Giving birth to a bundle of joy need not be the catalyst for a bundle of debt if you use our six-step strategy, Debra Cleveland writes.
Adjusting
Adjusting to life on one income after the birth of a baby can come as a huge shock for couples accustomed to living on two. Just keeping track of spending can seem like a daunting task, let alone coming up with ways to make dramatic cuts and, let's face it, having children is expensive. The most recent AMP NATSEM Income & Wealth Report says the cost of raising two children from birth to age 20 is about $448,000 (2002).
But don't let the big picture - or the big sums - put you off. The best way to handle the changes to your household budget is to follow our six small, manageable steps.
Set your priorities
Rather than looking at a budget in terms of what you can and can't have, view it as a priority planner, says Kevin Baile, financial planner at The Money Managers. Take into account all your expenses including home loan repayments or rent, car registration, childcare (if you already have children) and utility bills, says Michael Cant, head of retail products at Commonwealth Bank. "One of the biggest mistakes a single-income family can make is not developing a realistic budget and sticking to it," he says. Once you know how much your fixed expenses amount to, you'll know how you can allocate your remaining income to other areas such as clothes, furniture, toys and outings.
Where possible, says Vivienne James, Investec financial adviser and author of The Woman's Money Book, keep money for fixed expenses in a separate, "untouchable" bank account.
Trim the account
If you have two cars, this is a key area to cut costs, says Bailey. The cost of running a car has jumped enormously, NRMA research found this year. The average weekly cost of running a family sedan such as a Holden Commodore or Mitsubishi 380 is $265.97 or about $14,000 a year, up 40% compared to five years ago. Let's say you decide to part with the family's second smaller car - the NRMA's figures say you'll save your household $174.60 a week or about $9000 a year. Look at other regular expenses, such as pay TV, costly mobile phone deals or gym memberships that are not being put to full use.
If you're still on two incomes and you have the luxury of planning ahead, what are you spending on your work days? Say you're both buying a coffee a day ($3) and lunch ($10) - that's $130 a week. Assuming you do that for 48 weeks a year, says Bailey, you're eating and drinking $6240.
Plan ahead
One way to lighten the load for a limited time is to have a "holiday" from your mortgage. The only way you can do this is by making extra repayments ahead, says Mamta Grewal, analyst with research house Cannex. "If you plan to be off work for a year, try to make excess payments to cover the required amount, which is 12 monthly payments." Grewal warns against refinancing by extending your home loan for a longer period. Say you're five years into a 30-year loan and you decide to refinance to another 30-year term. On a $250,000 mortgage, this would cut monthly repayments from $1803 (assuming 7.82%) to $1711 but you would end up paying an extra $75,152 over the life of the loan. By all means, make sure your loan works for you and is competitive, but don't sacrifice your long-term financial goals for short-term comfort.
Remember you
Don't forget 'you' money. As part of your household budget, establish an amount that you and your partner can spend on whatever you like. Even if it's just $30 a month, it's important to be able to have spending money that you don't need to justify to anyone. It could go on a facial every once in a while or towards a new piece of furniture. If you have some time before your baby is born and you're still working, save what you can in a personal 'slush fund' that will come in handy when you're not earning.
Know your benefits
While you are raising your family and not working full-time, but your partner is, you may be eligible for assistance from the Government. If your annual income is less than $4380, you may qualify for the full family tax benefit part B of $125.02 a fortnight. This reduces by 20 cents for each dollar earned over that income limit. Be sure, though, to notify the Family Assistance Office if your employment situation changes because you will have to pay back any overpayments.
Spend smarter
Ask friends who already have children for tips on how they're coping. As James suggests in her book, make use of second-hand shops - they're great for cheap toys, clothes and equipment. And sidestep expensive babysitting fees, James suggests, by setting up a babysitting pool with other parents in your area.
Yes, they're expensive but so worthwhile!
For Richard and Hazel Jarrett the financial sacrifices they've made in having a family have been well worth it. "To be honest, it's been an adjustment financially, but it's good because there are so many positives from having a family," Hazel says. The couple have three children - Gabrielle, 7, Tom, 5, and Matthew, almost four weeks old. The Jarretts moved from their small inner-city home to a more family-friendly suburb a few years ago, reducing their mortgage in the process. Formerly a flight attendant, Hazel worked part-time before Matthew's birth. She doesn't miss their former lifestyle - eating out once a week and regular pub outings - as their focus is now on their children. "There are lots of things to do with kids that don't necessarily cost a lot of money - simple things like going to the park or beach, or going for a bike ride, that we all get a lot of pleasure from."
