it can also be overwhelming, especially if it’s your first bundle of joy on the way.
It seems like there are countless things to consider and decisions to make, particularly around how you will afford the new cost of raising a child.
In 2013, the National Centre for Social and Economic Modelling (NATSEM) did a study on the cost of raising children in Australia across all income groups and found that the cost of raising two children up to the age of 21 is about $800,000 for middle income earners.
Without proper financial planning and management going forward, this can become a big point of stress for families, especially new young parents who haven’t had to worry about these expenses before.
A lot of the mounting financial pressure and concern can be alleviated by beginning the preparation and planning early in the pregnancy so that by the time your baby arrives everything is in place and you’re feeling financially stable and ready for the years ahead.
Here are some tips for how to financially prepare for a new baby:
Set Your Financial Priorities
If you have a new baby on the way (or are planning to start a family soon) then it’s pretty obvious your priorities are changing and this needs to be reflected in your spending habits.
Your lifestyle is the area that will be the most impacted, particularly if you’re a high income earner and have become accustomed to having a healthy sum of discretionary income to play with.
Now’s the time to determine if you’ll need to cut back on any of the “nice to haves” such as expensive dinners out, alcohol, luxury getaways, fancy memberships, concert tickets etc. With a child on the way, your new financial priorities may include saving for their private education or university tuition, or perhaps investing in a larger home equipped for a growing family.
Revise Your Budget
Once you’ve determined your new financial priorities, you can review your budget to account for these and the expected oncoming expenses. You’ll also be able to discern the areas you can streamline your spending and divert the cash towards your “baby budget”. Setting up an automated baby account where a set total is deposited each month is one way of preventing impulse purchases and ensuring you always have enough for the necessities.
In the preparation phase, you may find it helpful to split your baby-related costs into the following three areas:
- Medical expenses – At the very least this should cover the cost of an obstetrician, a couple of ultrasounds and a maternity ward.
- Initial/setup costs – If it’s your first baby you’ll need to account for all the necessities and household items you’ll need to purchase such as a car seat, crib, intercoms, bath, pram and clothes. Plus, you may likely begin to acquire maternity clothes, birthing books, toys and kitchen utensils, which all add up.
- Ongoing costs – These are the items you’ll be buying on an ongoing regular basis such as nappies, baby wipes, formula, and baby shampoo.
Get a spreadsheet together and total up some numbers for these expected expenses. Then divide the sum by 12 months or the duration of the pregnancy and begin making these monthly deposits as early as possible so that there is a healthy stash of cash upon the birth date.
Review Your Insurance & Income
Before your baby arrives, it’s important to review your existing financial accounts and arrangements to account for your new circumstances, particularly your health insurance and employee benefits such as paternity and maternity leave.
Call your insurance provider to find out what you aren’t covered for across pregnancy care. You may like to update your insurance to a more appropriate health care plan factoring in co-insurance, deductibles, out-of-pocket expenses, birthing classes, and specialty tests. Speak to a financial provider about the various considerations involved in setting up life insurance and emergency funds. They should also be able to help determine if you are entitled to any government assistance.
With all the measures above put in place, you’ll feel much better positioned to welcome your baby in the world and simply enjoy the journey ahead.
If you need assistance with financially managing your wealth in preparation for a baby or family, enquire today at firstname.lastname@example.org or call us on 1300 893 000 for a private discussion.