Congrats it's a $500,000 bill!

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. Continued...