Sleepless nights, nappies and teething are daunting enough prospects when you've got a baby on the way. So it doesn't help to have to worry about your finances too. 

The cost of the ever-increasing number of 'necessary' baby items can seem astronomical – and chances are your income will be dropping, at least for a while. But if you plan well, you can keep your budget in check.

On this page:

• Costs of having a baby
• How to budget for a baby
• How can I trim my expenses?
• Are you eligible for government benefits?
• Start saving

Costs of having a baby

Before you even have your baby there are costs to consider, such as buying maternity clothes and bras, as well as any out-of-pocket healthcare costs you might encounter. 

Then, for the first four years of your baby's life, you could spend more than $3500 a year on baby purchases, or almost $8000 a year including childcare.

How to keep costs down

• While you're pregnant, consider using shared care with a GP who bulk bills. Or, if you can afford it, become a private patient in a public hospital. It's less likely that you'll have unexpected out-of-pocket costs. 
• Wait and see what you need before splashing out. It's wise to buy a few essentials and then spend carefully only as the need arises.
• Make sure the products you buy are safe. Our expert independent testing of cots, cot mattresses, portable cots, bassinets, high chairs, change tables, prams and other baby items will help you choose the safest products.
• Consider investing in modern cloth nappies. They have a high upfront cost, but if you use a cold wash and line-dry them, they could work out to be about half the cost of disposables.
• Make a wish list for friends and relatives. Try to think ahead so you'll know what to suggest when someone asks what to give you for a present.
• Avoid buying expensive things your baby will soon outgrow, such as size 0000 clothes or a pricey bassinet.
• Don't underestimate the value of easy-care items – ideally, you want to be able to just throw clothes, blankets and so on in the washing machine and perhaps the dryer.
• Think about renting or borrowing some items – for example, many libraries offer toys and children's books, and some councils and community organisations offer baby car capsules for hire. Not only will you save money, but you'll help reduce landfill too.
• Shop around. Your phone and the internet are convenient for comparison shopping, as long as you know the brand and model names of the products you're looking for. Department stores have regular sales, so keep an eye out for them.
• You can save a lot of money on second-hand items such as children's clothes and toys, which might have had very little wear. There are some products you shouldn't buy second-hand, such as car restraints, which you can't be sure haven't already been in an accident. For other products such as cots, make sure they meet current safety standards – even some brand-new cots don't meet the safety standards, as we found out when we tested them.

How to budget for a baby

Once you have an idea of the costs of having a baby and what your income will be (include any government entitlements you might be eligible for), you can draw up a budget. And it's not as hard as you might think to get your finances in order well before you go into labour.

1. Start off by working out where your money goes by keeping a log for a month, writing down each expense and what it's for.

2. Divide expenses into:

• fixed expenses such as insurance, home loan or rent payments
• other essential costs that vary from month to month, such as petrol, phone bill or grocery expenses, and
• variable expenses, such as takeaways and clothing.

3. Once you know where your money goes, you can look at each cost to see if you could make a saving. If you need help, the Australian government has a simple tool for building your own budget called Moneysmart.

How can I trim my expenses?

Our guide to saving money on essential costs such as telcos, fuel and food and groceries has plenty of great budgeting advice. 

But when it comes to other fixed expenses, there are several key areas CHOICE experts suggest you focus on. 

Pay off or switch credit cards

Our financial expert Uta Mihm says getting rid of any credit card debt should be a priority when preparing for a baby.

"One of the worst things you can do is to go into parental leave with high credit-card debt," she says. "You should pay off your credit cards before you start putting money into a savings account."

You can make big savings by switching to a card with a lower interest rate, but make sure you read the fine print first. And be wary of low introductory rates, adds Uta.

"Always check if there is a percentage balance transfer fee before switching, as this could end up costing you," she says.

"Only switch to a card offering a 0% interest rate if you are confident you can pay off the total amount within the introductory period, because they usually revert to a high interest rate after that." 

If you're worried about your debt you can call the National Debt Helpline on 1800 007 007 for free financial counselling.

Consider making changes to your home loan

Repayment holidays

Many home loans offer you the chance to make lower or no repayments for six or 12 months while you're on parental leave – ask your lender if you have this option.

Conditions usually apply – you may have to make repayments of at least 50% of your salary, have a job to return to after your parental leave, and have already held your home loan for a minimum period, such as 12 months, and repaid part of it (for example, you may not be able to owe more than 90% of the value of your home).

Many home loans offer you the chance to make lower or no repayments for six or 12 months while you're on parental leave

But although a repayment holiday may sound appealing, Uta warns it may not always be a good idea.

"Interest is still added to the loan during this period, so you should make extra repayments beforehand to cover at least the interest that accrues while your repayments are paused," she says.

"It makes sense to repay your home loan as quickly as possible, as the quicker you repay it, the less you pay in interest."

