A: A baby.
In her book, 'How to Afford a Baby', mother and financial planner Justine Davies takes you step-by-step through the financial minefield of starting a family.
Starting a family involves so many changes. There are the obvious physical changes as your body goes through the miracle of creating a new life, not to mention the associated hormonal changes that can cause you to be happy as a lark one moment and snarling like a tiger the next. There are the relationship changes between you and your partner because suddenly there is a third person to think about, and changes between you and your siblings, parents and grandparents as everybody moves another rung up the generational ladder.
Then there are the mental changes as your mind struggles to cope with all sorts of baby-related information and of course the lifestyle changes as it gets increasingly harder to party all night (or even past 9pm). On top of all of that are the financial changes, because suddenly you have to buy any number of baby-specific items and are probably looking at unpaid leave from work and perhaps reduced hours and income down the track.
That's a lot of change in a small space of time!
As a financial planner I have spent a number of years showing clients how to plan and how to make the most of their money over time. However it was not until I had my own children that I realised just how significantly financial concerns can make or break those early parenthood years. There were so many things to think about!
I now have the benefit of hindsight; as a mother of two (and one on the way). I know firsthand the minefield of financial details that parents-to-be need to consider both before that all-important due date and afterwards. Following a week-by-week plan of action to contain and control your finances is a sanity-saving way to, insofar as possible, enjoy both pregnancy and parenthood. I have listed here a few of the main points you need to consider.
Before you get pregnant
- Investigate private health insurance - If this is something you want then you must take out private health insurance before you become pregnant, as most funds will require you to be a member for 12 months before you can claim for pregnancy-related costs. See www.phiac.gov.au for a full list of registered health funds, the new government website comparing private health funds online www.privatehealth.gov.au or www.iselect.com.au for a basic comparison of some of the main ones.
While you are pregnant
- Do a budget - A written budget gives you a guideline for where money needs to be spent. It also highlights areas where you may be spending way too much. You will soon be faced with both a drop in income and an increase in expenses and will need a written budget to guide you through. Don't forget to add in your maternity and baby-related expenses. Most financial institutions will have a budget template you can use.
- Start saving - Saving during your pregnancy will help with maternity leave and other baby-related costs down the track. Set yourself a goal of saving 20% of your net income and identify areas in your written budget where you can cut back costs to make it happen.
- Use credit wisely - Having a credit card debt during maternity leave is not fun, so look at strategies for not using your credit card (such as leaving it at home, using lay-by to pay things off and making sure all your important expenses are taken care of when you first get paid).
- Check the available government assistance - There are some great government benefits available for new parents
- Check your work-related benefits - Depending on your employment status there are a number of work-related benefits that you may be entitled to, such as paid maternity leave or holiday or long service leave that you may be able to use.
- Review your insurances and do a will - You will soon be responsible for a new small person, so ensure that they will be taken care of if something happens to you by having a certain amount of insurance cover and a will.
- Do a post-baby budget - Some of your costs (and income) will change once you become a parent and you need to allow for these in a post-baby budget.
- Calculate how long you can afford to take off work - What is the difference between your partner's monthly income and your post-baby budget monthly expenses? Add up the money you will have available at the start of your maternity leave (your savings, employer and government benefits) and divide this amount by the difference. This will give you the number of months you can afford to take off work.
When you become a parent
- Stick to your budget - There are so many tempting things to buy for and do with your baby. But stick to your budget - you don't want to run out of money before you are ready to return to work.
- Free stuff can be fun - Playgroups and mothers groups can be a source of (inexpensive) fun. Council libraries often run baby-oriented sessions. Walk in the park with a friend, swim in the local council pool, visit a museum, or picnic with friends in a playground. The amount of fun and cheap things there are to do with your baby are limited only by your imagination!
There's a host of other financial tips and traps that you should consider, but the ones above will at least point you in the right direction. Getting the right financial system set up at the start means you have to spend much less time thinking about it down the track. To use a cliche early parenthood is one of the most wonderful times of your life - it really is - so you don't want to waste it on unnecessary stress.
Article written for Bub Hub by Justine Davies.