Budgeting for baby
When you first find out you are pregnant, the sheer amount of things to purchase and budget for can be overwhelming. REBECCA WILLIAMSON talks to the experts about what you can do, both before and after baby arrives, to prepare financially.
Love him or hate him, controversial US presidential candidate Donald Trump was bang on the money when he once declared, “If you have the money, having children is great.” Indeed, while there’s certainly no doubt that investing in the baby business delivers the most incredible, cash-can’t-buy returns, the start-up expenses can be high, not to mention the ongoing outgoings as your precious little one grows.
But the good news is that you don’t have to break the bank in order to have a baby – here’s a guide to sorting your finances in preparation for parenthood and positioning your child for a prosperous future.
There’s never been a better time to boost your bank balance now that you’ve got a bun in the oven – making smart decisions in pre-conception and pregnancy can really help to minimise money worries once your baby arrives.
The final countdown
First of all, it’s completely natural to fret about finances during pregnancy. Katie Wesney, a mother of three and strategic consultant at enableMe Financial Personal Trainers, recommends drawing up a budget and paying off any debt as soon as possible.
“Set a tight budget, sticking to necessary expenditure. Then track your spending against your budget to keep yourself accountable,” she says. “Try paying down as much debt as possible as this will free up cash flow once your baby arrives.”
Katie also advises checking that you will receive your full entitlement of maternity benefits from the government and/or your employer, and determining what happens to your Kiwisaver contributions while you are on maternity leave.
Needs vs wants
It’s easy to go overboard in the nesting process, but it pays to keep your overall nest egg in mind. Decipher what you and your baby really need and scale back spending on non-essentials.
“The truth is, a baby needs very little in the material sense,” says baby expert Belinda Smalls of All Things Baby. “All they really want and need to begin with is a safe place to sleep, nappies, appropriate clothing, food, social interaction, touch and love.”
Belinda suggests jotting down the following on your ‘must haves’ list:
- Safe sleeping space and warm bedding
- Capsule and/or car seat
- Buggy and/or baby carrier
- Warm clothing
- Blackout blinds
- White noise.
Other items such as sterilisers, bouncers, play gyms and breast pumps are handy to have, but are either a) non-essential, or b) can wait until further down the track to see if you or your baby require them.
Spend vs splurge?
Of course, it pays to shop around when forking out for fundamentals. Sign up to email databases of both online and physical retail stores so you can be alerted of sales and hot deals, put items on layby or ask for a discount when paying cash or bulk buying. Some baby supplies stores also offer hire services for equipment such as capsules or breast pumps, or you could consider borrowing bits and pieces or purchasing second-hand.
“Most newborn items you can get away with buying second-hand, as they are hardly used,” says Belinda. “For example, capsules can be expensive, therefore buying second-hand can save you a lot of money. The important thing when doing so, however, is to ensure it’s still in good working order, conforms to New Zealand safety standards and is still within its safety warranty period.”
A similar approach applies when purchasing or hiring used bassinettes, Moses baskets, cots and bedding for your baby – it’s imperative that everything is from a smoke-free home, the bedding is clean and the mattress is firm.
How to construct a budget
“Rather than thinking of budgeting as deprivation, think about the fact that you’re now telling your money where to go, instead of wondering where it’s gone,” says Katie. Follow these five steps:
Break down your current income by source and frequency.
Investigate where you spend money. Print out your bank statements from the last 12 months (or at least three months).
Understand your expenses. Categorise them into fixed costs (such as insurance and rates) and variable costs (ie petrol). Remember to include occasional expenses, such as gifts and medical bills too.
Set the budget. I ask my clients to determine how much they would like to spend on an annual basis and we break this down to quarterly check-ins with weekly targets.
Track your spending. To stick to a budget, you need to stay connected with your outgoings. If you start running over in areas, you’ll have to make different choices going forward.
When two become one
Slashing the household income is a daunting prospect for most couples, particularly those who have been living comfortably on two pay packets for some time. The key to managing this sudden change successfully? Preparation.
