Home versus baby: Can you tackle both?

Starting a family is a happy and exciting time, but it can also be financially stressful transitioning from two incomes to one while taking on the extra costs that come with a newborn.

How do you tackle the mortgage while paying for doctor’s appointments, a truckload of nappies, baby cots, prams and other essential baby paraphernalia? With a whole lot of planning, according to financial adviser Steve Crawford, director of Experience Wealth and Victorian director of the Association of Financial Advisers.

“It’s about being prepared, not just emotionally but also financially,” he said. “The earlier you start planning for it, the higher the chance you will get everything you want. Stress comes from not knowing what situation you’ll find yourself in.”

Think ahead

It’s never too early to think about how parenthood will impact your finances. If you know before you buy a home that you will be trying to have a family, take this into consideration when applying for a mortgage and don’t borrow more than you’ll be able to tackle with one income.

“You really want to look forward, as hard as that might be, to a period when you’re not working and what that will look like,” Crawford said.

“Whatever that mortgage will be, you need to think about whether it can be covered by one income for a period of time.

“If you’re planning to be on one income for six months, nine months, 12 months or longer, the objective is to think about how much money you’ll need.”

Set up a maternity fund

Aside from planning for the mortgage, you should also save money specifically for dealing with the reduced income of being on maternity leave.

“The best way in terms of giving yourself options and not compromising your lifestyle too much, is to have a pot of money in an offset account,” Crawford advised, suggesting that the sum should be equivalent to 12 months’ pay after tax. If you earn $80,000 per year, that would be about $60,000.

How to calculate how much you’ll need

Alternatively, you can calculate exactly how much you should save in preparation for the baby’s arrival with a simple formula.

First of all, investigate whether you will be receiving the Parental Leave Pay provided by the federal government and maternity leave pay from your employer.

To be eligible for the government’s Parental Leave Pay you must be the primary carer and earning $150,000 or less. If you meet the criteria, you will receive financial support for up to 18 weeks, at a rate of the national minimum wage, which in 2013 was $622.20 a week before tax.

One you know what income you will be receiving while at home with the baby, you can subtract that sum from your annual take-home pay and aim to save the remainder.

What comes next

Once both parents return to work, the double-income equilibrium will be restored. But your expenses will remain higher than they were pre-baby.

“There are a lot of things that new parents don’t factor in, such as the cost of childcare if you’re going back to work,” Crawford said.

At a cost of approximately $100 a day per child, a five-day week childcare service can cost more than $25,000 a year while the childcare rebate from the government can reimburse you for about $7,000.

With the right amount of planning and preparation you will be free of financial worries and able to revel in the joys of parenthood.

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