Money and Life
(Financial Planning Association of Australia)
Having a baby is an exciting and life changing experience. But what about the cost? There are many hidden and unexpected expenses that go along with your new bundle of joy. Follow our handy guide to planning your finances, so you can avoid any money worries once baby arrives.
No two ways about it, having a baby in Australia isnât cheap. It also comes at a time when youâre likely to have less income, especially if youâre planning to take extended parental leave, or return to work part-time.
If youâre looking at starting a family, the cost of raising kids might not be your first thought. But the sooner you start budgeting and saving for your life together, the better off youâll be.
As well as a budget, havingÂ a financial planÂ in place before you start trying to conceive is a wise idea. A financial planner can help you forecast your income and expenses over the next 5-10 years, and work with you to reach your financial goals.
The cost of having kids
For many new parents, the amount and cost of many âmust-haveâ baby items can come as something of a surprise. Who knew a name brand pram could set you back over $1000? Cots and car seats are also in the hundreds of dollars â and theyâre not an area to skimp on,Â due to safety considerations.
Consumer watchdog ChoiceÂ says you can expect to spend $3500 a year on purchases for the first four-years. Keep in mind however that this only includes direct expenses like furniture, clothing, nappies, food and toys.
What it doesnât include are hidden costs like the increase in your utility bills, pre-birth expenses, outings and entertainment, and the costs of childcare, whichÂ are close to $6000 a year for families on the average wage. Many families may also need a new car, to cart around all of that fancy baby gear. Phew! Thatâs a lot of extra expense.
Before baby arrives
Some of the costs youâll need to cover during your pregnancy include:
- Maternity and nursing clothes and underwear. Provided you choose items that are also practical for nursing, you could get 12-18 months wear out of them. So invest wisely in a few key items and take hand-me-downs when you can get them!
- Ultrasounds and other medical tests. Pregnancy involves a surprising number of tests (really). While some are covered by Medicare and perhaps your private health insurance, for an average pregnancy, the cost is still in the hundreds of dollars.
- Birthing (antenatal) and parenting classes. These can range from $50 to hundreds of dollars, depending on where you go.
- Doctor and hospital bills. If you have GP shared-care and your GP bulk bills, you might be able to avoid doctorâs bills. But they can be in the thousands as a private patient.
- Health insurance premiums. If you choose private maternity cover, youâll have higher premiums for at least a year before baby arrives. Whatâs covered under your insurance policy varies by provider, so do your research before signing up.
Public or private?
As aÂ public patientÂ in a public hospital, Medicare will cover most of your costs including your hospital stay, care from midwives and/or obstetricians and some medical expenses, like routine ultrasounds. TheÂ average costÂ for public patients in the public system (with Medicare) is between $0 to $1500.
As aÂ private patient, youâll have higher out-of-pocket expenses, such as obstetricianâs fees, hospital gap payments and other medical bills. TheÂ average costÂ for private patients in a private hospital is between $2000 and $20,000.
Homebirth is also an option, in which case youâll need to cover the cost of a registered midwife at a minimum.Â Homebirths range fromÂ $3500 to $6000 on average.
Of course, there areÂ many more factors involvedÂ in your choice of care than the cost alone, so do your research carefully and seek expert advice before making a decision.
Covering the cost of maternity leave
Taking extended leave to care for your new baby is something we can all aspire to. However, itâs an unfortunate truth that many employers still donât offer paid maternity leave.
Fortunately, the government has stepped in to help fill the gap. The governmentâsÂ Paid Parental Leave schemeÂ gives eligible parents a payment for up to 18-weeks while theyâre the primary carer for a newborn or newly adopted baby.
As the payment is based on the national minimum wage, it may be less than your previous full time wage. But itâs still an invaluable contribution to the cost of overheads while youâre on leave.
Budgeting for baby
Needless to say, pre and post-birth baby costs can really add up. Youâll also need to have a strategy to cover your living expenses while youâre on leave from work.
You can start by estimating roughly how much youâll need. Then take some time to familiarise yourself with your monthly living expenses. If you donât already have one,Â draw up a budgetÂ and stick to it. You can also use theÂ Moneysmart Budget Planner.
Look at your budget carefully line by line and see where you can make savings. Try to cut back on your living expenses for a while and pay down any debt like credit cards or personal loans.
If you have a partner, a good strategy is to live off of one wage and save the other while youâre waiting for baby to arrive. This will help you adjust to living on less, and build a nest-egg for when the time comes. Aim to build up a healthy savings balance that will cover your costs and expenses for several months while youâre on leave.
What about lost entitlements?
Having time out of the workforce has another unforeseen financial cost â lost superannuation.
Despite calls for change, the governmentâs Paid Parental Leave scheme doesnât include super, and neither do most employer schemes.
Unfortunately, that burden isÂ falling squarely on women. According to ABS data, women retire with an average $64,000 less super than men by the time theyâre aged 55-64.
Certified Financial PlannerÂŽÂ Alison Fischer saysÂ itâs important to make contributions while on leave, to prevent your super account balance from going backwards andÂ maintain your TPD or life insurance.
âEven the smallest contributions can have a very significant impact, particularly when youâre still decades away from retirement,â says Alison. âIf youâre 30 now, putting away $50 per week for 35 years will give you an additional $246,000 for retirement (assuming a 5% Return on Revenue). Think of the difference a sum like that can make to your lifestyle in retirement.â
If you return to work part-time, consider whether you can make extra âcatch-upâ contributions to your super to help top it up. Get financial advice to take advantage of the tax offsets and co-contributions available to you, to ensure your contributions boost your balance even more.
There you have it â everything you needed to know about budgeting for your first baby!
If youâd like to know more about how to prepare your finances for a family, speak to a Certified Financial Planning (CFPÂŽ) professional. You can find one near you using our Match My Planner tool.