Katie suggests making some lifestyle changes, including living on a reduced income in the lead-up to your baby’s birth. Saving those extra dollars in pregnancy could enable you to stay at home with your baby longer, once your 18 weeks of paid parental leave have ceased.
“Setting a robust budget will go a long way in mitigating your anxiety, so you can maximise savings before baby arrives,” she says. “Some of my clients practise living on one income while they are pregnant and use the savings to extend their maternity leave.”
If there’s anything that will coax parents into giving up their morning latte, weekly manicure or that unused gym membership, this is it: the cost of raising a Kiwi kid to the age of 18 is estimated to be more than $250,000.
Actually, this eye-watering figure is likely to be even higher now, given the Inland Revenue Department calculated it back in 2009. They based it on an average of $14,000 a year – the equivalent of two annual gym memberships, a weekly manicure and five lattes a day!
While spending on concert tickets, weekends away and dinner dates may dwindle for a while, expenditure on items such as nappies, baby clothes and childcare will quickly escalate, so you’ll need to construct a new budget once baby arrives to accommodate these expenses. Disposable nappies and wipes, for example, can cost around $30 a week. You may also notice your electricity bills creeping up in winter in an effort to keep your home toasty all day, and from running the bath more often.
“Childcare is also likely to be one of your biggest costs going forward, so start researching options now. See if grandparents and family are able to help out or consider childcare swaps with friends,” suggests Katie. The cost of childcare varies between providers – find a facility that meets your requirements and your budget, and enrol your child early as many have long waiting lists.
Bankrolling your baby
Katie lives by the mantra of, “The best way to boost your child’s financial future is to sort your own first.”
This means getting your overall situation in order, living within your means, owning or having a strategy to own your own home, paying off your mortgage and planning for your retirement.
“If you have debt, you should pay this down as fast as your financial situation allows as this will give you more capacity to help your child out in the future,” she says. “The interest you are paying on your debt is significantly higher than any interest you will receive on your child’s savings account.
“From my perspective, my husband and I have children who are eight, six and four, and we need to pay off our own mortgage as fast as we can to have more freedom to give them a hand up – not a hand out – in the future.”
Teaching your preschooler dollars and sense
- A traditional piggy bank is a tangible tool to help kids learn about saving – a glass jar works even better as they can watch their coins accumulate
- Instead of using cards at every transaction, carry cash and teach your child the difference between $2 coins and $20 notes
- Play pretend shops, or imagine you are dining at a restaurant or working in a bank
- Write the shopping list together – and don’t stray from what’s on it!
- Encourage your child to look for specials flyers at the supermarket and let them pay with cash or push the buttons on the EFTPOS machine
- Talk to them about the bills your household receives. For example, after opening the power bill say, “We need to pay the electricity company to keep the lights working.
On the other hand, it is a good idea to deposit any funds your child receives – such as birthday money from grandparents – in a high-interest savings account or term deposit in your child’s name. Just remember to read the fine print and clarify if any regular or minimum deposits are required to ensure they receive the maximum interest bonus and other benefits.
When it comes to other investments for your child – such as bonds, funds, shares and assets – Katie recommends meeting with an authorised financial advisor to go over the various risks and returns of each, and devise an investment strategy to suit your family’s individual situation.
Foundations for the future
Your much-loved little one is a priceless asset – and it’s up to you to nurture his or her growth by teaching him or her how to be good with the green stuff. “We need to encourage our children to have a healthy relationship with money and we can achieve this if we set a good example ourselves and start to pass on the concepts of saving and spending, as well as explaining the basics of how money works,” says Katie. “Show your kids coins and notes. Explain to them how you earn your money as a family and what you use it for. Ask them to count out change and pay for things. Make it a part of everyday life from a young age.”
The bottom line is your child is likely to inherit your own attitudes towards money – as well as your spending and saving habits – so any positive changes you can make now will most certainly benefit them in the future. ′
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