Four Key Financial Steps for Parents
Raising children can be a rewarding experience, but also a financially demanding one. The dream of being financially, emotionally, and logistically prepared for a new baby is not always matched by reality. In the early days of parenting, you may be tempted to buy cute onesies or car seats. However, it is often the financial implications that catch families by surprise.
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The good news You can always take charge of your financial situation. These four steps will help you create a stronger financial foundation for your entire family, whether you are a new parent or have been parenting for several years.
Babies Don’t Arrive with a Budget Plan
“Babies don’t come like an Uber Eats delivery,” quips Kate Browne, Managing Editor at Finder.com.au. This is a sentiment that can be easily understood by any parent who has experienced the whirlwind that is early parenthood. One moment, you are admiring the tiny fingers of your newborn, the next, you realize your income took a hit, and childcare costs you more than the first car you bought.
Kate shared her thoughts on the parenting podcast Feed Play Love. She explained that a survey of 2,000 parents who have children under 12 years old revealed that more than half wish they had saved money or purchased a house before their first child was born.
Kate advises not to dwell on the past, but rather to focus on the future.
We’ll look at four steps that every parent can do to take control of their finances, now and for years to come.
Step 1: Look Beyond the Baby Year
You may be tempted to concentrate all of your attention on the initial baby costs. The cost of prams and car seats, as well as nappies, can quickly add up. While budgeting is essential for short-term necessities, parents often forget about the bigger picture: long-term costs and income changes.
Childcare is one of the largest costs that families have to pay. Kate shares her experience of returning to work after giving birth: “I returned to work three times a week but was paying $130 per day in daycare costs. This meant that 80% of my income from part-time work went to childcare.
This story isn’t a unique one. In Australia and many other countries, childcare is a major expense that working families cannot avoid. In addition, one parent may take extended leave, paid or unpaid. They might also return to work part-time, or even not at all. Even a temporary loss of income can have long-lasting effects on savings, retirement, career advancement, and household stress.
Takeaway: Expand your vision when budgeting for a child. Do not just think about what you will spend in six to twelve months, but also what it will cost in two, five, or ten years. Ask yourself questions like:
- Which of us will reduce their hours or quit work?
- How will we manage childcare costs?
- How can we afford to pay our mortgage/rents and maintain a lifestyle on one income?
You’ll be in a better position to make wise decisions today that will support your future if you take a long-term perspective.
Step 2: Don’t assume that Older Means Wiser (financially)
The average age of Australian first-time moms is now 30.5 years. This leads to the assumption that if you wait longer before starting a family, you will be better prepared financially. It’s not always true.
Kate became a mother later in life and has only recently returned to work full-time after 10 years of part-time. She says, “If I had known how it would affect my superannuation, I would have planned better.”
Even if your income is higher at 30, but your lifestyle has changed — you might have a nicer car, a bigger mortgage, or take more holidays — your spending will likely increase along with your income. If you don’t plan, it is easy to miss the chance to reduce your debt or save more.
While owning a house can give you a feeling of security, there are also financial pressures that come with it. Mortgage repayments in high-cost housing can be a significant portion of an income, particularly if a parent leaves the workforce.
Takeaway: Experience is important, but age does not guarantee financial security. It’s crucial to develop a plan for your household’s unique challenges, whether you are 25 or 40 years old when you begin your family. Save for retirement, avoid lifestyle creep, and consider the long-term impact of parenting on your career.
Step 3: Make a Realistic Financial Plan and Take Stock
You’re not the only one who feels overwhelmed by financial issues. Many parents are afraid to confront their finance, or they’re too busy. Burying your head in the sand may lead to greater stress.
It is important to first know where you are. Kate suggests conducting a complete audit of your expenditures. She says to go through your bank statement line by line and see where your money goes. It’s amazing how much money we spend odailywithout realising it.
Budgeting apps that connect to your bank accounts can automatically categorize and track your spending. This makes it easier to identify ‘leaks,’ such as the daily coffee, takeaway meals, or subscriptions you don’t use.
You can then take steps to improve your finances. Start by following these practical steps:
Reduce Your Debt
List all of your debts – credit cards, personal loans, and store cards – and make a repayment plan. Consider consolidating your debts into a single loan at a lower rate of interest.
Reduce Your Credit Card Limit
Are you tempted to spend more money than is necessary? Reduce your credit limit to help you reduce unnecessary spending and make repayment easier.
Review Your Financial Products
Compare mortgages, insurances, and even utilities. Compare deals on comparison sites to see if switching to a cheaper deal will save you money.
Your Credit Score
Many websites offer free credit score checks, including Finder. You can use your credit score to qualify for more favorable financial products or to identify areas where you need improvement.
Take Professional Advice
A financial advisor can help you develop a plan tailored to your needs, taking into account your goals and income. You should look for an independent, fee-based adviser who does not receive commission.
Takeaway: What you do not acknowledge, you cannot fix. Knowledge is power, and a clear and honest financial assessment will help you to achieve stability and confidence.
Step 4: Have Honest Discussions with Your Workmates
A child can cause you to reorganize your career. Your employment situation is more important than ever, whether you are preparing for maternity leave or paternity leave, or returning to the workplace after a long break.
Not all parents receive the same support during this time. Kate says that “we all know of people who have been laid off while on maternity leave.” Don’t be scared to talk to your employer about your maternity leave before heading off to give birth.
Many employers today are becoming more progressive in their policies and offer benefits such as:
- Paying superannuation during unpaid parental leave
- Paid parental Leave (on top)
- Flexible hours and location after returning to work
- Job-sharing arrangements
- Return to work bonuses or phased integration
You can make the most of your career and your family life by starting a discussion early. Do not wait for HR. Book a meeting and ask questions about the policies. Be clear about any support you need.
Takeaway: A job is much more than a source of income. It’s also a safety net. Talk to your employer and do not be afraid to speak up for your family’s needs.
It’s Never Too Late
You may not have bought a home before having children. You may still be paying off your credit cards, or not know how much money is in the super account. It’s okay to take small steps now to gain a better understanding of your finances.
Parenting is not about perfection. You have to do the best with what you’ve got. You can create a future for your family that is both financially secure and supports your dreams. By planning long-term, being honest with yourself and your finances, and making deliberate choices, you will be able to achieve this.
Take a deep breath, look at your bank statements, and then take the first steps. When you are confident about your finances, it allows you to be present in the moments that matter.