Fixed rates

If you're pregnant, it may also be a good time to think about fixing the interest rate for all or part of your home loan – a fixed rate gives you security and lets you budget.

On the downside, you may end up paying a higher rate than variable rate borrowers, especially if you lock in rates when they're at their peak.

Uta also warns that some fixed-rate plans don't let you make extra repayments on your loan if you do happen to have extra cash.

"A good option is to put part of your home loan on a fixed rate to help you budget, but leave the rest on a variable rate so you can still make extra repayments when you can afford it," she says.

Switching mortgage providers

You may also want to consider shopping around for a mortgage with a better rate. Check out some of the online comparison sites, do your own research and consider seeing more than one mortgage broker to get a good idea of your options. 

However, the mortgage-broking industry is controversial, so make sure you use a qualified broker who can recommend loans from a large panel of lenders.

Good rates are important, but make sure your mortgage also has the features you want such as no or low account fees, an easy redraw facility with no fees, and an offset account.

Will your rental payments change?

When you're planning your budget, consider whether your rental payments are likely to change before (or soon after) your baby arrives. 

If you're thinking about moving into a bigger place in preparation for your baby's arrival, you may need to factor in higher rental payments or consider moving to a cheaper area. 

Red Nose Australia ... advises that your baby should sleep in the same room as an adult caregiver for the first six to 12 months

That said, Red Nose Australia, a national charity dedicated to saving the lives of babies during pregnancy, infancy and childhood, advises that your baby should sleep in the same room as an adult caregiver for the first six to 12 months of their life, so you won't necessarily need a dedicated room for your baby until further down the line.

Also, consider how difficult the property may be to baby-proof – and what you may have to spend. For example, an open staircase, unfenced backyard or low windows with no security screens can all pose safety hazards, and the costs of making them safer can quickly stack up.

Superannuation

Preparing for parenthood is also a great time to do a general health check of your super. 

These simple steps can help you get the best out of your retirement savings.

• Consolidate your funds (if you have more than one)
• Choose a high-performing fund
• Check your insurance is right for you
• Ensure you aren't paying too much in fees
• Nominate (and update) your beneficiaries.

Beyond these tips, there are some special considerations for soon-to-be parents, especially if you're taking time out of the workforce to care for your baby.

Ask how parental leave will affect your super

Your super account may become inactive after a certain period with no contributions. This may mean that your bundled insurance is switched off unless you contact your fund to let them know you want it to continue. 

Being out of paid employment may also affect your ability to claim, so it's a good time to check with your super fund if your cover is still right for you.

Consider making extra contributions

Women currently retire with about half the super of men and much of this is down to women taking time out of the paid workforce to raise children. In fact, some estimates calculate that the average retirement balance cost for a woman having and caring for a child is $50,000. 

Unfortunately, the government's Paid Parental Leave scheme does not include superannuation contributions, so you may want to consider making your own contributions during your parental leave (if you can). 

Women currently retire with about half the super of men and much of this is down to women taking time out of the paid workforce to raise children

There are also a number of tax concessions available to people on low or no income, including the Low Income Super Tax Offset (LISTO) and super co-contributions from the government. 

If your spouse or partner is still in paid employment, they could potentially  make contributions to your super. Not only will this minimise the retirement balance cost of your parental leave, it may also make them eligible for a tax offset from the government. Check the ATO website for details.

Do you need insurance?

Health insurance

One of the first things you should do when you're planning a family is review your health insurance. It's best to do this before you're even pregnant, as there are waiting times of nine to 12 months before you would be covered for a full-term birth.

If you already have private hospital insurance:

• talk to your fund and find out your level of cover for obstetrics. Can you go to a private hospital? Can you go to a public hospital as a private patient?
• review your excess and co-payments, and consider upgrading to a policy without an excess. But keep in mind the 12-month waiting period for pre-existing conditions that applies if you upgrade to a higher level of cover, even if you stay with the same fund
• ask your fund how soon you need to upgrade to family cover (couple and family cover is usually the same price so it won't cost you more) to make sure your baby is covered. If you get treatment as a private patient, your private hospital insurance won't always cover the full cost. You may be charged a 'gap' – that is, the difference between the hospital and/or doctor's bill after you get your Medicare and health-fund benefits. 

How to minimise gap costs:

• Ask your doctor if they have gap cover arrangements with your fund and if you will have to pay any out-of-pocket costs. Get this information in writing
• Ask your doctor if you will be billed by other doctors who may treat you, such as an anaesthetist or surgeon's assistant, and how you can get an estimate of their fees
• Ask the hospital if it has a current agreement with your fund and if there will be any out-of-pocket costs
• Confirm any information you get from the hospital and doctor with your fund.

What's covered by the public system?

If you don't have health insurance (or you do, but you choose to go public) your birth and pregnancy care should be mostly covered by Medicare.

Some small out-of-pocket costs, potentially a few hundred dollars, may come up, including:

• shared care with a GP who doesn't bulk bill
• scans or pathology outside of hospital
• optional DNA/genetic testing
• childbirth classes
• medicines.

