Sign up to the Women’s Money Movement to hear the expert’s tips on how parents can bring in money while on parental leave, and how to maximise their super during childcaring years.
Having a child is one of the most expensive things a person can do. There are the capital costs of fitting out a baby’s room, car seats, endless nappies and even the birth.
In total, a mother’s pregnancy wardrobe, baby transport, hospital bags, baby’s bassinet and cot, clothes and food over the first year of the child’s life will cost some $4,753, according to analysis by international commerce firm Picodi.
Then there’s having the child: labour itself can cost more than $5,000 for 1 in 7 parents, and even parents going through the public system can be forced to pay up to $2,000, according to Finder analysis.
Then, for many mothers, there’s the income hit. The Federal Government-funded paid parental leave offers up to 18 weeks of leave for parents paid at the minimum wage.
Given the minimum wage is $772.60 a week, and the average full-time female worker earns $1,597.80, that’s a weekly income reduction of $825.20.
And that’s only for the baby’s first year - the Australian Institute of Financial Studies in 2018 found that it will cost a low-income family around $170 a week to raise a child, or $159,120 to the point they’re 18.
So how do you prepare for this huge financial change? Yahoo Finance asked the experts.
1. Start planning early and build up your emergency fund
For financial adviser and founder of UpStreet and The Remarkable Woman Shivani Gopal, planning is an “occupational hazard”. So when it came time to prepare for the birth of her baby in July, she knew exactly what she needed to do.
“You need to know what your budgets are so that you know how much you can throw away for your baby, or how much you need to reduce your spending by,” she said.
She and her partner had also been planning to have a baby for a reasonable amount of time, so already had their health insurance in order.
They considered whether they were going to use the public health system or go private, and whether they would use an obstetrician.
“Those were the things that I had planned in advance for - it's hard to know when you're going to fall pregnant, so you’ve got to start planning in advance.”
For Gopal, the ability to make these decisions was facilitated by her emergency fund that she had nurtured for years.
“Having an emergency fund gave me a lot of peace and it also made me feel that if anything went wrong, I had additional capital there,” she said.
“As well, it gave me the opportunity to be optimistic about holidays and fun stuff.”
She believes that an emergency fund should ideally be around six months worth of your salary. However, where the ideal isn’t possible, three months can also work.
But according to Finder, 10 per cent of Australian parents have no savings before starting a family, while 38 per cent have $5,000 or less.
Finder money expert Alison Banney says that while it’s important to consider the cost of having children before starting a family, the amount people need to save will vary by family.
“Think about whether you could afford to spend an extra $10,000 a year on your child, and whether you would be willing to give up small luxuries like eating out and new clothes to save money,” Banney said.
The lesson applies to all people, argues Unf*ck Your Finances author Melissa Browne.
Browne wanted children when she was in her early 20s, but later decided that that wasn’t for her.
However, she believes that it’s nearly impossible to start planning for these expenses too soon.
Even if you don’t end up deciding to have children, at least you have a steady emergency fund already prepared.
She terms her emergency fund as her ‘F*ck off fund’: it exists as a reminder to her that if something is no longer serving her, or she needs to exit a situation quickly, she has the means to do so.
That could be quitting a hated job, leaving a partner, recovering from a health scare or travelling the world for a year.
2. Build your budget and cut the crap: Shivani found an extra $500 a month
The next step is to look at, and potentially adjust, your budget.
Gopal and her partner moved back in with her parents when she had Hunter, so immediately saved on living expenses.
Then they went granular: Gopal looked at how much they were spending on all of their subscriptions and cut the fat. Then she looked at how much they were spending on food service.
“We’re both working professionals, we spend a lot of money having food services - there was a $500 a month saving right there,” she said.
That savings went into covering the cost of their increased health insurance.
They also significantly reduced their entertainment and eating out spending, aided by lockdown Gopal added.
Australians can also save up to $1,400 a year simply by changing service providers, according to author of Kill Bills Joel Gibson.
Want more budgeting tips?
MoneySmart also has a budget planner you can use to build a budget.
3. Be strategic and prepare for the big, and the small, expenses
For parents, the first year of a baby’s life will largely be spent changing nappies, giving cuddles, preparing formula, reading picture books and introducing the baby to the world.
At the same time, the baby’s size and needs are rapidly changing.
Gopal’s strategy for managing this is to split the first year - and its associated expenses - into three month tranches and only buy the things they needed for those months.
“You’ll read that you’ll have six nappy changes in a day, but you don’t know how many nappy changes you’re really going to have,” she said.
“So if you purchase too much in advance, you end up overspending.”
Breaking it into the three month chunks also meant it didn’t feel as overwhelming, and that rather than dipping into their emergency fund, Gopal and her husband could fund these expenses through their regular savings.
Then there were the bigger expenses. Think: carseat, bassinet, baby carrier, cot, pram.
Gopal and her husband created a “huge spreadsheet” of these items, including other large expenses like her obstetrician's fees and the excess on her private health insurance.
“We broke out all of those capital expenses [on the spreadsheet]. There were some that were really chunky, like paying for a bassinet… so we made a plan on how we were going to pay the expenses,” she said.
A self-confessed “avid saver”, Gopal would dip into her regular savings to incrementally cover these expenses, rather than taking a chunk out of the emergency fund.
She also put most of the big and small purchases on her baby registry.
She didn't expect people to fork out for a bassinet, but it simply helped her to keep track of what she needed to buy. And it meant that people who wanted to help out could buy smaller things like bibs, dummies or booties - the sorts of things that Gopal knew they would need, but that could fall through the gaps when planning.
“We made some adjustments to our funding to get there, but the wonderful thing about pregnancy is that you get nine months to make those adjustments as well.”
Sign up to the Women’s Money Movement to hear Shivani and Mel’s tips on how parents can bring in money while on parental leave, and how to maximise their super during childcaring years.
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