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Couple expecting a baby

Saving for a baby – what to expect and what to consider financially

Table of Contents

Did you recently get some great or surprising news? Looking to work out what financial steps you need to be doing now? I'll take you through what my experience was like as a new parent and how to prepare for big changes while saving for a baby.

Parenthood really is an unfamiliar world. Things you never knew existed, do. There are business and services purely exist to facilitate parents alone that you've never heard of. I can’t even remember my life before kids.

I want to help out new parents and parents to be with some considerations and guidance to what I’ve uncovered since becoming a dad. 

A simple way to prepare for what life will be like soon is ask people 5-10 years older than you how it turned out.

Having had and raising two kids at the moment, I will talk to those about to step into parenthood and share what I'd like to have known and understood back then.

I've come up with four areas of worth knowing now and when parenthood becomes very real.

Prepare for change in everything

During our first pregnancy when we first started think about life with a child we thought about how we’ll try to keep our life as steady as possible. We’ll keep doing the things we like, but now with a baby. Simple.

That worked for a while, and we were determined to get it happening, but the demands of kids conflict with a purely adult lifestyle.

No more casual cafe trips (at least without kids areas), no more movies together, no more spur-of-the-moment drinks or dinners outs. It all evaporated quickly.

Before you even think about handling money, you need to consider your next phase in life. What commitments are you going to make to give yourself the best head space?

Your relationship with your spouse will be tested like never before, so it’s worth having a conversation to explore what you might think on a few things.

Not purely things like what pram do we get, but what exactly are your goals for the next few years while the baby and toddler are part of your life? 

Think about

  • How important is the income or incomes you are on now? How will this be affected if one of us isn’t working?
  • Where do we want to be living in five years?
  • How important is my career? If taking a break, where and when do I want to return?
  • Are there goals do you want to set long term? 
  • What parents do you want to be?
  • Are there certain examples do you want to set?

That last one is something to reflect on that you might never have before. We get so many of our habits and mindsets from our parents. Things we heard or saw 20 to 30 years ago might still be there in our heads.

The way we shop, the morning routines, the way you talk to people, the value you place on things you do, how busy your parents were or weren’t.

Now would be a perfect time to consider all your habits and regular activities you conduct and work out if you want them passed on to your kids. 

Feeling a bit overwhelmed with money?

Put your email in and I'll send you what I know on avoiding money stress and anxiety so you can sleep easier without worry. 

You will learn a lot and change perspective on some things

The first year of parenting was a massive learning curve for us as parents. It taught us so much about priorities, value and how to use our time and money effectively.

Getting your sights set on goals and ambitions before kids (especially written ones) will give you a great snapshot down the track after your focuses quickly change from couple to family. 

I want to stress that you might need to put some things on hold.

And that's ok.

While we were ambitious trying to do what we had always done after a few years, we worked out that some things have a time in our lives. For five years we’re dedicated to raising our pre-school children as a priority. Things like travel, career development and new hobbies taking a back seat until then.

That’s why it's useful having goals down before kids, so you remember what got you excited. 

Save as much as you reasonably can

Have more money than you think you’ll need is the best place to be for you to avoid stressing about it with kids.

While you might have heard the saying “kids are expensive”, I don’t think its true. They have expenses, but they are part of your lifestyle in which you happen to be spending money differently. 

The biggest change you might need to save for is living on the one income. Many couples transition from two to one income during the first year and this can be a jump in your ability to cover your regular lifestyle.

Mums may be fortunate to work at a business that provides paid maternity leave, while the government pays you 18 weeks of minimum wage pay for any unpaid leave you take. 

If this will not cover your expenses, it’s time to review what expenses you have. 

Do the math and see what a single income might leave you with each month.

Regardless of whether you are in surplus, just balancing or having a shortfall, I suggest start saving for a baby asap.

How much? As much as you reasonably can. 

How should you be saving for a baby?

Ideally you’d take the income you would be about to lose and save that income from now on.

There will be a few unknowns that will surely pop up (which we’ll cover further down) that are best handled with a good pool of cash.

Not only should you think about saving for yourselves before the bub arrives, but another consideration new parents give is saving for their kids over the longer term.

Some parents want to save until their kids are 18 or 21 and help pay for a car or house deposit down the track.

This is a great thought and there are a few avenues you can do that through (shares, investment bonds etc which I won’t get into today).

What’s worth thinking about from this angle, though, is how will it impact you. Will it compromise your ability to cover costs during the past days of parenthood? I would say that investing for the kids in their specific accounts is the last thing you save for after paying off debt, saving for the short term and paying expenses.

I don’t see the point to in giving the kids a windfall in 20 years if it means you live on struggle street until then. Show them a good example of money management instead so that learn the right habits by adulthood. 

Spending patterns will change

So what exactly do you need to be saving for? There’s a lot you can buy, and while there are a lot of needs you can make it work for you and your finances. 

Likely expenses

So let’s get a few things that you’ll likely need to have a baby (but not really that much)

  • Something for them to sleep in – crib, cot, cradle
  • Something to take them out and about – car seat, pram, baby carrier
  • Things to accommodate them in the house – change table, high chair, toys

These days baby brands are a dime a dozen. There are fancy blankets, bibs, spoons, bubble bath and heaps of other things you’ve never used before. For the most part you only need a basic version of each, but it's up to you how much you want to stretch for a ‘better version’ of each.

I'm ok with you buying the $35 dummy over the $5 one, but most children do not understand what the difference is so you are just spending for yourself (which is fine too).