Life insurance

Whatever your financial situation, if you're about to become a parent you should strongly consider taking out life insurance, because it covers your dependents if you die. 

Even if you aren't earning, your family will probably need extra support without you. For example, your partner may have to give up work to care for your child, or pay for childcare.

As a rule of thumb, the sum insured should cover:

• your credit cards and mortgage
• a lump sum as income for you dependants 
• money for your children's education 
• expenses such as your funeral
• retirement income for your partner. 

Before you take out life insurance, check if it's already included in your super. Life insurance with your super account can be cheaper and better value than a separate policy, but it usually has longer wait times for pay-outs. Also, the amount your life is insured for may be lower than the amount your family will need in the event of your death.

Whenever your family situation changes, it's a good idea to review your life insurance.

Are you eligible for government benefits?

Depending on your circumstances, you may be entitled to parental leave and related entitlements, which can help with the costs of having and raising a baby.

Paid parental leave

Paid parental leave (PPL) is a government payment available to the birth mother of a newborn child or the adoptive parent of a child. Other people caring for a child may be eligible if they meet specific criteria. It's also possible to transfer your payment to a second carer (such as your partner). 

Those who qualify get up to 18 weeks of government-funded PPL at the rate of the national minimum wage ($753.90 a week, before tax). 

Previously you had to take the 18 weeks as a continuous block. But if your baby was born or adopted on or after 1 July 2020, you now have the option to take 12 weeks as a continuous block and use the remaining six weeks at a later time (up until your child turns two).

Like other forms of income support, PPL is classed as taxable income and has bearing on family assistance and social security payments.

To be eligible for PPL, you: 

• must not have earned more than $150,000 in the financial year before your baby is born 
• need to have worked for at least 10 of the 13 months before the birth or adoption of your child. However, in the 2020 Federal budget, the government announced a temporary change to the work test period to help parents who might have missed out on PPL because they lost their job due to COVID-19. That means that parents who gave birth to or adopted a child between March 22, 2020 and March 31, 2021 can still qualify for the payment if they have worked in 10 of the last 20 months. This change also applies to those receiving Dad and partner pay (see below). 
• need to have worked at least 330 hours (just over one day a week) in that 10-month period, with no more than a 12-week gap between any two working days 
• can't work during the time PPL is paid.

Dad and partner pay

This is a government payment available to new fathers or the partner of a new mother, although there are other circumstances in which you could claim it. 

Those who qualify get two weeks of government-funded leave at the rate of the national minimum wage ($753.90 a week, before tax).

To be eligible for dad and partner pay you must meet the same work requirements as those for PPL. 

Family tax benefit

This is a two-part payment that helps with the cost of raising children. If you're eligible for the family tax benefit part A (FTB Part A) you can get up to $189.56 a fortnight for each child aged 0–12 years in your care, depending on your income (different rates apply for older children.) 

You may also be eligible for the FTB Part A supplement. This is a one-off yearly payment for each eligible child of up to $781.10 for the 2020–21 financial year.

If you're eligible for the family tax benefit part B you can get up to $161.14 a fortnight, per family when the youngest child is aged 0–5 years, and a yearly supplement of up to $379.60 per family.

The Federal government's 2020 budget included two bonus payments of $250 for families getting family tax benefit part A and B. These families will receive the payments in December 2020 and March 2021.

Newborn payments 

You may be eligible for the newborn upfront payment and newborn supplement if you qualify for the family tax benefit part A (FTB Part A) and aren't getting PPL for the same child.

Those who qualify for the upfront payment get a lump sum of $570 per child; those who qualify for the supplement may get up to $1709.89 (paid over 13 weeks) for their first child.

Payments for single parents

There is no specific single parent payment in Australia, but single parents do get special consideration when receiving some parenting or family payments. 

If you have a partner and children under six, or are a single parent of children under eight, you may be eligible for a fortnightly parenting payment if you're the primary carer and earn less than a certain amount. 

Single parents can get a maximum fortnightly parenting payment of $793.10, plus an extra $250 fortnightly coronavirus supplement. Paid parental leave is classed as income, so it will affect your rate of payment if you're receiving a parenting payment at the same time.

The family tax benefit part B also gives extra assistance to single parents.

Start saving

Direct your savings into a fund for baby costs that you can draw on for all your extra expenses. You can use your regular savings account or start a new savings account just for baby-related expenses. 

Most banks will let you open a separate savings account free of charge. You can usually customise the account name, calling it something like "Baby Fund" to keep things clear. 

If you have a mortgage, you're better off keeping any extra cash in an offset account to reduce the interest on your loan. Otherwise, use a high-interest online savings account. 

You could even practise living on the reduced income you'll be getting once the baby is born, and put the rest of your household income into your savings.

Stock images: Getty, unless otherwise stated.

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