Speaking of dummies, there are some things we thought we’d need to be buying all the time but never did (or much):

  • Dummies – never tried to give the kids them and they never asked
  • Nappies – Bought some reusable ones and only needed disposables overnight or when more convenient.
  • Baby food – Those little jars and pouches? Nah. Just gave them actual food
  • Baby formula – no fighting for a can at the supermarket, used the natural stuff from mum

This was our experience, and we learnt quickly that most of our costs were wants rather than needs. We adjusted quickly and worked out what brands were good and what weren’t. 

Things you probably want to upgrade but don’t immediately need to

While most of the additional expenses above cover the day-to-day management of a baby and child, what about the bigger ticket things?

You might think – we need a new car, need a new house, need x or y.

My advice would be – see how you go first. 

  • A baby can thrive living in an apartment.
  • A car seat fits into a hatchback.
  • You can most likely make do with a baby in your current situation.

Give yourself time to consider what really makes sense for you.

Many people upgrade their lives before having their kids, thinking its important to have it all sorted before. Maybe it is, but you are kind of making big assumptions. It will be a lot easier to make these calls when you understand how you operate with a baby in tow.

We survived in the inner city in a smallish unit with a smallish car for a good 18 months before we moved or changed anything.

It was fine. Living in Australia we are privy to so many great free places that are not our car or home. 

If you want to buy that house and can afford it, then great go ahead. But if you are still a few months or years away from making the numbers work, you can stay firm and continue on that path. 

I should note that your borrowing capacity will significantly decrease if you are about to lose and income. If property is very important to you in the short term, then make sure you do what you need to get things in place before you lose income. 

Here are a few ideas on saving money on your baby from a post over at The Bump

Put things on hold when saving for a baby

Like I said earlier, its worth considering where your life is at or will be at the point of birth and where you want to get to. You might have wanted to renovate the house or take a big trip. These might have to be put on hold (would suggest this). That is ok. It’s ok for your finances to plateau. 

As a constant saver, it was a tough pill to swallow seeing some savings being eroded while supporting a loss of income and extra expenses. This was short term and I could see the long term view, so we did what we needed to and eventually returned to a positive state. 

It takes time to build wealth and you don’t need to force it with kids in your arms crying and demanding your time. 

Embrace secondhand & hand me downs

Another new concept you’ll come across in parenthood, is the world of secondhand. If you aren’t a part of this, explore it. The amount of turnover you do with clothes, toys and equipment is like you’ve never seen before. There is a massive, I mean massive, marketplace of just about everything you need to support children available out there.

We we able to score cots, beds, mattresses, clothing and books both new unused and used from friends, family, and online. We also found our local opp shops that would get and abundance of toys no one wanted after Christmas.

We’d feel more comfortable spending $3 on a toy that would be used a handful of times, that adding pressure to the kids to play with something we spent $60 on because it cost that much.

Welcome to a new world of spending – where you money is good and want you want it to go further than it ever has before. 

You have some financial entitlements & opportunities

Note: Written for those living in Australia. 

Not only do you potentially lose an income when taking time off post birth, but there are additional costs you would have no idea about pre kids.

Luckily for us in Australia, there is great government support to help you get through these early stages of parenthood. I’ll cover them off in order.

It’s worth your time to get acquainted with MyGov and make sure you have an active account ready for when the baby comes. 

Parental Leave Pay

If you are working, it’s worth checking  with your employer their parental leave policies. Some are paid, some are restricted so definitely find out what you can take and do. 

On top of whatever benefits your workplace may have, there is government parental pay available for those eligible. 

If you’ve worked to meet an eligibility test for the last 13 months and earn under $150k, you will qualify for the government's payments. These last around 18 weeks and will provide you with minimum play plus super contributions during that time. 

You will need to wait until you have the baby to apply for this. You can do some pre-work before, but you must use some documentation that the nurses will provide you the day of the birth. Don’t lose these documents! You’ll need these to confirm birth certificates also. 

Child Care Subsidy

Before kids, you only understanding of child care and Centrelink is people complaining about how expensive it is. They aren’t wrong.

Childcare can cost over $100 dollars a day, $150 or more depending where you live. If you want your child in 2-3 days a week thats $1k-$2k a month potentially you’re out of pocket. 

I want to make note that I think Childcare costs are 100% value for money. To have your son or daughter minded, fed, rested, educated and loved over the course of a day by quality people is hard to put a price on. I appreciate the work involved and find good childcare centres a great part of a quality upbringing. 

With that said, there are subsidies available that will help reduce the impact of these costs.

Spouse contributions and tax offset

While the first two are important to recoup some lost income and reduce ongoing costs, this one is optional. 

If you go back to work and earn under $50,000 in a financial year, add some extra cash to your superannuation and get 50% of that amount matched by the government (up to $500). 

So, for example, if you added an extra $1000 over the year to your super and worked in a limited capacity, the government could add in another $500 for your efforts. Not a bad return.

It’s free money and an incentive for you to contribute while your are working in a limited capacity or less. 

Another government incentive is a tax offset for those contributing to their spouses super when their income is in a low bracket. 

If you contribute to your partners super for when they are working for low or no income, you can gain a tax offset for those contributions.

Neither of these strictly applies to parents, but handy to know when thinking long term. 

Know your math, keep saving for a baby and you'll be ready

There’s an unfamiliar world coming and plenty to think about. Money might be in the back of your mind or at the forefront. It's tricky to realise when we experience volatility in our finances like less income, savings and more costs.

It’s important to remember that plenty you can navigate the peaks and troughs. With some planning, preparation and sacrifice you can come out winning financially. 

Yeah, you’ll take a hit, you don’t become a parent to profit, but when you become a parent, you dedicate time and resources to your kids. 

Put a few things aside, they can wait. Make the most of it and embrace the change.

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